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The Date You File Your Bankruptcy Case Can Have Important Consequences

By Jonathan on August 16, 2007

Your decision about when to file your Chapter 7 or Chapter 13 bankruptcy case can have important and far reaching consequences with regard to the bankruptcy relief you obtain. Here are some considerations about which you should be aware:

Semi-annual Changes in the U.S. Trustee published median income numbers. Your gross household income impacts whether you can file a Chapter 7, and whether your Chapter 13 must extend three or five years. Since the October, 2007 enactment of BAPCPA, the U.S. Trustee has published new median income figures approximately every six months. The last update was effective February 1, 2007 and the next expected update is scheduled for October 1, 2007. When the median income figures are adjusted on October 1, 2007 the median income numbers will go up. To give you an idea about how much they might go up, here is how the figures for the median income in Georgia for a family of 4 have adjusted since October, 2007:

October 17, 2007 – February 12, 2006 – $58,060
February 13, 2006 – September 30, 2006 – $60,028
October 1, 2006 – January 31, 2007 – $64,427
February 1, 2007 – present – $66,508

Assuming that the figures adjust again in October, 2007, we might be looking at $68,000 to $70,000. If your household income is close to these limits, it would make sense to wait.

Similarly, the approved expense figures for your county may also adjust. Since just about every debtor will benefit from applying the expected October, 2007 numbers I am encouraging any client who can wait to do so.

Changes to Your Family Size. If you are pregnant, you should try to wait until after your child is born. An Oregon bankruptcy judge recently ruled that an unborn child cannot be counted for purposes of determining family size for your median family income. The difference in the median income for a family of 3 as opposed to a family of 4 can be significant. For example, currently in Georgia, the median family income for a family of 4 is $66,508. The median income for a family of 3 is $55,293. While you could amend your means test after your baby is born, you will likely incur additional legal fees and a lot of unnecessary stress.

Expected changes in your employment. The median income/means test looks at the past six months to determine your "ability to pay." However, if your trailing six month average does not paint a realistic picture of your capacity to pay, your case is still subject to dismissal if your budget shows disposable income.

Bankruptcy assumes stability. If your income is going up and down, you can expect the trustee and creditors to assume that you have the capacity to earn at the highest level of your past earnings even if that is not realistic. Whenever possible file your bankruptcy case when your income situation is stable and likely to remain stable.

Do you have any additions for this list. Send me an email or comment on this blog post.

Can Bankruptcy Take Care of Outstanding Bad Checks?

By Jonathan on August 11, 2007

My colleague, Wendell Sherk, a bankruptcy lawyer in St. Louis, has written an interesting blog post on the Bankruptcy Law Network about bad checks, bankruptcy and Chex Systems. Clients and potential clients frequently ask me whether bankruptcy can wipe out a bad check. As Wendell points out, issuing a bad check is a crime in most jurisdictions. The Bankruptcy Code specifically excludes debts arising from criminal activity from discharge.

As a practical matter, however, I rarely have problems with bad checks less than $200. I suspect that for most vendors it is not worth the hassle of pursuing criminal charges for such a small amount, especially when the person writing the bad check has just filed for bankruptcy.

However, it is certainly possible for an angry vendor to pursue criminal charges. The larger the bad check, the greater the likelihood that you would face a criminal problem. I therefore advise my clients that they should strongly consider finding the money to pay any vendor to whom a bad check was issued.

Wendell’s Bankruptcy Law Network post also discusses Chex Systems, which is a type of credit reporting system that collects data on bad checks. Wendell notes that a bad Chex Systems report may create problems for you in getting a bank account after bankruptcy – in fact, a history of bad checks may be more damaging to your bank account chances than the bankruptcy itself. Read Wendell’s post for more information about Chex Systems, how to get a Chex Systems report and some suggestions about how to reduce the negative impact of bad checks.

The big picture here is that bad checks are a different type of debt that can have serious repuercussions (i.e. jail time or a crimimal record). Bankruptcy cannot cure a bad check. Understanding the consequences of a bad check may help you decide which bills to pay if you have limited cash available.

Chapter 13 Case Requires Documentation for Claimed Expenses

By Jonathan on August 9, 2007

In recent months, I have noticed that the Chapter 13 trustees in the Northern District of Georgia are requiring back-up documentation on many expense items set out in a debtor’s budget. I am now telling my clients to save receipts for the following expense categories:

food
charitable contributions
non-reimbursed medical expenses
gasoline and automobile related expenses
child care
after school program costs
child education related expenses

The best evidence to prove that you actually spend what is set out in your budget are payment receipts of vendor invoices. If those are not available, I have had some success using a debtor’s affidavit swearing that you actually spend what you say you do.

About a year ago, I wrote a blog post identifying the information I need to start a bankruptcy representation. Add “receipts and documentation” to that list. Your best guess is no longer good enough for the Chapter 13 trustee. You can save yourself a lot of time and aggrevation by saving receipts and invoices.

