Means Test Update for April 1, 2024

The bankruptcy means test has been updated once again as of April 1, 2024. The means test looks at gross income for a household in the six months before filing bankruptcy. If you are above the threshold, you are required to do a five-year chapter 13 bankruptcy repayment, with all disposable monthly income being paid to your unsecured creditors. The test is normally updated once or twice per year, and usually the amount goes up. However, in November 2023, the amount decreased. In the latest update, the threshold increased across the board, which should make it easier for some debtors to qualify for chapter 7 bankruptcy.

The amounts listed below are for gross income, that is money earned before taxes and any deductions from your paycheck. Household size is determined by spouses and dependent children living in the home. Keep in mind, even if you are the only spouse filing, the bankruptcy court will look at both incomes in determining the test. The amounts listed at the maximum gross monthly household income to be below the means test threshold.

• Household of 1: $5,577.00

• Household of 2: $6,798.00

• Household of 3: $8,598.00

• Household of 4: $10,488.00

• Household of 5: $11,313.00

• Household of 6: $12,138.00

• Household of 7: $12,963.00

• Household of 8: $13,788.00

Call us at 412-414-9366 if you have any questions about whether or not you qualify for chapter 7 bankruptcy under the means test, and if not what a repayment may look like in a chapter 13. I would be happy to discuss your situation and see if I can help.

Home Equity Loans and Debt

Many people dealing with large amounts of debts consider home equity loans as a way to consolidate the debt, reduce their payments, and hopefully pay it all back sooner. It seems like a great idea on its face, but there are a lot of potential problems.

Home equity loans allow you to reach into the equity. you have built up in your home over the years and use it for various things. Most commonly, they are used for repairs and additions to the home. However, they are also used on some occasions to try and pay back credit card and other unsecured debt.

Home equity loans are not as easy to get as it may seem. Many people find that the equity in their home is remains locked, even if it is significant.  I often tell people that home equity loans are usually only available to people who don’t really need them. What I mean is that when you are in a tough position banks are reluctant to give you money, even if there is equity in your home. Home equity loans are best utilized by individuals with large amounts of income and equity.  Unfortunately, people who need to access their home equity find it most difficult.

Banks, don’t actually want to have to foreclose on your home to get paid. Therefore, they only let money to people who they believe will almost certainly pay them back.

Even if you get a home equity loan, they still raise problems.  First, with rising interest rates the loans often are still 11% to 12%. While this is better than nearly 30% on credit cards, it is still significant.

But, the biggest problem is that if you don’t pay a home equity loan you can lose your house.  Failing to pay your credit cards can be problematic, of course. However, if you fall behind on your credit cards, they cannot come and directly take your house. If you fall behind on your home equity loan, that can absolutely happen. Even if you think you should have no problem, paying it back, things happen. You can get sick, injured, or lose your job.  You don’t want your worst-case scenario to be losing your home.

Call us at 412-414-9366 and I would happy to be at discuss some different options, including chapter 13 bankruptcy. Despite the name of bankruptcy, it involves repaying your creditors at 0% interest , with none of the dangers of a home equity loan. I would be happy to discuss your situation and see if it is a better option.

The Problem With Debt Consolidations

Debt consolidation services and programs look great at first glance. They promise to reduce the total amount that you need to repay to your creditors, saying that they can get the creditors to take less than the full amount through. Their fees are often unclear, and not really brought into focus. As a result, it can seem like they’re charging nothing. And they make it everything sound as if it will be as easy and smooth as possible. However, the reality is often something different.

These services cause a lot of problems, and I know this because their clients often end up calling me. The consolidation services rarely explain that the only way credit cards and other creditors will negotiate with them is if your debt is already in default status. This can take anywhere from several months up to 6 to 8 months to occur. If you’re payments are current, credit card companies will not negotiate to take less than the full amount from you or anyone else. At that point, they have a valid contract, which they believe they’ll get paid on. The consolidation services allow your debts to go into default status,  and they often do this without informing their clients of the dangers.

I have negotiated on the behalf of clients with credit card companies, but I always make it clear that the debt has to be a default status first. The result of the consolidation services failing to explain this is that clients often end up being sued when the service is unable to come to an agreement with them.  The credit card companies, once you are in default status can, and will, sue you. Unfortunately, when this happens to someone in a debt consolidation program, the program will tell them to call a bankruptcy attorney. They will do nothing to defend the lawsuit.

