» Issues Involving New Bankruptcy Laws
Advance Planning: File Bankruptcy Before You Get a Year-End Bonus
Posted on Tuesday (September 29, 2009) at 9:15 pm to Bankruptcy Means Test
Christmas bonuses are now less than 90 days away. This notion is important because receiving a Christmas bonus or year-end bonus for some people can adversely skew the bankruptcy means test and make them ineligible for Chapter 7 bankruptcy.
The bankruptcy means test is a very comprehensive, very complex series of calculations that the federal government designed to ascertain whether someone qualifies for Chapter 7 filing. It was designedas part of the new bankruptcy laws to prevent those consumers who have high incomes from being able to eliminate their debts in Chapter 7 cases. See my post, The Means Test is Often the Key to a Successful Chapter 7 Bankruptcy Case . The means test looks at all income you received during the prior six calendar months.
Year-End Bonuses Must Be Included in the Means Test if Received Six Months Before Filing Bankruptcy
Some people just barely qualify for Chapter 7 filing because they just barely pass the means test. If you are on the edge of being eligible, adding a significant year-end bonus into the calculation of income can preclude you from being able to file for Chapter 7 bankruptcy relief.
What this means: if you receive a substantial Christmas bonus in December, you might have to wait as many as six months before being eligible for Chapter 7 filing, because the means test requires that you add up all income received in the previous six calendar months.
Consider Filing Bankruptcy Sooner than Later If Expecting a Christmas Bonus
What you should do now: if you are considering filing for bankruptcy, and your income appears to be substantial, you should file bankruptcy before getting any year-end bonus.
How do you know if your income is considered substantial enough? The only way to find out is to consult with an experienced consumer bankruptcy attorney.
One additional caveat: if you know for sure that you are receiving a year-end bonus, then this should be reported on the bankruptcy petition budget schedules as anticipated future income. Doing so has no effect on the means test, but may nevertheless show that there is extra income in your budget. An experienced bankruptcy attorney can discuss how to deal with this concept.
Right now, so many companies are cutting back that there may be no way to know if you are going to receive a Christmas bonus this year. Thus, you may be better off filing sooner, rather than later, because at some point between now and Christmas, your employer may inform you that you will receive a year-end bonus.
Can Debtors Deduct College Expenses of their Children on the Means Test?
Posted on Monday (August 31, 2009) at 3:00 am to Bankruptcy Means Test
Several times in the past month this issue has arisen with my Long Island bankruptcy clients: Can they deduct their children’s college tuition expenses on the means test? The means test does not provide any specific category for doing so.
I previously addressed this issue a few months ago: Can You File For Bankruptcy and Still Pay Your Child’s College Tuition? I will now expand upon that prior post.
Unfortunately, those bankruptcy courts which have addressed this issue have found no statutory support for such deductions.
Certain educational expenses can be deducted on the means test. These include deductions for elementary and secondary education expenses, although the amount is limited.
The means test also permits debtors to deduct expenses for contributions to family members, but this category is also limited to elderly, chronically ill or disabled family members.
Accordingly, at this time, there does not appear to be any way to include a debtor’s contributions to their children’s college expenses on the means test.
The following are some recent cases involving college expense deductions.
In re Baker, No. 08-13987, 2009 Bankr. LEXIS 193 (Bankr. N.D. Ohio Jan. 30, 2009): Recognized that special circumstances might justify allowance of college expenses for adult children, but found that this case does not rise to that level because it is not apparent that the debtor has made a reasonable effort to mitigate her expenses as her adult child could live with the debtor rather than on her own.
In re Saffrin, 380 B.R. 191 (Bankr. N.D. Ill 2007): Held that a debtor may not deduct his daughter’s college expenses because the Code only allows education expenses related to elementary or secondary education.
In re Boyd, 378 B.R. 81 (Bankr. M.D. Pa. 2007): Found that a debtor may not expense her adult daughter’s college education because the Code does not expressly provide such deduction and it does not qualify as another necessary expense.
