Bankruptcy Questions? - National Bankruptcy Forum » bankruptcy attorney

Do My Wife and I Both Have To File For Bankruptcy?

Moderator — Sat, 04 Sep 2010 14:41:43 +0000

Do both spouses have to file for bankruptcy?

Well, for starters, no one has to file for bankruptcy, however, if you and your spouse are seeking relief from debts you have incurred together, the answer is likely yes. Let’s say that, due to a recent job loss, you and your wife were forced to use a joint credit card to get by until another job came around. Unfortunately, that next job has yet to appear and the credit card balances have spun out of control. Making payments became impossible months ago and now the credit card company is suing you and your wife. The accounts have both you and your wife’s name on them.

If you, as the husband, file for bankruptcy, you will no longer be obligated to pay the credit card company as the bankruptcy will wipe out your unsecured debts (medical bills, credit cards). However, this won’t do you much good as your wife will still be obligated to pay the debt. That’s right, the credit card company can still come after her for the entire amount due on your joint credit card account. The rule is fairly simple: to get rid of joint debt, both spouses need to file bankruptcy.

If you are considering bankruptcy, consult an attorney.

Qualifying For Chapter 7 With High Income

Drew Broaddus — Wed, 18 Aug 2010 23:51:56 +0000

Much has been written about the means test since it was enacted as part of the 2005 amendments to the Bankruptcy Code, also known as the BAPCPA. For an excellent explanation of what the means test is, see Lori Patton’s recent contribution at the National Bankruptcy Forum. Despite the fact that it is frequently written about, the mean test’s application is often poorly understood by individuals who are considering bankruptcy, and in some cases even by bankruptcy attorneys. This may be, in part, because the means test is not a problem in most bankruptcy cases; according to one report, 94% of the people filing for bankruptcy had incomes below their state’s median income; the means test was simply not an issue in those cases.

The current economic downturn may be altering this trend. Recent conversations we have had with potential clients suggest that many households are going through rapid and extreme financial changes. This has left many families and individuals in a gray area where their six-month average income is above the median, but they clearly need some kind of help due to a recent job loss, business failure, health problem (perhaps coupled with a loss of insurance secondary to a job loss), or other issue. In some cases a thorough understanding of the “long form” means test (a term that I have borrowed from Ms. Patton’s aforementioned article) can be the key to getting these individuals the protection they need under Chapter 7.

Assuming your six-month average income is above the median, “long form” means testing directs you to a section entitled “Calculation of Deductions Allowed Under § 707(b)(2).” This section consists of several subparts, described in more detiail here. Subpart A (deductions under standards of the Internal Revenue Service) calculates what the local expenses would be for a household of a particular size, as determined by the IRS. These deductions are not based on the debtor’s actual expenses but rather, are based upon tables which are periodically updated by the government (as I discussed here). Next, Subpart B (entitled “Additional Expense Deductions under § 707(b)”) deals with various actual expenses for After that, Subpart C (”Deductions for Debt Payment”) deals with required payments for secured debts and priority debts (debts that are not secured, but important debts that are not dischargeable, such as child support and alimony payments). Finally, debtors who fail the “long form” means test might still qualify for Chapter 7 in light of “special circumstances” or “totality of the circumstances.”

Whether the aforementioned deductions apply to a particular case, and whether they will be sufficient to qualify a “high wage earner” (i.e., someone who is above the six-month median) for Chapter 7 can be complicated issues which should be discussed with a bankruptcy attorney inyour jurisdiction.

Keep in mind that the system is not perfect, and in some cases individuals or families will not qualify for Chapter 7 even when their financial situation is dire. As Kentucky bankruptcy lawyer John Rogers recently wrote, bankruptcy is not always the answer; sometimes people will not be eligible for Chapter 7 bankruptcy because their income was too high, yet be able to file Chapter 13 bankruptcy because they could not afford the payment required.

Drew Broaddus

Do I Have Too Much Debt To File Chapter 13 Bankruptcy?

