chapter 7 bankruptcy

Calculating Your "Income" For Bankruptcy Purposes

The definition of "income" is pretty straightforward in most contexts. It's generally somewhere along the lines of, "the money I make at work" or the money received from regular benefits such as Social Security or a pension. It seems simple enough.

However, things get a bit more confusing in the bankruptcy context, as they normally do. Income is important in bankruptcy because it determines whether you can file a Chapter 7 bankruptcy, or whether you must file a Chapter 13 bankruptcy (and if so, how much you must pay). The bankruptcy "means test" looks back at the six months before filing to determine your income during that period. So, you just need to look at your paystubs or benefit statements, right?

Nope... not that simple. "Income" as determined by the bankruptcy means test has a very broad definition. Yes, you will need to look at your traditional income, and your paystubs are a good start. But, "income" also includes one time payments, commissions, and bonuses. Income includes household contributions from friends or family members (something few people would think of as "income"). It includes lottery and gambling winnings. It also includes rent, dividends, interest, and royalties, or one time distributions. Most confusingly, it can include alimony or child support (which is normally not taxable), or even inheritances! The definition is so broad it occasionally precludes people in great need of debt relief from filing.

Another confusing aspect of this look back period is that the money is considered earned when it goes into your bank account, not when you actually do the work. So, if you perform a service in December, but are not paid the commission until the next April,  it would be considered "income" in the look back period from August (for which April is in the six month look-back period). The means test can be counter-intuitive, so it is very important your attorney explains it and carefully reviews all income. If in doubt as to whether something is income, tell your attorney!

There are a few exceptions to what is considered income that can work to your favor. Social Security payments are not considered income. Loans are also not income, and neither is your tax refund. But, once again, assume any money coming into your possession in the last six months to be income. An experienced bankruptcy attorney will not lead you astray.

So, what can be done if a one time bonus or windfall is included in your look back period, preventing you from filing Chapter 7 bankruptcy, or artificially distorting your Chapter 13 payment? Wait! No... I don't mean wait for my answer. I mean wait to file!

Proper bankruptcy planning is an important part of my job. Sometimes it is necessary to wait before filing. If you wait a few months, these distorting payments will no longer be part of your look-back period. It's just good planning.

On the other end of the spectrum, sometimes you need to hurry up! If you know that you will soon receive a large bonus at work, you will want to file before it becomes your "income". Remember, it's not when you do the work, it is when you receive the payment. You can use that distinction to your advantage.

Contact us if you want to discuss whether or not your income (or your "bankruptcy income") prevents you from filing. I'd be happy to walk you through this sometimes confusing world!

What is an "Asset" in Bankruptcy?

Bankruptcy law often refers to "assets and liabilities". This seems like a simple enough idea, and for the most part it is. However, what qualifies as an asset is much broader than what many people considering bankruptcy would believe.

The simplest definition of "asset" in bankruptcy is anything you own, or have the rights to, that has value (or potential value). This certainly includes your home, rental properties, cars, bank accounts, personal property, and cash. If you can sell it or transfer it, it is probably an asset.

However, the definition of asset goes far beyond these obvious examples. Assets also include contingent and unliquidated property. Contingent property is any property that becomes yours upon the occurrence of a certain condition, such as an inheritance (which becomes yours upon the condition of someone else dying). If you file a bankruptcy, and you are the heir to a deceased person whose estate is being administered, you must list your interest in the property you are to inherent. NOTE: You are not required to list property you stand to inherent if the person granting you the property is still alive. In a Chapter 7, however, you must inform the Court of any property inherited within 180 days of your discharge.

Unliquidated property is property for which the value or amount has not yet been determined. An example of unliquidated property would be a lawsuit in which your damages or award has not yet been determined. Once again, you will need to list this property as an asset.

Assets may also includes intangible property, such as intellectual property (patents, trademarks, copyrights) and franchises. A customer list used by a sales person could be an asset. A tax return, payment, or commission due to a debtor can also be considered an asset, even though the debtor does not yet possess it.

Clearly, the definition of an asset is very broad. All assets will be listed in Schedules A and B of your bankruptcy petition. Your attorney should closely review all of your assets, so they can be disclosed and exempted. If assets are hidden from the Bankruptcy Court, your case could be dismissed with prejudice. Perjury charges could even be filed.

If you have any doubt if something is an asset, disclose it to your attorney so he or she can determine if it must be disclosed to the Court.

New Year, New Start

New Year's Day is a day for looking back, but also a day for resolutions and fresh starts. New Year's resolutions need not be related to dropping weight or working out. You can also resolve to fix your finances.

