Not everyone qualifies for a discharge (the order that wipes out debt) in a Chapter 7 bankruptcy. If your debts are primarily consumer debts—just about anything other than bills related to making a business profit—then you must take and pass the “means test.”
Filers must meet the means test income requirements because a Chapter 7 discharge is for people who don’t have the ability to repay creditors any portion of the amount owed. The test determines whether the debtor (the person owing the debt) should repay some or all of the debt over the course of a three- to five-year repayment plan in Chapter 13 or Chapter 11 bankruptcy. If you don’t pass the test, but file a Chapter 7 bankruptcy anyway, your case will be presumed to be abusive.
The debtor can overcome the presumption of abuse by demonstrating that unique circumstances exist. For instance, the debtor might be able to justify a Chapter 7 filing by providing proof that higher-than-average expenses are justified in the particular case.
The term abusive bankruptcy filing can also describe a case filed by someone who inappropriately uses the bankruptcy process to evade a creditor or to buy time in a collection action, such as a foreclosure or lawsuit. Simply put, the court frowns on debtors filing with no intention of following through with the case. Repeat filers face consequences for using such tactics, such as a lack of protection from collections (the automatic stay won’t go into effect after multiple filings) or the denial of a discharge.
(If you’d like to learn more, read Bankruptcy Case: Dismissed With Prejudice.)