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New Median Income Table Goes Into Effect as of October 15, 2007

By Jonathan on October 11, 2007

The United States Trustee’s Office has released new median income/means test numbers applicable to bankruptcy cases filed on October 15, 2007 and thereafter. The new median income table for bankruptcy cases can be found by clicking on the link.

Here are the new median income numbers for Georgia families:

Family Size	Old Median Numbers (February 1, 2007 – October 14, 2007)	New Median Numbers (October 15, 2007 – February 12, 2008 (anticipated)
1	$37,588	$38,086
2	$50,376	$50,001
3	$55,293	$57,254
4	$66,508	$66,711

In looking at this table, it appears that the change in the median income figures is less, on a percentage basis, than previous adjustments. Higher median income numbers make it easier to fit into Chapter 7, so this October 15, 2007 table will not help most debtors. In fact, the median income figure for a household of two has declined, meaning that a bankruptcy filer in a two person household will find it more difficult to fit into a Chapter 7 post October 15, 2007 than he would if he filed prior to October 15, 2007.

[tags] median income figures for bankruptcy cases, median income test, means test, USDOJ [/tags]

Top Time Wasters in the Bankruptcy Process

By Jonathan on October 10, 2007

If you have read my blog at all, you know that I have been quite critical of many of the changes brought about by the BAPCPA changes to the bankruptcy law. In general these changes have make the process of filing bankruptcy more complicated and more expensive. Sometimes, I have to decline representation in cases with complications because the potential client cannot afford to pay me for the time it would take to untangle his/her mess.

Lest you think that I am alone in my attitude about the current bankruptcy law, take a look at this blog post by South Carolina bankruptcy lawyer Däna Wilkinson on the Bankruptcy Law Network blog. Däna entitles her post "Top Ten Wastes of Time After BAPCPA" and she discusses the wastes of time for both debtors and their lawyers.

In my view the whole median income/means test income calculation using gross income numbers from the six months prior to filing is the biggest waste of time. Why should your eligibility for Chapter 7 today be a function of your income over the past six months. At least in the Northern District of Georgia, bankruptcy judges have been open to the idea of tossing out the six month lookback if your current income situation has changed.

These medican income/means test calcuations can take several hours and, at the end of the day, the results tell us nothing about the debtor’s current capacity to pay creditors. But, because I have to spend my time processing the numbers, my fees have gone up. What a waste of time for no good purposes.

Close behind the median income/means test requirement are the credit counseling/financial managment course requirements. Basically these required education courses offer very little useful information to a bankruptcy filer, but they do add around $100 to the cost of filing – $50 for the certificate to get in and $50 for the certificate to get out. If there is a point to this surcharge, it escapes me.

Take a look at Däna’s article – it would be interesting to hear from both debtors and debtor’s lawyers – what do you think?

[tags] credit briefing, financial management, means test, median income test, bankruptcy law network [/tags]

Do Pre-Confirmation Adequate Protection Provisions in Chapter 13 Put a Debtor’s Interests in Conflict With Those of His Lawyer?

By Jonathan on October 8, 2007

Does a change in the Chapter 13 law that provides for "adequate protection" payments to vehicle lenders put the debtor’s interests in conflict with the debtor’s lawyer? As the final language to the BAPCPA changes to the Bankruptcy Code were being negotiated by lawmakers and lobbyists, a very interesting provision was included, most likely at the insistence of lobbyists for vehicle finance companies.

Chapter 13 now provides that debtors may include "adequate protection" payments to vehicle lenders such that the lenders receive payments prior to the confirmation of a Chapter 13 case. These adequate protection payments can be made directly by the debtor to the lender or, as is the case most often, through the trustee’s office from the trustee payment receipts.

For example, a debtor may owe $25,000 on a vehicle purchase in which the contract payment is $450 per month. His Chapter 13 trustee payment may be $550 per month with $400 of that payment payable to the lender prior to confirmation as an adquate protection payment. Such an arrangement seems reasonable, but is it really?

Here is the ethical issue that debtors’ lawyers face. Individuals facing bankruptcy – whether Chapter 7 or Chapter 13 – usually have very little cash on hand. The filng fee for Chapter 13 in particular is now $274 and further increases are predicted. Debtors’ lawyers therefore usually collect the filing fee and some small payment towards the attorney’s fees prior to filing a case. In my office, for example, I usually ask for at least $600 in up front attorney’s fees + the filing fee for a total of $874. My experience has been that most debtors have to struggle to come up with $874. Then there is the $50 that the debtor has to pay for pre-bankruptcy counseling. Many lawyers charge the filing fee only or perhaps the filing fee and $200 or $300.

The Chapter 13 plan used in the Northern District of Georgia allows attorneys to set a "reasonable fee" both for cases that are confirmed and for cases that are dismissed prior to confirmation. A plan may provide for $4,500 or $5,000 in fees if the case is confirmed and, say, $3,500 if the case is dismissed. The fees charged in your case may be higher or lower depending on the complexity of your case and the lawyer you choose.

As Chapter 13 debtors’ lawyers well know, much of the work done in a Chapter 13 case occurs prior to confirmation. In the current climate, cases may be reset two or three times and plans and petitions may be amended repeatedly.