The second major issue with that consolidation programs is that they pay themselves first. While you are sending them monthly payments, they take the bulk of the money and pay their own fees. Some of the money may go into escrow for negotiations, but as explained above those negotiations don’t always end up happening. In addition to not explaining the requirement of the debts being in default, the services also are bad at explaining their fees and cost. Feedback from my clients has led me to believe that these companies are not often transparent. Always keep in mind that none of your creditors are required to negotiate with a debt consolidation company, or anyone else, including myself.  The consolidation companies cannot compel them to negotiate.

If you have money to pay your creditors and are looking for options, call us at 412-414-9366. Negotiation with your creditors may be possible, but it is better done through a local law firm , who can explain the situation, provide transparency, and provide actual legal advice. Chapter 13 bankruptcy may also be an option as a way to compel your creditors to accept a repayment plan. Unlike negotiating, bankruptcy is filed with federal court orders that require your creditors to take part in the payment program. I would be happy to discuss your situation and see what options you have.

Penalties, Fine, and Restitution

The bankruptcy discharge can wipe out a wide range of different types of debt. This includes credit cards, medical bills, personal loans, repos, and even old taxes. However, there are a range of non-dischargeable debts in bankruptcy. One of the types of nonchargeable debts are for penalties, fines, and restitution.

Criminal restitution is never dischargeable in bankruptcy. You may be forced to pay criminal restitution if you have been convicted of a crime (or plead guilty) which caused damage or loss of property. Restitution results in you having to repay the victim over a period of time. It is the policy of bankruptcy law that these victims should not have their payments discharged through a bankruptcy. In practice, this is quite rare, and very few bankruptcy filers are in the midst of criminal restitution.

A more common occurrence is a bankruptcy filer who is in the midst of paying penalties or fines for something like a DUI. These fines are also not discharged. There may be some question as to whether or not these fines can be collected during the duration of the bankruptcy, but either way they must ultimately be repaid.

The most common penalties and fines that I see fairly often with my clients involves things such as parking tickets and turnpike tolls.  Most drivers have received a parking ticket or an unpaid told at some point in their life. These will not be dischargeable in bankruptcy, and must be repaid. In general, if it is money owed to the government for some type of penalty, it will normally not be discharged in bankruptcy. 

If you are considering filing bankruptcy or have questions about it, or what is dischargeable, call us at 412-414-9366. I would be happy to set up a free consultation and discuss your situation.

Financial Resolutions

January is the time for New Year’s resolutions. It’s also a good time to make some 2024 financial resolutions. What are some useful steps and information to review in order to set up your 2024 financial outlook?

The first step I always recommend is to make a budget. Sit down and list all of your household income, regular or otherwise, and try to come up with an average of your monthly take-home income. Next, to the best of your ability, try to come up with a monthly average of all your household expenses. The most important thing when determining expenses is to be honest. The only way this exercise will be useful is if you are honest about your expenses. If you say that you have $20 a month in streaming services, but when you sit down and review it, it’s actually closer to $100 a month, the lower amount does no good in determining your expenses.

The most common areas that people underestimate are for entertainment, eating out, gambling, alcohol, and cigarettes. People generally underestimate how much it costs to maintain their home and their vehicle. Going through a budget will give you an idea of where your money is really going, and help you determine what is necessary and what is not.  You will be surprised with how much money you can free up.

The second step I would recommend in looking at your finances would be to run a free credit report. Get an idea of what is out there and what you owe. Just as people underestimate some of their expenses, they also underestimate some of their debts. Combined with your budget, sit down and figure out how much a month you are spending to maintain and service your debt. Not surprisingly, people will underestimate this as well. Having a grasp on your total debt is essential to making a plan to deal with it.

A third step I would recommend is to write out your financial goals for 2024. It might be a matter of paying down your credit cards or reducing expenses. You may also want to set goals for savings. If possible, maximize any matching contributions for retirement accounts with your employer. Set up a separate savings account with your bank and try to put away a certain amount per paycheck into that account, not to be touched for anything except the largest emergencies.  Financial goals help us to focus and keep us accountable.

If your financial burdens feel impossible to tackle, contact us at 412-414-9366. I would be happy to set up a free consultation to discuss your situation. While I primarily focus on bankruptcy,  if there are other options, I would be happy to discuss them with you. When your debt seems immovable, bankruptcy sometimes is the best option. Try to put yourself in the best position for 2024 and going forward.