Annual Means Test Update (April 2019)

The United States Bankruptcy Court requires all filers of bankruptcy to complete an income “means test”. Means testing is an objective way to determine eligibility to file bankruptcy by looking at an individual or couple’s recent income. While there are other factors that may prevent you from filing bankruptcy or may determine what type of bankruptcy you may file, the means test is the first step.

The means test is updated every year on April 1st to account for inflation and the increased cost of living. The increases are not dramatic, but usually hover around 2%. Nonetheless, if you are close to the threshold, a small change can be very important.

The means test for the Western District of Pennsylvania are the follow as of April 1, 2019 (note that it will vary by district):

  • Household of one $55,117.

  • Household of two $66,649

  • Household of three $82,518

  • Household of four $100,078

  • Household of five $109,078

  • Household of six $118,078

  • Household of seven $127,078

  • Household of eight $136,078

Each additional household member would allow an increase of $9,000.

A few important points. First, the amounts above relate to GROSS, BEFORE-TAX earnings. So, you can’t reduce the amount with deductions in your paycheck for taxes, retirement, and insurance. Most people think of their income in terms of the money left over after every paycheck, but that does not apply here. It’s all before tax.

Second, the numbers above are for your annual income, but the actual means test looks at the six months before filing. This can be confusing. The annualized numbers above are what is published, but you should actually divide them by two to determine what you can earn in the six months before filing. In other words, if you are a household of one, you can earn up to $27, 558.50 (gross) in the six months previous to filing.

Bankruptcy has a broad definition of “income”, so one-time bonuses and commissions may distort your income. Means test planning is an important part of bankruptcy law, so we may need to review your income closely.

One final issue may be what constitutes a “household member”? While I discuss this subject in more detail on this subject elsewhere in this blog, the short answer is “if they’re on the taxes, they are a household member”. If someone lives with you, but you cannot claim them as a dependent for the purposes of the IRS, you probably won’t be able to count them in bankruptcy.

Contact us if you have any questions about the bankruptcy means test, and whether you apply. I will be happy to review your income with you and see if the means test will limit your bankruptcy options.

Aggressive Collection Practices

I have seen a recent spike in aggressive collection practices. This isn’t surprising. In fact, it is something of an annual rite of passage. Collection firms tend to be more aggressive early in the year because they know debtors may be receiving Federal tax refunds. This makes it more likely debtors will have money to repay… or seize.

While this spike in creditor actions is not surprising, there has been a clear, abnormal increase in creditors taking the next step… going after property. This generally occurs in the following manner. The creditor will file an action at the magistrate level. When the debtor does not respond, the creditor gets a default judgment against them. The creditor then files a motion in the Court of Common Pleas to execute on the judgment from the lower court.

Once the Court of Common Pleas issues a judgment, the creditor may execute on the judgment. In short, this means “go after your property”. Recently, creditors have been executing by issuing interrogatories on debtors, or scheduling depositions for the creditor to testify. Interrogatories are formal demands for information regarding your property and its location. You will be asked to list bank accounts, real estate, cars, retirement accounts, investments, and other property.

Depositions are similar demands for information, except the information is taken in person, under oath. The purpose of both interrogatories and depositions is to gather information about your property in order to seize some of it to satisfy the judgment, for instance, by putting a lien on a home or freezing a bank account.

It is important to note that if you do not respond to these demands for information, you may be found in contempt of court. Unlike the initial lawsuit where a judgment is entered against you if you do not respond, but there are no other penalties, you can not ignore these demands. Even if you do not have an attorney, you should respond.

What should you do if you receive an interrogatory or deposition in aid of execution? Call an attorney. As an experienced bankruptcy attorney and debtor’s rights attorney, I may be able to discharge the underlying debt before you need to answer. In some cases, an arrangement can be made to satisfy the debt. It is actually best to speak with an attorney as soon as the original lawsuit is served on you, but it is not too late once you reach this stage. The sooner you contact an attorney, the sooner you will be protected.

Contact us if you are the target of aggressive collection practices such as these, or aggressive phone calls and notices. You don’t need to lose you property or be harassed. If the creditors get aggressive, you need to be prepared to be aggressive yourself!

Holiday Shopping and Bankruptcy

As a bankruptcy attorney, this is my slowest time of year. It’s not fun to think about and deal with financial troubles right before the holidays. While sometimes these troubles can become so urgent, it becomes necessary to deal with them right now, most times my clients (and presumably future clients) will put it off until the new year.

And that is fine and understandable. The new year is a time for fresh starts, but the holidays are for families and activities. However, it is good to keep a few things in mind if you are considering bankruptcy, but wish to put it off until after the new year.

First, make sure you are keeping your mortgage and utilities current. I can stop foreclosures and utility shutoffs, but only if I am filing a bankruptcy. If you are putting off bankruptcy until next year, the promise of filing will not stop a mortgage company or a utility from taking action if you are behind on payments, even if you have hired me as your attorney. This also goes for car payments. A foreclosure, shutoff, or repo can happen any time of year (unfortunately), so don’t let yourself get into a bad situation that requires urgent action.

Second, be careful about using credit cards to finance your holiday spending. Too much usage, or filing too soon after usage, could lead to a charge of abuse by the credit card company or United States Trustee. You may need to wait to file, or you may not be able to file at all. This can be difficult to ask, as many people pay for the holidays on credit, but it is something to strongly keep in mind. You may need to be more frugal than usual before the holidays, but that doesn’t mean you can’t enjoy them. You can make next year easier by being careful today.