In re Hess, No. 07-31689, 2007 Bankr. LEXIS 3553 (Bankr. N.D. Ohio Oct. 15, 2007): Found that “[w]hile a parent’s desire to assist a child…pursuing a college degree is laudable, a debtor is not free to do so at the expense of her unsecured creditors.”
In re Featherston, No. 07-60296, 2007 Bankr. LEXIS 4578 (Bankr. D. Mont. Sept. 28, 2007): Held that a debtor may not deduct college expenses for adult children because children are not elderly, chronically ill or disabled as required by the Code to qualify as an acceptable contribution to family members.
In re Goins, 372 B.R. 824 (Bankr. D. S.C. 2007): Held that the Code limits education expenses to those related to elementary and secondary school.
In re Hicks, 370 B.R. 919 (Bankr. E.D. Mo. 2007): Found that a debtor paying college expenses of an adult child is a luxury, not a necessity, and that the Code does not provide any support for allowance of such deduction.
What State’s Bankruptcy Exemption Laws Apply If You Recently Moved?
Posted on Friday (August 28, 2009) at 7:30 am to Bankruptcy Exemptions
The 2005 Bankruptcy Amendment Act changed how a debtor determines which state’s exemptions statutes to use. If you’ve lived in the same state for the two years prior to filing then you have nothing to worry about. You use the exemptions from that state.
However, if you moved from state to state during the prior two years, then some important rules apply.
If you resided in the same state for at least 730 calendar days continuously (two years) prior to the filing of your bankruptcy petition, then you can use that state’s exemptions.
If you did not live in your current state continuously for at least 730 days, then you must pick the state in which you lived most of the time during the 180 days prior to the 730 days. In other words, the state that must be selected is where you lived most of the time between 2 and 2 ½ years before filing.
If no state qualifies using the above rules (i.e., you lived in abroad) or if the 180-day state requires current residency or domiciliary to use its exemptions (a tricky issue), then you must use the federal exemptions. The default rule will only apply if you did not live in any state during the 180 day period that began 730 days before filing, or if the state requires current residency or domiciliary.
If You Moved, Seek Advice From an Experienced Bankruptcy Attorney
The above rules can be somewhat confusing. If you moved between different states in the past two or three years, then you should consult with a knowledgeable bankruptcy attorney.
I’m Serious: BAPCPA Man Is Here Again
Posted on Tuesday (August 25, 2009) at 11:30 pm to Bankruptcy Humour
Bankruptcy Can Be Humorous!
In the past two weeks I posted the two debut strips of BAPCPA MAN, the new comic strip from New York bankruptcy attorney Steven Horowitz and and artist Gideon Kendall. Here is stip number three. BAPCPA MAN is designed to entertain both consumers and bankruptcy attorneys.
Steve and Gideon originally came up with the well-received Bankruptcy Bill cartoon strips, about a hapless New York City bankruptcy attorney associate at a large bankruptcy firm.
“BAPCPA”, an acronym universally known to all bankruptcy attorneys, stands for The Bankruptcy Abuse Prevention and Consumer Protection Act. This is the new bankruptcy law that went into effect in 2005.
The strips seek to educate consumers, humor attorneys, and will also try to poke fun at some of the more ridiculous requirements of the new bankruptcy law.
The strip is posted with permission from Bankruptcy Bill.
BAPCPA Man Makes Another Appearance
Posted on Tuesday (August 18, 2009) at 9:45 am to Bankruptcy Humour
Can Bankruptcy Be a Laughing Matter?
Last week I posted the debut of BAPCPA MAN, the new comic strip from New York bankruptcy attorney Steven Horowitz and and artist Gideon Kendall. BAPCPA MAN is designed to entertain both consumers and bankruptcy attorneys.
Filing Second Bankruptcy is Simple as 2 – 4 – 6 – 8
Posted on Wednesday (August 12, 2009) at 5:15 pm to Bankruptcy Procedure
For lack of a better term, I often have “repeat customers” coming back to see me at my Long Island bankruptcy law offices. It is unfortunate, but consumers who have totally eliminated all of their debts in a bankruptcy filing years ago can sometimes find themselves in debt again — especially in these difficult economic times.
The other possibility is that they liked bankruptcy so much the first time around, they want to do it again.
