More people are being caught between the rock of the means test under Chapter 7 and the hard place of the debt limitations under Chapter 13, finding that they can't qualify for either.
The means test under Chapter 7 says, basically, if you make above a certain income (the state median income for a family of your size), you can't file Chapter 7. There are exceptions and other tests, but the bulk of Chapter 7s are filed by people who "pass the means test" by having income under the state median, or whose debts are not primarily consumer debts, in which case the means test doesn't apply. The means test was designed to force more people into Chapter 13 so they repaid at least some of their debt.
Less known are the debt limitations of Chapter 13. Under section 109 of the Bankruptcy Code, if a debtor (and spouse, if filing jointly) owes more than $360,475 in unsecured debt, or more than $1,081,400 in secured debt, they do not qualify for Chapter 13. What this means is that for a high debt, high income debtor, she cannot file for either Chapter 7 or Chapter 13.
Consider a debtor earning $100,000/year, single, who bought a house in 2007, at the height of the real estate market. In today's market that house is worth $400,000 and she owes $750,000. Since the house is only worth $400,000, $350,000 of that debt is unsecured. If she has in excess of $10,475 in other unsecured debt, such as credit cards, doctor bills, student loans, etc. this person doesn't qualify for Chapter 13. But due to her income, she can't file Chapter 7, either (and she might not want to for various reasons). Her only option is to file a consumer Chapter 11, a very expensive and time consuming proposition.
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