Moderator — Thu, 12 Aug 2010 22:29:37 +0000

It is certainly possible to have too much disposable income to qualify for chapter 7 bankruptcy thanks to the means test. Is it also possible to have too much debt to then file for chapter 13 bankruptcy? Often referred to as a wage earner’s plan, chapter 13 bankruptcy enables individuals earning a living but hampered by excessive debt to develop a repayment plan for all or part of their debts. In many cases, the repayment plan involves a drastic reduction of debt. Often debts are repaid at far less than 100%, with unsecured debt, such as credit card debt, frequently paid back at pennies on the dollar. The amount of money a chapter 13 debtor will pay back to creditors is determined by how much disposable income they have left each month after expenses.

Too Much Debt to File For Chapter 13?

Any individual, even if self-employed is eligible for Chapter 13 relief as long as their unsecured debts (such as credit card debt and medical bills) are less than $360,475.00 and secured debts (such as mortgages and car loans) are less than $1,081,400.00. These amounts are adjusted periodically to reflect changes in the consumer price index. A corporation or partnership is not eligible to file for chapter 13 bankruptcy. If your debts exceed these thresholds it is likely that you will have to file for chapter 11 protection. If you have questions about the bankruptcy process, consult a bankruptcy attorney.

Qualifying For Chapter 7 Bankruptcy: The Means Test Made Simple (Sort of)

Moderator — Mon, 26 Jul 2010 21:45:51 +0000

Much has been written about the now infamous means test; Congress’ answer to the credit card lobby’s complaints that too many Americans who could afford to pay back some of their debts were allowed to file for chapter 7 bankruptcy. The means test effectively tries to divert some consumers with “above average” income into a chapter 13 repayment plan. To be sure, the means test is a complicated labrynth, best navigated with the help of a good bankruptcy attorney, however, in this post, we’ll try to take some of the mystery out of the process.

Current Monthly Income or CMI

The first step is to compare the income earned by your household in the last six months to the state average. If your household income (from all sources) is below your state’s average, the means test doesn’t come into play. You are presumptively entitled to file for chapter 7 bankruptcy. If your household income exceeds the state average, it will be necessary to perform the remaining portion of the test.

Monthly Expenses

In determining whether a debtor qualifies for chapter 7 bankruptcy under the means test, it is necessary to deduct monthly expenses from current monthly income. This will provide a figure for the debtor’s net monthly income which will be used to see if chapter 7 bankruptcy is an option. Keep in mind that your actual monthly expenses will not necessarily be the figures used for deductions. In many cases, standardized IRS deductions are used. Remember, the ostensible purpose of the means test is to try to divert those who can afford to pay back debt into a chapter 13 plan. As a result, the amount a debtor has left over after expenses is a crucial factor in qualifying for chapter 7. Too much “disposable income” means that there is money left over at the end of the month to fund a chapter 13 plan.

It all boils down to this:

- If, after expenses, there is $100 or less of disposable income the means test has been passed, the debtor may file for chapter 7 bankruptcy.

- If, after expenses, there is $166.67 or more left over as disposable income, the debtor fails the means test and there is a presumption that chapter 13 is the appropriate path.

- If there is between $100 and $166.67 left over as disposable income, the debtor passes the means test IF the monthly disposable income multiplied by 60 is less than 25 percent of her nonpriority unsecured debts (such as credit card debt).

If you are considering filing for bankruptcy, consult an attorney.

Presumption of Abuse Dismissal – Failing the Means Test

Richard Stokan — Mon, 26 Jul 2010 13:40:18 +0000

The quickest way to have your Chapter 7 bankruptcy petition dismissed is to fail the means test. A debtor who fails the means test raises a rebuttable presumption of abuse. In the event a presumption of abuse exists, 11 U.S.C. § 707(b)(2) authorizes the court, US trustee or any part in interest to file a motion to dismiss as long as the individual debtor’s debts are primarily consumer debts. However, if the debtor is a “below median debtor” as calculated by 11 U.S.C. § 707(b)(6)( or (b)(7), a motion to dismiss pursuant to 11 U.S.C. § 707(b)(2) can only be brought by a judge or US trustee. When considering whether to grant a motion to dismiss pursuant to 11 U.S.C. § 707, the court looks to whether the debtor has the ability to pay either: (1) 25 percent of his or her nonpriority unsecured claims in the case, or $6,575, whichever is greater; or (2) $10,950. 11 U.S.C. § 707(b)(2)(A)(i). If either factor exists based on the information provided on the bankruptcy petition, the motion to dismiss can only be defeated by demonstrating that “special circumstances” exist.