This is the question I get from every one of these clients. Fortunately, the answer is YES! However, when the bankruptcy laws were changed in 2005, various waiting periods were imposed. In every case, you can file bankruptcy again; it’s just a question of how long you have to wait.
Four Important Notes About Filing a Second Bankruptcy Case
The first important note you need to know is that the waiting period starts from the date you filed your prior bankruptcy petition and ends on the date you filed your second bankruptcy petition.
The second important note is that you only have to wait if you received a discharge in your prior case. If you did not receive a discharge, you can file immediately. For example, if you filed a Chapter 13 bankruptcy case, and it was dismissed because you were unable to make payments, you do not have to wait at all to re-file a second case (provided, of course, that you meet other necessary criteria — speak to an attorney about this).
The third important note is if your prior case was a Chapter 13 bankruptcy case in which you paid back your unsecured creditors at least 70%, then you do not have to wait at all.
The final important note is that the waiting period does not prevent you from filing again; it just prevents you from getting a discharge. You can still file without waiting — you just do not get the benefit of the discharge. Why would you do this? If the sole purpose of re-filing is to stop foreclosure, you probably do not need to wait several years, as you still get the benefit of the bankruptcy stay in a Chapter 13 case as well as the ability to cure arrears with a payment plan.
The Waiting Periods Are 2, 4, 6 and 8 Years
If your prior case was a Chapter 13 bankruptcy case and your new case will be Chapter 13, then the waiting period is only two years.
If your prior case was a Chapter 7 bankruptcy case and your new case will be Chapter 13, then the waiting period is four years.
If your prior case was a Chapter 13 bankruptcy case and your new case will be Chapter 7, then the waiting period is six years.
If your prior case was a Chapter 7 bankruptcy case and your new case will be Chapter 7, then the waiting period is eight years.
Important Note for homeowners in foreclosure: Even if you do not qualify to file again based on the above criteria, you can still file for Chapter 13 if the primary concern is curing mortgage arrears. In this instance, you will not receive a Chapter 13 discharge, but you will be able to cure all of your mortgage arrears and stop foreclosure.
The Above Waiting Periods Can be Tricky, So Get Good Bankruptcy Advice
Since the new bankruptcy laws made repeat filings somewhat complicated, it makes sense to meet with an experienced bankruptcy attorney who can give you the appropriate advice about filing a second bankruptcy.
These Waiting Periods to Re-File Bankruptcy Apply In Every State
A number of my blog readers located outside of New York have asked if these guidelines apply in their home state. They do. The waiting periods are the same no matter what state you file in.
For more info about repeat filings, see my full-length post that was published in the Suffolk Lawyer — Consumer Bankruptcy Debtors Face New Limitations for Repeat Filings . That post also contains info about specific issues concerning multiple filings in Chapter 13 cases.
New Bankruptcy Bill Cartoon: BAPCPA MAN
Posted on Tuesday (August 11, 2009) at 9:31 pm to Bankruptcy Humour
Is Bankruptcy Funny?
New York bankruptcy attorney Steven Horowitz and artist Gideon Kendall, the geniuses behind the comic strip, Bankruptcy Bill, have come out with a whole new strip: BAPCPA MAN, designed to entertain consumers and bankruptcy attorneys.
Their original strip, Bankruptcy Bill, is about the trials and tribulations of Bill, a hapless corporate bankruptcy attorney.
Although the first strip seeks to educate in a comical way, subsequent BAPCPA MAN strips will poke fun at some of the more ridiculous requirements of the new bankruptcy law.
Can Consumers Still File for Bankruptcy in New York?
Posted on Tuesday (August 11, 2009) at 4:45 am to Consumer Advice
Yes! Bankruptcy Is Still Available in New York
In 2005, Congress made drastic revisions to the bankruptcy laws. Even though that was three years ago, clients regularly ask me if they can still file for bankruptcy.
Most people still qualify. We find that 7 out of 8 people who would have qualified for Chapter 7 bankruptcy under the old laws still qualify under the new laws.
