What Does “Presumption Does Not Arise” Mean in Bankruptcy?

The statement ‘Presumption Does Not Arise’ indicates that a debtor’s income is not great enough that he or she would be disqualified automatically from filing a Chapter 7 Bankruptcy case.

In a Chapter 7 case, the debtor must prepare Form 22A, the ‘Means Test’ form.  On that form, the debtor lists his or her gross income.

If this annualized gross income is less than the amount of the annual ‘median income’ assigned to individual(s) for the state in which the debtor lives, the ‘presumption of abuse’ does not arise and it is presumed that the debtor is eligible to file a Chapter 7 bankruptcy case.

(All of this assumes that the remainder of the bankruptcy filing and its schedules indicate that the debtor is qualified to file such a case, and that a Chapter 7 filing will meet the debtor’s goals. Remember, a Chapter 7 case is a liquidation in which the Trustee will sell any assets in which the debtor has equity, after exemptions are taken).

If the filer’s income DOES exceed the state median income, the inquiry does not end nor is the debtor automatically excluded from filing a Chapter 7 case.  Rather, the debtor needs to complete the remainder of Form 22A (questions 16 through 56), listing all appropriate expenses that the bankruptcy system ‘allows’ the debtor to take — and these allowable expenses may bring the debtor’s disposable income to a level that would allow the filing of a Chapter 7 case.

If these expenses still do not reduce the debtor’s income to a level where the debtor’s disposable income meets the Chapter 7 threshold level, the debtor will be presumed to be an ‘abusive filer’ if he or she does file a Chapter 7 case. In that circumstance, the case would be dismissed (possibly with sanctions), absent some outstanding circumstances.

In a case where the debtor’s disposable income exceeds the allowable the Chapter 7 criteria, the debtor should consider filing a Chapter 13 case. Otherwise, it may be wise to first consult with an attorney prior to filing any Chapter 7 case that may be considered ‘abusive’ by the Trustee.

Complete details on the Means Test and whether or not ‘presumption arises’ — plus full instructions for executing either a Chapter 7 or a Chapter 13 Bankruptcy filing — can be found within Standard Legal’s Bankruptcy legal forms software.