What is the ‘abuse’ section, [707(b)], of The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA)? There are three facets to this section.
The first facet, 707(b)(1), was a part of the bankruptcy law prior to 2005. At that time it was a very minor threat to a bankruptcy petitioner. It read as follows: “The court, on its own motion or on a motion by the United States trustee, may dismiss a case filed by an individual if it finds that the granting of relief would be a substantial abuse of the provisions of this chapter.”
This tended to mean that your income had to be well in excess of your expenses before you would be considered to be “substantially” abusing the provisions of the chapter. Unfortunately, after 2005 BAPCPA took out the keyword “substantial.” This revision made it much easier for the trustees to sustain a complaint against you, for now they were only required to demonstrate any abuse under section 707(b)(1).
BAPCPA also added a new section, [707(b)(2)], that dramatically altered the method of calculating disposable income. This is the section in which the “means test” was instituted. The means test bases deductions on IRS standards, which are regularly adjusted for inflation, that are applied to certain expense categories without regard to your actual expenses.
There was one more new section, [707(b)(3)], added. Even though you have successfully refuted a presumption of abuse arising from either of the other subsections, this section allows the bankruptcy court to consider whether the “totality of the circumstances of the debtor’s financial situation demonstrates abuse.”
These changes to the bankruptcy code have created significant challenges for an individual filing bankruptcy. The trustee frequently prevails in cases where litigation results from a trustee’s 707(b) action. Therefore it is crucial that your bankruptcy attorney thoroughly evaluate your situation with respect to section 707(b) before filing.
If you live in Denver, Aurora, Arvada, Brighton, Broomfield, Commerce City, Englewood, Highlands Ranch, Lakewood, Lafayette, Littleton, Northglenn, Westminster, Wheat Ridge, or Golden, Colorado, and have any questions contact me: Kevin D. Heupel, Colorado bankruptcy attorney, 303-955-7570, COBankruptcyHelpEmail, or free-consultation form.