These laws make the bankruptcy process more involved, and impose many new obligations on both debtors and their attorneys. However, most consumers, especially those on Long Island, are still eligible for Chapter 7 bankruptcy.
The essence of the new laws is demonstrating eligibility for filing by using a series of formulas and calculations called the “means test.”
The new bankruptcy laws also require a 30-minute bankruptcy credit counseling session by phone with a court-approved not-for-profit credit counseling agency prior to filing, and a similar session, called debtor education, after filing.
Debtors must also produce copies of pay stubs and recent tax returns.
Here’s the bottom line: Although the laws have made bankruptcy much more complex than it ever was before, the truth is that most people who would have qualified for Chapter 7 bankruptcy under the old laws still qualify under the new laws. Those who don’t qualify for Chapter 7 can usually file a payment plan bankruptcy — Chapter 13 bankruptcy.
An experienced New York bankruptcy lawyer should be able to quickly ascertain which bankruptcy chapter is best.
The Means Test is Often the Key to a Successful Chapter 7 Bankruptcy Case
Posted on Monday (August 3, 2009) at 3:15 pm to Bankruptcy Means Test
Since the bankruptcy laws were changed in 2005, Chapter 7 eligibility is no longer guaranteed. Debtors must demonstrate that they are qualified to file a Chapter 7 petition by showing that they pass the means test.
The means test is a comprehensive, extremely complex series of calculations that the federal government designed to ascertain whether a consumer qualifies for Chapter 7 filing. This is the first item the Office of the United States Trustee will look at when reviewing a new case, and it is usually the first thing a Chapter 7 trustee will look at as well.
Having experienced bankruptcy counsel to prepare the means test may make the difference between passing it or failing it. An experienced bankruptcy attorney will know what expenses and deductions are permissible and where the bankruptcy court stands with interpreting the means test law.
To date, there have been hundreds of bankruptcy court decisions from around the country, written in the past three years, analyzing the 2005 Bankruptcy Amendment Act. These cases state how the law should be applied in ascertaining if a debtor has completed the means test properly. Obviously, it can be critical for bankruptcy counsel to know the current state of the law when analyzing a client’s case.
The attorneys in my firm regularly review the latest bankruptcy court decisions. I have written extensively about many of these cutting edge cases on this blog. When choosing a New York bankruptcy attorney, consider one who has the experience necessary to ensure that the means test is done right.
Three Reasons Why a Chapter 7 Bankruptcy Case Can Go Bad
Posted on Thursday (July 30, 2009) at 4:30 pm to Bankruptcy Tips Consumers Should Know
As long as a debtor is honest and straight-forward with their bankruptcy attorney about the facts of their case, and as long as the bankruptcy attorney is experienced and qualified to handle the case, there is very little that can go wrong with a consumer’s typical Chapter 7 bankruptcy filing.
Based on my experience, the following situations are where a debtor can get into trouble:
Reason #1: The debtor does not advise the attorney of all of their assets and liabilities and other information, and as a result, the petition is not accurate. If a trustee learns that the debtor withheld important information, the trustee can object to the debtor’s discharge.
Reason #2: The debtor does not use a bankruptcy attorney and instead files a pro se petition. Bankruptcy law, practice and procedure is complicated enough for bankruptcy lawyers; it is even more difficult for the lay person to understand everything that is necessary for a bankruptcy case to go smoothly.
Even if a debtor can prepare the petition on his own, there are still so many requirements under the new bankruptcy laws that it is very difficult to comply with all of them without knowing all of the particularities of the law. The bankruptcy court throws out many pro se bankruptcy cases because the pro se debtor does not do what they are required to do.
Reason #3: The debtor employs an attorney who is not experienced in bankruptcy law. As indicated above, bankruptcy law has become rather complex and complicated and can result in a mine field of traps and pitfalls for the unwary. I’ve personally seen many, many debtors get into trouble because their bankruptcy petitions were filed by general practitioners who were not sufficiently versed in bankruptcy law.
Knowing what assets are protected, knowing what documents must be filed and how, and knowing relevant deadlines are all very important aspects of practicing bankruptcy law which are not that easy to grasp for those who do not regularly practice in the bankruptcy court.