Third, if you are stressed about your finances, but don’t want to actually file bankruptcy, contact us to set up a free consultation. Just talking about your problems and coming up with a plan could greatly reduce stress and allow you to better enjoy your holidays. Putting off the problem completely could allow bad feelings to linger just beneath the surface. Talk it over with an experienced bankruptcy attorney, and you are bound to feel better.

Finally, be careful about what you give away, or transfer. It might seem like a nice gesture to transfer a car or other major property as a gift to friends or family. Unfortunately, this could be interpreted as an attempt to hide assets from your creditors. Once again, speak with an experienced bankruptcy attorney before you do anything.

You can still enjoy the holidays if you are having tough financial times. You can deal with the problems in a conclusive manner at the beginning of the new year (as many of my clients do). However, make sure to take these precautions and things will be a lot easier going forward. Contact us if you have any questions or would like to sit down, meet, and review your situation.

Updated Median Income Standards

The median income standards for determining if you qualify for Chapter 7 bankruptcy will increase on November 1st, 2018. The standard looks at two things, household size and gross income. It is increased periodically to account for inflation and increased cost of living.

The new standards are as follows:

  • Household of 1 person: $53,803.00

  • Household of 2 persons: $65,060.00

  • Household of 3 persons: $80,551.00

  • Household of 4 persons: $97,692.00

Each additional household member will allow an additional increase in household income of $8,400.00.

A few important things to note. First, household size is determined primarily by whether or not the adults living together are married, and whether or not the children in the household are claimed on the federal income taxes as dependents. So, if a married couple has two kids who are both claimed on their taxes, the household size is four. If a single, divorced person lives with their child part-time, but does not claim the child on their taxes, it is a household of one. There are more complex situations that can be discussed with your bankruptcy attorney, but this is just a broad, brief overview.

A second thing to note is that the household income will look at all types of income for BOTH spouses, whether they are filing for bankruptcy or not. Income includes, but is not limited to, bonuses, unemployment, self-employment, side jobs, Social Security, and pensions. If one spouse has a large income, but no debts, the bankruptcy court will still consider their income in the household total. Income has a broad definition in bankruptcy, if you have any doubt, ask your attorney.

A third important thing to note is these standards refer to gross income, which means your income before taxes. This is very important to keep in mind, as net (after-tax) income can be dramatically different. Many people think of their “income” as the amount of money they take home, but in bankruptcy on the means test, it will refer to your income before taxes.

In any case, your attorney will need to closely review your income to make sure you fall below the median income standard, so always be ready to gather up six months of paystubs. And remember, even if you go above the standard, you may still qualify for a Chapter 13 bankruptcy.

Contact us if you have any questions about whether or not you will be below the median income standard.

Can You Get A Car In Chapter 13 Bankruptcy

Chapter 13 bankruptcy typically runs three-to-five years. During this time, cars can die and break down. A common concern for Chapter 13 filers is whether or not they can get a new car loan after filing. The answer is "yes", but there are some limitations.

In order to finance a vehicle in Chapter 13 bankruptcy, the attorney of the filer must get Bankruptcy Court permission to do so. This is done by filing a motion and getting a signed court order. You should give your attorney as much heads up as possible that you will need a new car, as preparing this motion can take some time, and the court will need to review it, even if it is filed on an expedited basis. Don't call your attorney at the last minute. You should give him or her a month of notice, if possible.

What will the court consider in deciding whether to allow someone to finance a vehicle in bankruptcy? First, they will need to see that payments in the bankruptcy case are current. If you are behind on the payments, the court will not allow you to take out new debt, no matter how badly you need the car. If you are behind a couple payments, you will need to catch them up.

Second, the court will need a reason that the new car is needed. It doesn't need to be anything dramatic or long-winded. Typical reasons include your old car permanently breaking down or a change in life circumstances that would require a new car (for instance, taking a job outside of the bus line). The court will probably not accept the request if the reason is that you don't like your car, or you want a nicer car. It has to be a necessity.

Third, the court will place limits on how much you can finance, regardless of how much you make. The current limits are $25,000 total financed, and/or a payment no larger than $400 per month. This may limit what you want, but it is likely non-negotiable with the court. A large finance payment will not be permitted.

Once the court grants your motion, you will need to find a dealership that is willing to finance through Chapter 13 bankruptcy. They exist, but they will likely charge a very high interest rates, and you may need to shop around. The interest rates are sometimes over 20%, which can make a car prohibitively expensive in Chapter 13 bankruptcy. For this reason, it is almost always preferable to try and make it through your Chapter 13 bankruptcy with your original car.

After securing financing, a second motion must be filed with the court approving the loan. As mentioned earlier, the court will only approve the financing if it is for less than $25,000 and less than $400 per month. Once this motion is approved, your bankruptcy plan must be amended to incorporate the new payment. Obviously, it will need to be an amount you can afford. You will need to make the payment directly until the payment is made by the Trustee.

If you are married, and only one spouse needs to file, the non-filing spouse may secure financing outside of bankruptcy. This will be much easier, and it will not require you to include it in the bankruptcy. This is something to keep in mind when filing.

You can buy a car in Chapter 13 bankruptcy when the need comes up. But, it must be necessary, and there will be limits to what you can buy. If you are considering bankruptcy and believe this may be an issue, contact us to set up a free consultation.