If most of the money being paid in to a plan ends up in the hands of vehicle lenders, very little remains to pay a lawyer who may have expended fifteen or twenty hours, only to see his client’s case fail because of a job loss, an illness or circumstances beyond the lawyer’s control. On the other hand, if the lawyer sets the adequate protection payment very low, the lender may object and the debtor may not have the option of converting his case to Chapter 7. Secured lenders in Chapter 7 will usually refuse to reaffirm secured debt claims if the debtor is delinquent. Six months of a low adequate protection payment will result in several hundred to several thousands of dollars in payment delinquencies, leaving the debtor at risk for repossession.

To put this another way, this adequate protection provision forces debtors’ lawyers to choose between getting paid a fair fee for their work or maximizing the adequate protection payment to preserve their client’s ability to convert to Chapter 7 or to dismiss the Chapter 13 case without drastic consequences.

Now, a cynic would argue that lawyers are free to charge a higher up front payment – it is there decision to charge little or nothing up front. Unfortunately, the marketplace says otherwise. What is happening and will continue to happen is that solo practitioners and small firms are being driven from the market. High volume filers will be the only ones left who can take the risk of filing Chapter 13’s. With no disrespect directed to high volume filers who certainly have their place in the market, there are many complex Chapter 13 cases that need personalized attention.

In my view this adequate protection procedure has the (un)intended consequence of further closing the door to debt relief under Chapter 13.

[tags] adequate protection payments, conversion to Chapter 7, bankruptcy northern district of georgia, car lenders in bankruptcy [/tags]

Let Bankruptcy Be Your First Step to a Positive Financial Future

By Jonathan on September 23, 2007

I often advise my clients that if they are sitting my office discussing their financial problems with a bankruptcy lawyer, then everything needs to be on the table. The house, the cars, the big screen tv, the electronics, and even the time share (!). My job, as the bankrutpcy lawyer is to help my client chart a course of living within one’s means and getting rid of debts that are not necessary for survival. Bankruptcy is about what you need, not what you want.

To this end, my colleage Cathy Moran from the Bankruptcy Law Network, forwarded to me a link to a web page entitled “10 Financial Lies We Tell Ourselves.” I recommend that you take a look at this web site, not as a means to chastise yourself, but as a tool for moving forward. Resolve that starting today, you will not make the mistakes of the past that have brought you to the brink of bankruptcy. Recognize that financial hardship can happen to anyone and that you should always prepare yourself for tough times. Whether you end up filing bankruptcy or not, use the experience of financial distress to clear away bad habits and bad decisions.

Credit Card Balance Transfer Issues

By Jonathan on September 19, 2007

Back in April, I wrote a post about the issue of balance transfers and Chapter 7 bankruptcy. In this post I note that balance transfers were dangerous because from the perspective of the new credit card issuer, the transfer was new debt. In other words, if you have been carrying a $10,000 balance on your Discover account, for 5 years, and two weeks ago you transferred this balance to a new Citibank account to get a better interest rate, that $10,000 debt is new debt as far as Citibank is concerned.

Because credit card lenders are particularly sensitive to unusual patterns of debt and access to credit shortly before bankruptcy, there is a good chance that this $10,000 new debt in my example would generate an objection and discharge challenge.

One of the Chapter 7 trustees on the panel in the Northern District of Georgia emailed me to note an additional issue. Remaining with our example, the act of tranferring the $10,000 debt to Citibank would serve as a payoff to Discover. Under the preference rules, the payment of an antecedent (old) debt to Discover within 3 months of filing would be considered a preferential transfer. The Chapter 7 trustee would then have the right to demand that the recently paid off creditor – Discover – remit the $10,000 to the trustee for distribution as part of the bankruptcy estate.

In this scenario would the debtor end up facing both a discharge complaint from Citibank because of the new debt and as well as a discharge complaint from Discover since the the $10,000 had to be forfeited to the trustee?

The Chapter 7 trustee who wrote me says that she is not aware of any examples where the paid off creditor (Discover in our example) came after the debtor to recoup its loss. But such a scenario is certainly possible.

If you are a debtor or debtor’s lawyer and have been faced with this situation, please let me know what happened in your case.

Can Unemployed Wife File an Individual Bankruptcy?

By Jonathan on September 18, 2007

Can my wife file for BK on her own? She has about 80k in credit card debt. We are together on a couple of other credit cards and our house mortgage. What is the effect on me…if any? She has no income – I am the source of all household income.
–Gary

Jonathan Ginsberg responds: Yes, your wife can file an individual bankruptcy. She would need to schedule all debt, including the joint credit card debt. With regard to the joint credit card debt, her obligation would be extinguished but you would remain liable for the full balance.

Her individual bankruptcy would not negatively impact your credit, although, as noted above, you would most likely get a collection letter from the joint credit card issuer since you would remain obligated.

You did not say how much you earn but your income would also be relevant to the median income/means test. If your household income exceeds the median income for the state, then Chapter 7 might not be an option. Your wife could file a Chapter 13 using your income as her source of "regular income" if you did not qualify for a Chapter 7.

[tags] individual bankruptcy filing for married couple, median income test, means test, Chapter 7, Chapter 13 [/tags]