In order to establish “special circumstances”, a debtor is required to itemize each additional expense or adjustment of income and to provide: (1) documentation for such expense or adjustment to income; (2) a detailed explanation of the special circumstances that make such expenses or adjustment to income necessary and reasonable; and (3) testimony under oath that the additional information provided is accurate and that the additional expenses or adjustments to income are required. 11 U.S.C. § 707(b)(2). If satisfied that special circumstances exist, a motion to dismiss pursuant to 11 U.S.C. § 707(b)(2) can still only be denied if the debtor meets the mathematical requirements of the means test to rebut the presumption of abuse.

Defeating a motion to dismiss is not impossible, but requires knowledge of the petition, necessary documentation to demonstrate that “special circumstances” exist and knowledge of the debtor’s finances. If possible, it is best to delay filing a bankruptcy petition until the debtor’s income and expenses allow him or her to pass the means test without raising the presumption of abuse. A debtor and attorney must keep in mind that if a motion to dismiss pursuant to 11 U.S.C. § 707(b)(2) or (b)(3) is granted, the court can order the attorney for the debtor to reimburse the trustee for reasonable costs associated with bringing the motion including attorney fees. 11 U.S.C. § 707(b)(4).

- Richard V. Stokan, Jr.

Bankruptcy and Back Taxes

Richard Stokan — Mon, 19 Jul 2010 13:13:08 +0000

As a general rule, you cannot discharge back taxes in bankruptcy. Certain income taxes, however, can be discharged under limited circumstances.

When filing for Chapter 7 bankruptcy protection, taxes can be discharged under the following circumstances: (1) the taxes are limited to taxes on income. Taxes levied for fraud, payroll taxes or sales taxes do not qualify as dischargeable; (2) the tax debt must be at least three years old at the time of filing the bankruptcy petition (11 U.S.C. § 507(a)(8)(A)(i)); (3) you must have filed a tax return for the debt at least two years prior to the filing the petition (See 11 U.S.C. § 523(a)(1)(B)); (4) you must have received notice of the tax assessment from the IRS at least 240 days prior to filing the bankruptcy petition (11 U.S.C. § 507(a)(8)(A)(ii)); and (5) the taxes cannot be subject to a tax lien. A chapter 7 discharge of back taxes eliminates a debtor’s personal obligation to a debt, however, if the IRS recorded a tax lien on real or personal property prior to the date the petition was filed, the lien remains on the property. As with any legally obtained lien, the tax lien will need to be paid before the asset can be sold.

Whether or not taxes can be discharged is a complicated area of the bankruptcy law as certain events will toll the possible discharge of a tax such as prior bankruptcy filings, filing extensions, tax litigation and offers to compromise. If taxes are a reason you are considering filing for bankruptcy protection, you should consult a knowledgeable attorney for assistance before proceeding.

- Richard V. Stokan, Jr.

Bankruptcy Can Be Involuntary

Richard Stokan — Mon, 12 Jul 2010 13:27:16 +0000

Although most people are familiar with voluntary bankruptcy, a debtor can be forced into an involuntary bankruptcy. Under certain circumstances, creditors can initiate a Chapter 7 or Chapter 11 bankruptcy case by filing an involuntary petition against the debtor. Before creditors can initiate an involuntary bankruptcy, a debtor must have 12 or more creditors, three of which hold unsecured claims with an aggregate amount of at least $10,000.00. If there are fewer than 12 creditors, an involuntary bankruptcy can be initiated by one creditor if that creditor has an unsecured claim of at least $10,000.00. The bankruptcy code, however, requires that the $10,000.00 minimum claim cannot be “contingent as to liability or the subject of a bona fide dispute, or an indenture trustee representing such a holder.” 11 USC 303(b). If there is a question regarding the debt, the involuntary petition will fail. If you are a farmers, nonprofit group, insurance company, credit union, bank, rail road, savings & loan, stockbroker or commodity broker, however, you are exempt from a involuntary bankruptcy.

