Reply #70: Here's some info from another source: [View All]

[atommom]

The bill amends Code § 707(b) by adopting a rigid formula to determine whether a debtor is presumed ineligible for a chapter 7 discharge.2 Unlike the present system that screens for “substantial abuse” by comparing the debtor’s actual living expenses to income, the means-test formula uses pre-determined budget amounts based on the Internal Revenue Service’s National Standards and Local Standards.3 For example, if the IRS Local Standard sets a debtor’s monthly housing and utilities allowance at $756, this is the expense amount used in the means-test formula even if the debtor’s actual rent and utilities are $950 per month.4 Similarly, a debtor whose actual food bill is $350 per month because of a special diet prescribed by her doctor for health reasons will be limited to the IRS standard of $196 per month.5

On the equation’s income side, the formula uses the debtor’s average prior 6 months’ income to project what can be paid creditors under the plan.6 This “current monthly income” is used even if some or all of the income counted during the six-month test period is no longer available because of job loss, temporary disability or divorce. Trying to fix this problem requires the debtor to incur unnecessary litigation costs, petitioning the court to ignore the income definition.

Ironically, since the formula compares presumed income and expenses with the amount of unsecured debts, debtors who have large amounts of credit card and other unsecured debt are more likely to flunk the means test and will be permitted to obtain a chapter 7 discharge.7 In addition, since the debtor is allowed to deduct on the expense side the actual amounts payable on priority and secured debts (including for example the monthly installment payment on a luxury auto), and actual amounts for “Other Necessary Expenses” listed in the IRS collections standards manual,8 the so-called “high-rollers” that proponents claim the bill was aimed at will likely escape scrutiny under the means test, particularly since they have the means to litigate application of the presumption.

As another example that the bill sponsors are not interested in curbing real abuse, the bill does not change the current limitation in § 707(b) that the abuse provisions apply only to debtors who have primarily consumer debts. Why exclude from the means test those primarily with business debts, such as corporate executives, or celebrity or sports figures? Even if the means test does not presume abuse, the bill changes current law by permitting creditors and other parties in interest to file motions seeking a dismissal of the case under the general abuse provisions in § 707(b) if the debtor’s income exceeds the median income.

Much more at: http://www.consumerlaw.org/initiatives/bankruptcy/hr975.shtml