Is Chapter 7 Still Available To a Debtor?

The Bankruptcy Code was significantly amended with a
general effective date of October 17, 2005.  It was
Congress' intent to make those who could afford to pay back
a portion of their debt ineligible to eliminate their debt
in a Chapter 7 bankruptcy.  This intent is being carried
out by the advent of the "means test".  This test can be
invoked by any creditor, the trustee, the court or the U.S.
Trustee.

To determine if a debtor can afford to pay back a portion
of his debts, you must commence a complicated mathematical
equation.

You must first take the debtor's current monthly income
(CMI).  If the debtor's CMI is less than the state median
income, the debtor can file a Chapter 7 and no further
calculations are required.  For information on state median
incomes, visit
http://www.census.gov/hhes/income/4person.html.

Current Monthly Income is not determined by the income made
during the current or previous month.  I know that seems
like a contradiction, but follow along.  The actual (CMI)
is the average monthly income received by the debtor and
the debtor's spouse if the debtor is married during the six
month period prior to the petition date.  This effectively
prevents a debtor who is out of work for one month from
claiming that he cannot pay back his debt.  He may in fact
have a high (CMI) if his income from the prior five months
was great.  So you can see that Congress has tightened the
loophole.  Under the old law, an out of work debtor would
be scrutinized only as of the date of filing.  Under the
new law, a larger snapshot is taken to determine if the
debtor has the means to pay back his debts.

If the debtor's CMI is greater then the state median
income, then you must continue to calculate in accordance
with the means test formula to determine if the debtor can
file a Chapter 7 or not.

If the debtor's CMI, less allowable deductions is less than
$100.00 per month, then the debtor can file for bankruptcy
under Chapter 7.   If the debtor's CMI, less allowable
deductions is greater than $166.00, then the debtor must
file a Chapter 13 bankruptcy.

If the debtor's CMI, less allowable deductions is between
$100.00 and $166.00, then he may need to file under Chapter
13 depending upon the amount of unsecured debt and the
percentage that could be repaid using the debtor's
disposable income over a five year period.  If the
disposable income amount is not enough to pay 25% to
unsecured creditors over a five year period, the debtor can
file a Chapter 7.  Thus, the amount of debt is a factor in
determining whether the debtor must file a Chapter 13.  The
greater the debt, the more likely that the debtor will be
able to file a Chapter 7.  As you can see, the math
calculations are very complex.

Additionally, you cannot utilize the debtor's expenses when
calculating disposable income.  Disposable income is now
based upon expense standards provided by the Internal
Revenue Service as they relate to the local area in which
the debtor lives.

If the debtor has disposable income of $167.00 per month,
he will always fail the means test, regardless of how much
unsecured debt the debtor may have.  Additionally, the
Chapter 13 plan will have to be for five years, not three
years.

The presumption of abuse or failing the means test can
always be rebutted.  The debtor will have to demonstrate
special circumstances that would decrease the income or
increase the expenses, so that the debtor actually
qualifies for Chapter 7.  For example, the debtor may have
constant medical expenses which are beyond the limits of
IRS guidelines.  That debtor may be able to rebut the
presumption of abuse under the new means test.    Please
contact an experienced bankruptcy attorney to determine the
likelihood that you will qualify for Chapter 7 bankruptcy
relief.

How Often Can an Individual File for Chapter 7 Bankkruptcy?

Under the current law, a debtor can only receive a
discharge once every eight years.  This is an extension
from the old law which permitted a discharge once every six
years.


----------------------------------------------------
David M. Siegel is the author of Chapter 7 Success: The
Complete Guide to Surviving Personal Bankruptcy. He is a
member of the American Bankruptcy Institute and currently
practices bankruptcy law in Chicago and its surrounding
suburbs. Additional information is available at
http://www.chapter7success.com .

 

Greatest Bankruptcy Weapon: The Automatic Stay

The Debtor's Greatest Weapon, The Automatic Stay

Immediately when your bankruptcy case is filed, an
automatic stay is created.  An automatic stay is the
equivalent of a restraining order that prevents creditors
from taking certain collection actions against you.  These
collection actions include: Telephoning you at home, at
work or on your cell phone; Filing lawsuits against you or
continuing with lawsuits that are already in progress;
Repossession attempts; Foreclosure proceedings; Wage or
bank garnishments; Recording any liens or judgments;
Anything that attempts to collect a debt or improve a
creditor's position as it relates to you and your
underlying debt.

The Automatic Stay Is Not Absolute

There are exceptions to the automatic stay, especially in
the case of re-filings. Creditor actions are not stayed in
the following circumstances: Criminal actions.  Filing a
bankruptcy case will not prevent Federal, State or local
authorities from pursuing their criminal action against
you. Lawsuits involving child support or spousal support
are not stayed and can be pursued despite your bankruptcy
filing. Actions by governmental units to enforce a police
power are not stayed.