In voluntary petitions are filed by creditors to protect assets where it is believed a debtor is dissipating assets. The involuntary petition allows the bankruptcy trustee to recover “avoidable transfers” which occurred within 90 days prior to the filing and prevent or undue transfers to insiders and fraudulent conveyances. Once an involuntary petition is filed, the bankruptcy court holds a hearing on the requested relief. The court considers numerous factors including the number of creditors, totals debt and whether the debtor has been paying the debts as they come due. As a general rule, just like a voluntary petition, the court is looking for fraudulent and unreasonable activities. If it appears a debtor is trying to hid assets or is conducting business in a way that is detrimentally to one creditor to the benefit of another, odds are the involuntary petition will be approved. Conversely, a debtor has the opportunity to rebut the claims of creditors by demonstrating that debts are being paid as they come due and that there have been no fraudulent activities. If successful, the debtor can request the court enter a judgment against the creditors for attorney fees and costs. 11 USC 303(i)(1). In extreme cases, the bankruptcy court can assess punitive damages. 11 USC 303(i)(2).

Although involuntary bankruptcies are rare compared to voluntary filings, it is important to be aware that the opportunity exists for creditors. If faced with an involuntary bankruptcy, you should consult a knowledgeable bankruptcy attorney.

- Richard V. Stokan, Jr.

Student Loans, Co-signers and Undue Hardship

Richard Stokan — Fri, 09 Jul 2010 20:18:15 +0000

As a general rule, student loans are “non-dischargeable” debt, which means the debt will remain after a Chapter 7 or Chapter 13 bankruptcy. This applies to both the original debtor and any co-signor. If you cosign on a student loan, filing for bankruptcy protection will not eliminate the debt. As with any debt involving a cosigner, the creditor has the option of pursuing the cosigner if the original debtor defaults on the debt. The only savings provision is if the original debtor files a Chapter 13 case. In that instance the automatic stay prohibits creditors from attempting to collect the debt from a cosigner. The stay is limited to the time-frame of which the Chapter 13 case is pending and terminates if the case is closed, dismissed or converted to another Chapter. A creditor can also petition the Court to lift the stay for various reasons including harm to a creditor or if the Chapter 13 repayment plan does not provide for full payment of the debt.

The only exception to the general rule that student loans are non-dischargeable, are in the cases of “undue hardship.” Under the “undue hardship” exception, the bankruptcy court can discharge or eliminate the debt if the payments put an extreme burden on the debtor. This requires a separate motion and a meeting with the judge to explain your hardship. In order to convince the judge a debtor must demonstrate that he or she cannot maintain a minimal standard of living and repay the loans; that the financial situation is likely to continue; and that an honest effort has been made to pay off the loans. Although in these economic times it may seem like a simple task, undue hardship exceptions are rarely granted unless. For example in Cockels v. Mae, 414 B.R. 149, 151-153 ( E.D. Mich. 2009), the court declined find an undue hardship for a cosigner debtor, who inherited the debt from an ex-husband after he defaulted on the loans. After reviewing the debtor’s financial situation, the court concluded that her remaining monthly expenses could be sufficiently reduced to cover the student loan payment while maintaining a minimal standard of living. In reaching its conclusion, the bankruptcy court found that the debtor had the potential of reducing her monthly rent payments and travel expenses by moving to a less expensive neighborhood closer to her job. Consequently, if you are faced with student loans or are a cosigner of a student loan, you can expect to retain that debt after filing for bankruptcy protection unless you are physically unable to work. Of course, every situation is different and an experienced bankruptcy attorney will be able to advise you of the best course of action if you believe you have grounds for a hardship exception.

- Richard V. Stokan, Jr.

Discharging Back Taxes in Chapter 7

Jacob — Fri, 09 Jul 2010 19:55:35 +0000

A lot of my clients find themselves owing back taxes to the IRS. And when I tell my clients that they might be able to discharge their tax debt if they file for chapter 7 bankruptcy, they almost always look at me like I am crazy. But it is true. In some cases, you can discharge your tax liability.

When you file for chapter 7 bankruptcy, you can discharge your past due taxes if:

you filed a tax return for the year/years that you owe back taxes;
your back taxes are for a tax return filed at least two years before you file for bankruptcy;
your tax return for the back taxes was initially due at least three years before you file for bankruptcy;
the IRS has not assessed your liability for your back taxes within 240 days before you file for bankruptcy; and
You did not willfully evade paying your income tax.

