The First Circuit Bankruptcy Appellate Panel decided the Kibbe v. Sumski case on February 20, 2007. The Bankruptcy Appellate Panel is one of two appellate choices for litigants unhappy with a decision of a bankruptcy court, with the other appellate choice being a U.S. Federal District court. The Bankruptcy Appellate Panels are comprised of three bankruptcy court judges who have more experience with bankruptcy issues compared with Federal District Court Judges.
The issue before the Bankruptcy Appellate Panel was whether the bankruptcy court should use the new "means test" blindly to determine what a debtor should pay in a Chapter 13 plan when the debtor is below the "median income" for his or her state, or whether the bankruptcy court should look at a debtor's real future income to determine the amount that should be paid into a Chapter 13 plan. This issue is raised in many Chapter 13 cases and has caused great confusion in bankruptcy courts in the First Circuit. The Bankruptcy Appellate Panel concluded that below median income debtors should use reality-based and forward-looking income instead of the "means test" to determine the appropriate amount to pay into their Chapter 13 plans.
When Congress enacted its "perfect" bankruptcy reform legislation (Law Professor Zwicki claimed the law was so well written , he would not change one word), it created a "means test" which has turned out to be a completely arbitrary and nonsensical exercise in the otherwise reality based world of bankruptcy. Congress tried to create an objective test to determine whether debtors should file Chapter 7 or 13, and if they filed a 13, how much they should pay. After over a year of the test's implementation, experienced bankruptcy attorneys and bankruptcy judges have little positive to say about the "means test". The First Circuit Bankruptcy Appellate Panel's decision in Kibbe brings reality back to the process.