The Means Test Wants You in Chapter 13

Well, let me start by acknowledging that it is rather difficult to ascribe “motive” to an illogical government formula dreamed up by credit cards companies via their favorite Congressman. Difficult, not impossible. Income over a six month period that exceeds the average for a household of your size in your state, triggers the scrutiny of the means test. If you then have “too much” disposable income after expenses, the means test wants you to file for chapter 13 bankruptcy instead of chapter 7 bankruptcy. In other words, the means test wants you to pay back at least something to the credit card companies.

You see, filing for chapter 7 bankruptcy allows you to make a clean break with credit card debt, medical bills and the like. By contrast, chapter 13 bankruptcy usually requires that some dividend be paid to these unsecured creditors. In a chapter 13, you will create a repayment plan to your creditors with the help of your bankruptcy attorney. Not all of your debt will be paid back in a chapter 13 bankruptcy, often very little is, but at least the credit card companies will get something. Something is better than nothing, they’ll take what they can get.

As you might have guessed, the credit card lobby doesn’t take kindly to any system that allows debtors to break completely free from its usurious chains. Damnit, you will pay back every penny owed to Citibank plus 29% interest! With fat bank accounts fueled by Biblically repellent interest rates, the credit card companies infiltrated the halls of Congress and pushed for bankruptcy reform. One of its legacies is a hurdle to the green pastures of chapter 7 bankruptcy: the means test. If your income exceeds the median in your state for a household of your size, its time for the means test. She aint’ your friend.