Without a doubt, there are a lot of hoops to jump through and a lot of requirements. But if you owe a substantial amount to the IRS, and if you qualify to discharge your debt, it is worth looking into. There are, however, several pitfalls that you need to be aware of.

You have to be aware of the time periods surrounding your income tax debt. For example, do not file for bankruptcy one month before you reach the two year mark for filing your return. Also, you must have accurate information about your tax situation before you file. Do not assume anything. Contact the IRS and get a free tax transcript. That way, you have an accurate timeline to work with.

Finally, you have to know if the IRS placed a lien on something you own. If the IRS has placed a lien on your property, that is a major obstacle. By filing for chapter 7, the IRS cannot garnish your wages or hold you personally liable for our discharged taxes. But the lien will remain on your property. And that can cause all kinds of problems.

If you owe the IRS past due taxes, talk to a bankruptcy attorney to see if filing for chapter 7 bankrutpcy can help. A skilled bankruptcy attorney will be able to guide you through the process and help you determine the best path for you to take.

Jacob McElwee Topeka Bankruptcy Attorney

Are You an Appraisal Away From a Mortgage Modification?

Moderator — Mon, 05 Jul 2010 16:54:46 +0000

PROBLEM: MORTGAGES AREN’T BEING MODIFIED

Oh, how much easier life would be for homeowners if all that was needed for a mortgage modification was an appraisal. In today’s troubled housing market it does seem equitable, doesn’t it? Demonstrate to your lender that you owe far more than your home is worth, and of course, that you’re experiencing legitimate financial hardship and…….problem solved…….mortgage modified. It sounds to good to be true, but chapter 13 bankruptcy can allow second and third mortgages liens to be removed entirely on the strength of a single appraisal.

Unfortunately, under normal circumstances, mortgage modification doesn’t exactly work like chapter 13 bankruptcy. Actually it doesn’t come anywhere close to working like chapter 13 bankruptcy. The press is full of mortgage modification horror stories in which an inconceivable lending bureaucracy has effectively stonewalled all efforts at real relief. Foreclosures continue to skyrocket. Borrowers granted temporary mortgage modifications are shocked to find (1.) that their application for permanent relief has been denied and (2.) that they owe the entire difference between the modified mortgage amount during the trial period and their previously unmanageable regular payments. In many cases, these “trial” modifications actually push a teetering family into foreclosure. Fact is nothing much is getting done. Enter chapter 13 bankruptcy……..

SOLUTION: CHAPTER 13 BANKRUPTCY CAN FORCE YOUR LENDER TO MODIFY A MORTGAGE…….. PERIOD.

Maybe you’ve grown tired of asking and you’re ready to start telling? Perhaps calling your lender four and five times a day trying to get your loss mitigation specialist on the phone is getting, well…..old? Try this: get an appraisal. Yes, you heard me get an appraisal, find out what your home is worth. If the balance on your first mortgage is greater than the value of your home, you can “strip” or remove second third and fourth mortgages through a chapter 13 bankruptcy. Once the appraisal demonstrates the fact that your home is underwater, there isn’t anything standing in the way of you and the mortgage modification you’re seeking. Your lender cannot tell you NO, as a federal court will now be telling them YES.

HOW IT WORKS………

It is the rare consumer who knows the full extent of their rights. Too bad because Congress has placed quite a few arrows in the consumer quiver. Chapter 13 bankruptcy is one of the most significant, allowing for the restructuring of secured debts such as mortgages and car loans. If you find yourself underwater on either, the amount of your loan that exceeds the value of your property can be stripped or removed, paid out at far less than 100% over the life of a repayment plan you create with the help of your bankruptcy attorney.

Let’s illustrate by way of example: You have two mortgages, the first with a balance of $150,000, the second with a balance of $50,000. An appraisal reveals that your home is worth $145,000. Once you file for chapter 13 bankruptcy, your attorney will file a lawsuit to remove the second mortgage. The debt will be paid as unsecured debt along with credit card and medical bills often at pennies on the dollar. Stripping the second or third mortgage has the potential to afford real relief, allowing a struggling homeowner or family to stay in their home with payments they can now afford. As long as you didn’t purchase your car in the last three years, the same principle applies to auto loans. Chapter 13 bankruptcy is a powerful yet complicated tool, if you have questions, consult an attorney.