Recent Changes

There are many changes that have occurred in the area of
automatic stays since bankruptcy reform generally went into
effect October 17, 2005. The major changes have to do with
repetitive bankruptcy filings. If you file a second
bankruptcy case within one year of a prior filing, the
automatic stay will only go into effect for thirty days,
unless you can prove to the court that the second filing
was filed in good faith.  You must file a motion and have
it heard before the Judge, prior to the expiration of the
thirty day period.  The motion can be brought against one
particular creditor, or more likely, against all creditors.
 After notice and a hearing, the court will rule one way or
another.  You have the burden of proving that the second
case was filed in good faith.  This can be accomplished by
showing a positive change in your circumstances such as
higher, more stable income.  Another example would be if
you recovered from a serious medical condition which had
previously prevented you from gainful employment. If you
file a third bankruptcy case within one year of two prior
filings, the automatic stay will not go into effect at all.
 You can attempt to invoke the automatic stay by bringing a
motion, similar to the one mentioned above, showing that
the third filing was made in good faith.  Although not
impossible, it would require a very compelling reason to
convince the court to allow the stay to be imposed on a
third filing within one year. In eviction cases, if the
landlord has already obtained a judgment for possession
prior to the bankruptcy case filing, then there is no
automatic stay.  You should file your bankruptcy case prior
to the landlord obtaining a judgment so that the stay can
go into effect. There is also no stay if the eviction is
based upon endangerment of the rental property or an
illegal use of controlled substances is occurring on the
premises and the eviction started prior to the bankruptcy
case being filed.


----------------------------------------------------
David M. Siegel is the author of Chapter 7 Success: The
Complete Guide to Surviving Personal Bankruptcy. He is a
member of the American Bankruptcy Institute and currently
practices bankruptcy law in Chicago and its surrounding
suburbs. Additional information is available at
http://www.bankruptcy-lawyers-dallas.com .

 

Bankruptcy Alternatives

BEFORE YOU DECIDE TO FILE, THINK ABOUT THE ALTERNATIVES TO
BANKRUPTCY

Bankruptcy should be the last resort to getting out of
debt.  It will stay on your credit report for up to 10
years, guaranteeing that you will receive higher than
normal interest rates on future financing close to the
bankruptcy filing.  Some debts will remain anyway such as
recent IRS debt, student loan debt and debt incurred
through fraud just to name a few.  Bankruptcy may be better
for someone who has little income, extremely high
liabilities and no realistic way of paying those
liabilities back within a reasonable time period.

HAVE YOU CONSIDERED?

There are steps to consider prior to filing that are
alternatives to filing bankruptcy.

1) Negotiate with your creditors.  It may be possible to
work out deals with some of your creditors.  Explain you
current financial situation, your inability to
realistically pay the entire debt and your willingness to
pay a percentage of the debt over time.  I have found that
most credit card companies are rarely willing to make such
arrangements.  However, you never know until you ask.  They
may be willing to work with you if they feel that a
bankruptcy is looming in the distance.  They no that if you
file bankruptcy, they will likely receive nothing in return.

2)       Debt consolidation loans.  This may be a way to
payoff all of your unsecured  credit card debts with one
loan that can actually reduce your monthly outlay.  If you
do this type of consolidation loan, make sure that you do
not use your credit cards during your repayment term.  This
can cause you to fall even further behind by incurring new
debt on credit cards that were just reduced to zero by the
consolidation loan.  Caution!  Do not take out a
consolidation loan against your home.  You may have just
turned dischargeable credit card debt into secured debt
that can cause you to lose your home if not paid back
timely.

3)  Consumer Credit Counseling Services. CCCS may be able
to negotiate effectively with your creditors even after
your efforts have failed.  Those efforts may include
reducing financing charges, lowering monthly payments and
updating past due accounts.  For credit counseling to be
effective, you must be able to make consistent payments
over a long period of time (40 - 60 months).

4)  CCCS will also provide educational material in an
effort to help you avoid financial  pitfalls in the future.
Make sure that you are aware of the charges that your
credit counseling services charges and to what extent your
payments will be going to your creditors.

5) Handling the debt on your own.  If you have sufficient
income, can budget effectively and can communicate with
your creditors, you may want to handle the matter yourself.
 You will have to contact each creditor in an effort to
work out some form of payment arrangement.  While some
creditors will be open to this offer, most will not be
interested.  Unless you can make arrangements with all of
your creditors, there is nothing preventing one creditor
from filing suit and collecting the debt through legal
means.

SOME OPTIONS TO SERIOUSLY AVOID AT ALL COST

Financial pressure can cause individuals to make decisions
that are not in their best long term financial interest.
One option to avoid is the payday loan or title loan.  The
interest rate is often 200% or more annual percentage rate
(APR).  Consumers often struggle to pay these loans in full
and often will extend the loan for another term.  This debt
cycle escalates to the point where the consumer is paying
more in loan fees than the amount that was actually
borrowed.

Predatory consolidation loans should also be avoided.  A
common predatory loan is a refinance of an existing loan
that is packed with excessive fees, contains a higher than
normal interest rate and provides little or no benefit to
the borrower.  The pay back on these loans in terms of fees
and costs may actually exceed the original amount of the
loan.  The attempt to end the debt may actually increase
the total debt.


----------------------------------------------------
David M. Siegel is the author of Chapter 7 Success: The
Complete Guide to Surviving Personal Bankruptcy. He is a
member of the American Bankruptcy Institute and currently
practices bankruptcy law in Chicago and its surrounding
suburbs. Additional information is available at
http://www.chapter7success.com .