All those abusive debtors. . . .

I have just heard some statistics from Bankruptcy filings under the new law. As of the end of March, 2007 the U.S. Trustee’s office says that in only 8% of all Bankruptcies filed has the Debtor had income in excess of median income for the Debtor’s State. In addition, of that 8% only 10% of the 8% flunked the means test; and the U.S. Trustee only chose to take action in 20% of those. In other words, surprise, surprise; high income debtors are not filing Bankruptcy in droves.

That means that this incredibly expensive and complicated Means Test, the centerpiece of Bankruptcy reform, is catching only .8% of all cases being filed; and of those only 20% are actually being challenged by the U.S. Trustee. Amazing.

Ok, so, where are the flaws in these statistics? I see two just off hand. Higher income debtors tend to be more aware of legal developments, and in my opinion, were more likely to file before the law change. Second, exactly how the Means Test is going to work isn’t really known yet. We are developing a patchwork of cases (most of which don’t agree with each other) attempting to apply some of the most basic Means Test issues.

Also, far too many lawyers are still not looking beneath the most basic, surface issues on the Means Test. If it isn’t an IRS allowance, they aren’t filling it out. As a result, more Debtors are flunking the Means Test than is probably accurate.

Even so, all problems with the numbers aside, I am not seeing anything that contradicts the U.S. Trustee’s original position which is that fewer than 2% of all cases filed under the old law qualified as abusive.

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