1328f.org

1. The Theory Behind the Means Test

Before BAPCPA, any individual debtor could file Chapter 7 regardless of income. Courts could dismiss Chapter 7 cases for "substantial abuse" under the pre-BAPCPA version of Section 707(b), but dismissals were infrequent and standards varied by circuit.

The credit industry's argument was straightforward: debtors earning above the median income in their state could afford to repay some portion of their debts through a three-to-five-year Chapter 13 plan. Allowing these debtors to discharge their obligations through Chapter 7 liquidation - which typically takes four months and requires no repayment - was an abuse of the system.

Congress adopted this theory in BAPCPA's means test. The mechanism works as follows:

1. Income comparison. The debtor's current monthly income (defined as the six-month average prior to filing) is compared to the state median for a household of the same size. If below median, no presumption of abuse arises and the debtor qualifies for Chapter 7.
2. Expense deduction. If above median, the debtor subtracts allowable expenses using IRS Local Standards, IRS National Standards, and actual secured debt payments. The result is "disposable income."
3. Threshold calculation. If disposable income over 60 months exceeds $12,850 (as adjusted), or if monthly disposable income exceeds $214.17, a presumption of abuse arises. The debtor must rebut the presumption, convert to Chapter 13, or face dismissal.

The formula is codified at 11 U.S.C. § 707(b)(2)(A). It was designed to be mechanical - removing judicial discretion and replacing it with arithmetic.

2. What the Filing Data Shows

The means test took effect on October 17, 2005. The immediate effect was a massive spike in filings before the effective date as debtors rushed to file under the old rules, followed by a dramatic drop.

Source: Federal Judicial Center Integrated Database, Administrative Office of the U.S. Courts annual reports.

The initial post-BAPCPA filing collapse (2006) reflected both the pre-effective-date rush and the deterrent effect of increased complexity and cost. Filings rebounded during the 2008-2010 recession, suggesting that when financial distress is severe enough, the means test does not prevent filing - it only changes which chapter debtors file under.

3. The Channeling Problem

The means test's core assumption is that debtors channeled from Chapter 7 into Chapter 13 will complete their repayment plans. This assumption is testable. The data does not support it.

Above-median-income debtors - the specific population the means test targets - do complete plans at slightly higher rates than the general Chapter 13 population. This is expected: higher income provides more capacity to sustain plan payments. But even among this population, more than half do not complete their plans.

A debtor who fails to complete a Chapter 13 plan is typically worse off than if they had never filed. They have paid months or years of plan payments (typically distributed to creditors and the trustee), incurred attorney fees, and spent years under court supervision. Upon dismissal, the original debts remain - reduced only by whatever plan payments were distributed to creditors. The automatic stay is gone, and creditors resume collection.

4. Geographic Disparities

The means test applies a uniform national formula, but bankruptcy outcomes vary dramatically by geography. Chapter 13 completion rates range from under 20% in some districts to over 50% in others.

Source: FJC Integrated Database, cases filed 2010-2022 with sufficient time to reach plan completion.

The Northern District of Georgia illustrates a compounding effect: GANB has one of the highest Chapter 13 filing shares in the country (62%) and one of the lowest completion rates (~25%). This means nearly two-thirds of consumer filers enter Chapter 13, and three-quarters of those do not complete their plans. The means test channels debtors into this system without regard for local completion rates.

5. The Cost of Complexity

The means test added substantial complexity to consumer bankruptcy practice. Form B122A-2 (the Chapter 7 means test calculation) is seven pages of income calculations, expense deductions, and threshold comparisons. The form requires six months of income documentation, applicable IRS standards, and accurate categorization of expenses into allowed and disallowed categories.