Credit card debt, late payments, missed bills... they can all add up to wear you down and break your spirit. But, this doesn't need to be the case. It might not seem like you have options (credit card companies don't want you to think you do!), but you do. Just a few options at your disposal:

  • Chapter 7 bankruptcy- if you qualify, it wipes out most types of debt (credit cards, medical bills, payday loans, creditor lawsuits, etc) AND allows you to keep ALL of your property!
  • Chapter 13 bankruptcy- a bankruptcy reorganization, Chapter 13 provides lots of options. You can pay back taxes, catch up a mortgage deep in arrears, pay credit cards at 0% interest. It's a great way to get your finances in order with Court protection.
  • Debt settlement negotiations- I can also negotiate directly with your creditors. They know I can file a bankruptcy, so they are a lot more open to listening to my offers than your own experience with creditors would make you believe.

There is no reason to let your finances and debt weigh on your thoughts going into 2016. The law is often on your side, so use it! You can be feeling the relief you have been hoping for before the weather turns warm.

I always offer a free, in-person consultation. Contact us to set one up today. I'm an experienced Pittsburgh bankruptcy attorney who has helped countless people just like you. I'm happy to listen, discuss, and plan with you. Let's make 2016 a happier, financially healthier, year for you!

Medical Bills and Bankruptcy

Medical bills are often an important factor in seeking bankruptcy relief. The good news is that they are mostly dischargeable, no matter how large. Given the exorbitant cost of medical care, these bills often grow huge. Here are some things to keep in mind when you are considering filing a bankruptcy to deal with medical bills.

  • Medical bills are normally considered "unsecured" debt. That means they are not secured by your personal property (unlike a car loan or a mortgage), and therefore they can be discharged (or eliminated) like other unsecured debt such as credit cards. In a Chapter 7 bankruptcy, medical bills are completely eliminated. In a Chapter 13 bankruptcy, you may have to repay some or all of the debt, but it will be over a 3-to-5 year plan, and without interest. In either case, bankruptcy will probably be your best option for dealing with the burden.
  • Make sure you gather up all of your medical bills for review by your attorney. Many medical providers do not report the bills to credit agencies, so they oftentimes do not show up on credit reports. Find your medical bills and provide a copy to your attorney. If you cannot find the statements, call your health care provider and ask for one. This is important, because just like other unsecured debts, medical bills are NOT discharged if they are not included in your bankruptcy petition.
  • Let your attorney know if your medical condition is ongoing, or resolved. While medical bills are dischargeable in bankruptcy, you may run the risk that your health care provider in non-emergency situations may stop providing service if they are included in your bankruptcy petition. Timing is important, a good bankruptcy attorney will discuss your options.

Many of my clients are not even aware of some older medical bills. It is best to round up everything when you file a bankruptcy, there is no reason to pay a bill later that can be included and discharged now.

As a Pittsburgh bankruptcy attorney, I would be happy to review your medical bills and help you determine if bankruptcy is an option for you. Contact us for a free consultation. 

The Importance of Pay Stubs in Bankruptcy

When you hire a bankruptcy attorney (I would humbly recommend myself for your consideration) he or she will certainly ask to review your pay stubs, and will continue to do so throughout your case.

Why the obsession with pay stubs?

Exact income information is very important in bankruptcy for a number of reasons. First, pay stubs are used to complete your bankruptcy means test calculation. This is a 6 month look-back (from the month of filing) at all sources of income. The means test will often determine if you will be a Chapter 7 bankruptcy or a Chapter 13 bankruptcy repayment plan (higher income debtors are required to file a Chapter 13). These numbers cannot be estimated, hence the request for pay stubs.

Second, two months of pay stubs are required for a required filing known as "employee income records" or "pay advices". These allow the trustee assigned to your bankruptcy to review your recent income and verify it is consistent with your bankruptcy petition. 

Finally, pay stubs help your attorney to accurately report income in Schedule I of your bankruptcy petition. This is reviewed by the trustee along with the monthly expenses you report in Schedule J.

If you are in a Chapter 13 bankruptcy, it is not required that you keep and submit all pay stubs throughout the duration of the plan. However, it cannot hurt to keep them in case your attorney needs to file an amended plan. Keep your pay stubs in a Chapter 13 bankruptcy at least until you have attended the Meeting of Creditors.

If you are scheduled to consult with an attorney, make sure you gather up all pay stubs for you and your spouse, at least going back several pay periods. This will make it more likely the first consultation will provide useful advice and information. If you do not keep your pay stubs, consult your payroll or human resources department. If you are self-employed, you will need to bring an accurate accounting of your recent business income and expenses.

Pay stubs provide important proof of your income that is need to file and verify a bankruptcy petition. Make sure your bankruptcy attorney is provided with the updated pay stubs needed for your case.