Can I File Bankruptcy Without Involving My Spouse?

By Jonathan on August 4, 2007

If you are married, can you file an individual Chapter 7 or Chapter 13 and not include your spouse?

Yes you can. Regardless of whether you are married or separated, you can file bankruptcy on your own even if your spouse does not want to cooperate. Further, you non-filing spouse’s credit will not be damaged by your bankruptcy filing, unless there are joint debts that end up not getting paid in your case.

If you are married, however, your non-filing spouse’s income and expense information, and possible his/her asset information may be relevant to your case and may have to be revealed.

The bankruptcy law requires us to consider household income, which means that your spouse’s income has to be considered. The law assumes that two people living together as husband and wife both contribute to the household ¹ If, however, you and your spouse have separated out your income and expense obligations, we can make an argument that some or all of your spouse’s income or expenses should not be counted in your case.

While filing jointly with your spouse is not required, it can sometimes make a lot of sense. I often run “what if” scenarios with potential clients and their skeptical spouses to reveal the benefits and the downsides to a joint filing. [Read more…] about Can I File Bankruptcy Without Involving My Spouse?

By the way, Georgia is not a community property State. For those of you who live in community property States, the analysis I am describing may not apply. My Bankruptcy Law Network colleague Cathy Moran writes often about community property issues and bankruptcy on the BLN blog. ↩

Discharging Taxes in Bankrutpcy – Recommended Resource

By Jonathan on July 8, 2007

Several years ago, I attended a tax problem resolution seminar in Denver with the intention of expanding my practice to include tax issues. One of my classmates at the seminar was a lawyer from Tampa named Darrin Mish. Over the past few years, Darrin has built a growing tax problem resolution practice with clients in Florida as well as nationally (since IRS problems are federal, your search for a tax problem lawyer need not be limited to your local area).

Darrin has an informative and easy to follow blog/podcast called the IRS Problem Solver blog. His blog posts include text and video, which I suppose technically makes his blog a "vodcast." In any event, his June 12, 2007 post deals with the discharge of taxes in bankruptcy, and I recommend it to you. In this short video blog post, Darrin sets out the basic rules of discharging taxes in bankruptcy.

In the post, Darrin notes that one of the services he offers is to analyze your tax situation to determine whether your taxes are discharged in bankruptcy. If you have any significant amount of tax debt and are considering bankruptcy, you should strongly consider retaining a knowledgeable tax lawyer like Darrin to do this analysis. If you want to speak with Darrin, you can reach him toll free at (888) 438-6474.

I have done this type of analysis but I spend my time representing bankruptcy and Social Security disability clients. Most bankruptcy lawyers – myself included – do not have the time to keep up with changes in the rules relating to the discharge of tax debts and I am far more confortable filing a "tax bankrutpcy" with the analysis and input of a tax problem consultant.

Budgets in Bankruptcy Cases Must be Based on Real Numbers

By Jonathan on June 27, 2007

One of the trends I have noticed over the year and a half since the bankruptcy law changed is that we can no longer rely on guesses or estimates when it comes to creating a budget. My experience in a recently filed case illustrates this point.

My case involves a man in his mid-40’s who lost his sales job and went through a divorce within the last two years. Although he is well educated and has an extensive background in sales, he currently works as a cashier at a grocery store. The income he earns at the grocery store does not cover his expenses, which includes rent, a car payment and child support. As a result, his parents have been helping him with his monthly cash flow needs.

When I prepared the median income test, I only included his employment income as well as some residual commission income. The median income test result with these numbers showed his six month average to be well below the median for a single individual in Georgia.

I then turned to the actual budget at Schedules I & J. Here, too, my client’s income was far less than his expenses. We discussed the situation and my client acknowledged that he was receiving financial support from his parents as needed. I added "support from parents" as a source of income and prepared a budget that showed $1 left over at the end of the month.

Earlier this week I received an email from an analyst at the U.S. Trustee’s office asking me to modify my means test to show include "support from family" as an income category. This extra "income" may throw my client into a means test situation.

I don’t foresee this extra "income" to be a problem in this case, but I can easily see how it would be a problem in other cases. Specifically, if you need to reaffirm a car loan or furniture debt, you cannot show a negative budget – the court will deny the reaffirmation on the grounds that you do not have sufficient money to afford keeping the secured collateral. On the other hand, if you show "support from family" as a way to bring your budget to zero, that support will need to count as income for median income/means test purposes as well.

The big picture here is that you have to look at your finanical data as a whole. Your tax returns figures need to correspond to the yearly totals shown on the statement of financial affairs. Your Schedule I & J budget needs to agree with your means test numbers. This is why I tell all of my clients that every figure on their peititon – and on the budget in particular – may require backup evidence. If you rely on estimates or hunches, your case may end up being a lot more complicated than you expected.

[tags] means test, median income test, budgets, Schedule I & J, income and bankruptcy [/tags]