This complexity has measurable costs:

• Increased attorney fees. Pre-BAPCPA Chapter 7 attorney fees averaged $600-800 nationally. Post-BAPCPA, the average increased to $1,200-1,500, with significant variation by market. The means test calculation accounts for a substantial portion of this increase.
• Increased filing costs. Combined with the credit counseling mandate (Section 109(h)) and increased filing fees, the total cost of a consumer bankruptcy filing rose by $500-1,000 or more after BAPCPA.
• Pro se barriers. The means test is difficult for unrepresented debtors to complete correctly. Mathematical errors, incorrect income periods, and misapplied expense standards are common in pro se filings.
• Volume practice advantage. Firms that automate the means test calculation can process it at low marginal cost. Solo practitioners who calculate it manually cannot. This cost structure favors high-volume practices over individualized representation.

6. Did the Means Test Reduce Abuse?

The threshold question is whether the problem BAPCPA addressed - above-median-income debtors abusing Chapter 7 - was significant in the first place.

The Government Accountability Office (GAO) estimated in 1999 that debtors with the ability to repay a meaningful portion of their debts accounted for approximately 3-10% of Chapter 7 filers. The Executive Office for United States Trustees reported that pre-BAPCPA motions to dismiss under old Section 707(b) were filed in fewer than 1% of Chapter 7 cases.

Post-BAPCPA data on means test outcomes is limited, but available studies suggest:

• Fewer than 15% of Chapter 7 debtors have above-median income and are subject to the full means test calculation.
• Of those, the vast majority pass the means test after expense deductions - the presumption of abuse does not arise.
• Actual dismissals or conversions based on the means test occur in approximately 1-3% of above-median-income cases.
• U.S. Trustee motions under Section 707(b) remain rare relative to total filings.

In other words, the means test subjects millions of debtors to a complex calculation, increases costs for all filers, and channels a significant minority into Chapter 13 - but the number of cases where it identifies genuine abuse and produces a different outcome than pre-BAPCPA law is very small.

7. The Attorney Liability Provision

Section 707(b)(4) of the Bankruptcy Code, added by BAPCPA, makes attorneys personally liable for the accuracy of the means test calculation. If a petition is found to violate Rule 9011 of the Federal Rules of Bankruptcy Procedure, the court may order the debtor's attorney to reimburse the trustee for costs and attorney fees incurred in pursuing a means test motion.

This provision was intended to ensure careful preparation. Its effect on practice has been mixed:

• It increased the diligence of conscientious practitioners, who were already preparing competent filings.
• It increased the cost of representation, as attorneys factor liability risk into their fees.
• It has not eliminated deficient filings by high-volume practices, which absorb occasional sanctions as a cost of doing business.
• It may deter some attorneys from taking borderline cases, reducing access to representation for debtors near the means test threshold.

8. Twenty-Year Scorecard

9. Reform Considerations

Twenty years of data raises specific policy questions about the means test:

• Should the means test account for local completion rates? Channeling a debtor into Chapter 13 in a district with a 25% completion rate produces different expected outcomes than the same channeling in a 50% district. The formula ignores this.
• Should the income period be reconsidered? The six-month lookback captures pre-filing income, which may not reflect the debtor's actual ability to sustain a three-to-five-year plan. Debtors who recently lost employment or income may fail the means test based on income they no longer earn.
• Should the expense standards be updated? The IRS Local and National Standards used in the means test were designed for tax collection, not bankruptcy. They may not accurately reflect the actual living expenses of debtors in financial distress.
• Should there be a safety valve? The pre-BAPCPA standard allowed judicial discretion to evaluate individual circumstances. The means test replaced discretion with a formula. Twenty years of data suggests the formula produces substantial numbers of false positives - debtors who fail the test but cannot sustain a Chapter 13 plan.

These are empirical questions that can be informed by data. The 4.9 million cases in the FJC Integrated Database provide a foundation for evidence-based reform that did not exist in 2005.

Related Reports

• BAPCPA at 20: What the Data Shows - overview of all major BAPCPA provisions
• Mandatory Credit Counseling: Costs vs. Benefits - companion analysis
• Repeat Filers and the Discharge Bar - Section 1328(f) deep dive
• Prior-Filer Discharge Rates by District - completion data
• How We Screened 4.9 Million Bankruptcy Cases - full methodology

Support this research