Substantial Abuse

Substantial abuse is a term used in bankruptcy law referring to instances when the petitioner abuses Chapter 7. The court uses this term when they determine that the petitioner need not file a bankruptcy but doing so for selfish reasons, typically to discharge certain debts when he is obviously capable of paying. Substantial abuse is a valid reason for the courts to dismiss bankruptcy petitions.

Substantial Abuse

How is Substantial Abuse Determined?

The problem with substantial abuse as a way of admitting or dismissing a petition is the flexibility of its determination. The standard is flexible, which means that the court must decide on a case to case basis. This can be unfair to the person filing the petition, which is why a different method was created to establish a more uniform way of determining eligibility. Ever since its promulgation, the Means Test is now the standard system followed by the law for accepting or dismissing bankruptcy petition cases.

The Means Test

The Means Test is quite simple and takes into account the most relevant factors in determining a person’s financial capacity. It usually involves several steps, each one allowing the petitioner to move forward with the action or instantly disqualifies him from the running. Here is how this usually goes:

Determining Income

The first step is to find out the totality of a person’s income within a given month. The term income is inclusive of several profit sources enumerated in bankruptcy laws. If your income falls under the median income of your area, this is an automatic qualifier. No further questions will be asked and the petition will be granted. If your income falls above the median however, further requirements must be met.

Official Form Filling – BB2A

The next step is to obtain the BB2A form which provides for several questions answerable on a numerical format. The form is easily downloadable through the Internet or accessed through any state office. Essentially, the BB2A breaks down and determines eligibility based on the following:

Disposable Income

Disposable income refers to the money you have left after taking care of all the necessities such as food, rent, electricity, and others. If your disposable income is more than the standard, your bankruptcy petition might be denied. This is because you have sufficient disposable income to make payments for your debts. The court determines that a discharge is not necessary but rather, a rearrangement of your payment process. If the disposable income is below the standard however, the petition could be granted.

Repayment of Unsecured Debts

Unsecured debts are those that are not anchored to any property – such as credit cards. The list of unsecured debts is often enumerated in the form. If it can be determined that 25% of your unsecured debts can be paid off through a simple rearrangement of your payment schedule, then the court shall determine this the better option instead of a discharge.

Note that if you are denied for a Chapter 7 bankruptcy, you might still be eligible for a Chapter 13 Bankruptcy. The law also investigates recent luxury purchases or transfer of property which could indicate fraudulent intent on the part of the petitioner.