My clients often look at me confused when I mention the presumption of abuse to them when we are reviewing their Means Test. The presumption of abuse guidelines was established in 2005 when Congress enacted the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA). One of the primary reasons for this Act was to make it more difficult for consumers who made too much money to be able to file a chapter 7 and walk away from debts that they could have certainly afforded to pay. If a chapter 7 consumer’s Means Test shows that they make too much money, their case is presumed to be an abuse of the bankruptcy code meaning they might have to file a chapter 13 instead to allow them to pay some or all of their unsecured debts.
Presumption of Abuse in Chapter 7 Bankruptcy Cases
If the presumption of abuse arises in a chapter 7 case, you may rebut the presumption by providing documentation of special circumstances that enable you to show that you should still be able to receive a chapter 7 discharge. For example, in some districts, if the presumption of abuse arises due to the consumer receiving a large amount of overtime but the consumer is no longer receiving overtime and that is documented by their most recent pay stubs, then a consumer may be able to show that they are no longer receiving the amount of income that caused the presumption of abuse to arise.
A consumer only has two choices if they are unable to rebut the presumption of abuse after their case has been filed. They can either dismiss their chapter 7 case or convert their case to a chapter 13 allowing them to repay some of all of their creditors.