Means Testing

| Aug 25, 2010 | Bankruptcy |

In Schultz v. United States, the above median income Chapter 13 debtors from Tennessee brought an adversary proceeding seeking a determination that the “means testing” provisions of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”) violated the uniformity requirement of the Bankruptcy Clause of the United States Constitution.  The parties cross-moved for summary judgment.  The district court granted the government’s motion for summary judgment and dismissed the complaint.  The Sixth Circuit affirmed.

BAPCPA’s centerpiece is the imposition of a “means test” for Chapter 7 filers, which requires would-be debtors to demonstrate financial eligibility to avoid the presumption that their bankruptcy filing is an abuse of the bankruptcy proceedings.  The debtors argued that because median-income calculations are based, at least in part, on the state and county in which the debtor resides, BAPCPA is not a uniform law under the Bankruptcy Clause of the Constitution.  At the time of their Chapter 13 filing, the Debtors had an annualized current monthly income (“CMI”) of nearly $85,000 which is an amount that is above the median family income for a family of five in that state by over $22,000.
However, their income was below the median family income of 7 other states.
The court concluded that BAPCPA is a constitutionally uniform law because Congress is allowed to distinguish among classes of debtors, and to treat categories of debtors differently, whether it be through the incorporation of varying state laws affecting dower, exemptions, the validity of mortgages, priorities of payment and the like.