Income and Bankruptcy Under BAPCPA

With the advent of BAPCPA in 2005, debtors must now meet either a median income test or means test to file a chapter 7 bankruptcy case. In essence, the debtor’s household income for the six months preceding the filing of the case is counted and annualized. If it is less than state median income for the debtor’s household size, the debtor might file a chapter 7 case. If it is greater, the debtor must pass a means test.One question left unanswered in the law is whether unemployment income should be counted in household income. The question was answered in the case In re Munger, — B.R. —-, 2007 WL 1810701 (Bkrtcy.D.Mass. 2007) which provides that unemployment income is not included in the debtors’ “current monthly income” for purposes of the means test. The Court stated that the “way in which Congress chose to phrase the references in the sections supports the view that a benefit received under the Social Security Act in § 101(10A)(B) was purposefully intended to be broader than a social security benefit.” Therefore, unemployment compensation is included in this broader definition and shouldn’t be counted.

BAPCPA has been harsh to many debtors. Certainly, cases are more labor intensive to file for debtors and their attorneys. Resulting legal fees are higher. To add insult to injury, filing fees increased over 167%, and new education and credit check expenses were added. The Bush Administration has been unsympathetic to middle-class and lower-class debtors struggling with the harshness of the Bush bankruptcy law. President Bush promises to veto a Democratic Party sponsored bill pending in Congress to provide some relief to debtors in Chapter 13 cases with un-reasonable primary mortgage terms. It’s encouraging to see the little guy finally get a break.