Updated Median Income Amounts For Western Pennsylvania

The United States Trustee has published new Census Median Income tables, effective Saturday, April 1st, 2017. These tables are used to determine whether or not a bankruptcy filer, based on household size and gross income, must file a Chapter 13 repayment. If the household income is above these thresholds, you will need to complete the second portion of the means test.

1. Household of one: $51,138
2. Household of two: $61,271
3. Household of three: $75,018
4. Household of four: $90,821
5. Household of five: $99,221
6. Household of six: $107,621
7. Household of seven: $116,021
8. Household of eight: $124,421

A couple of points of clarification. First, these amounts are for annualized gross income. But, the means test is a 6 month look-back. This can be a bit confusing. If you are the lone household earner, you will be above the threshold if you earn $25,569.00, or one-half of the annualized threshold amount listed above, in the 6 months before filing. The table is calibrated to yearly earnings, but the means test only looks at the 6 months before filing (this consistently causes confusion).

Second, these amounts are for gross earnings, that is, earnings before taxes. The amount you paid in taxes for the 6 months before filing only applies for the second part of the means test, which may reduce the amount you must repay. However, the initial determination is based on gross income.

Third, household size is generally determined by how many dependents you claim on your taxes. There are exceptions to this rule, but it is the basis in most cases. Adult children normally do not count.

Finally, it should be noted that ALL sources of income, outside of Social Security benefits, are used to calculate this income. This includes bonuses, unemployment, lottery winnings, side jobs, and business income. Make sure you report all types of income to your attorney.

If you have any questions about how the means test works, or would like to schedule a free consultation to calculate your earnings, contact us. Make sure to have 6 months of pay stubs and proof of income. I will be happy to walk you through the process.

Bankruptcy and Valentine's Day

What do bankruptcy and Valentine's Day have in common!?

Absolutely nothing!

That being the case, here are a couple far-flung things to keep in mind:

• If you are preparing to file an individual bankruptcy, don't elope right before filing. The bankruptcy court will look at joint marital income in determining how much, if anything, you must repay your creditors. The amount is adjusted for household size, but a married couple may only earn $10,007.00 more than an individual (assuming it is a household of two). So, if your dear Valentine has a job, it could push you out of a Chapter 7 bankruptcy into a Chapter 13 bankruptcy, which would result in you repaying your creditors. On the other hand, if they do NOT have a job, it could get you below the threshold. Let true love (and the median income charts) be your guide!
• Large credit card purchases in the 90 days before filing bankruptcy can also cause a problem. A large Valentine's Day gift of over $500 may be an issue, and could prevent you from filing immediately. These purchases could be challenged as "abusive". If the generosity of true love cannot wait another moment, by all means... But, if it can wait, you should!
• Valentine's Day jewelry is exemptable under the Bankruptcy Code! There is a $1,600.00 Federal exemption per filer for jewelry, which should  cover all but the most lavish Valentine's Day gifts. Seeing as the value of jewelry drops quickly once purchased, and sentimental value is not taken into account, few gifts should present a problem.
• Cheaper, less thoughtful gifts are fully exempted! Cards, flowers, candy, edible arrangements, etc., are all worthless from a bankruptcy perspective... but not for your heart! Gift away!

Have a great Valentine's Day!

Considering Bankruptcy? Make a Budget...

Deciding whether or not to file a bankruptcy is a difficult choice for many individuals and families. Sometimes, it is an obvious decision when facing a lawsuit or a foreclosure. Sometimes it is more unclear. Do I need to file? Is it necessary? If you are asking these questions, it is always a good idea to sit down and write out a budget.

If you decide to file a bankruptcy, either Chapter 7 or Chapter 13, you will need to submit a budget (on schedules "I" and "J"). This allows the Court to analyze whether you qualify. But, it is a good idea to write out a budget even if you are not sure. It is important to have a strong grasp of your finances before filing. Actually sitting down and writing down your budget will help. Seeing the numbers in front of you is a lot more effective than trying to calculate in your head.

When you look at your budget, you can sometimes catch expenses that are draining your bank account that you do not think about. It is easy to lose track of expenses, especially when they are automatically deducted from your bank account or credit card. Cable and internet bills often grow and grow. Seeing the number in pencil or ink will often really let the number settle in.

When you see the numbers in front of you, it becomes easier to determine what can be cut back, or cut out. Auto-deductions for things like gym membership, Netflix, or other online services that are not being used are easy cuts. Without a budget, you might forget about them, or other month-to-month bills. High maintenance on a car might mean you should take more public transportation, or get a better car. Large utility bills could mean you need to winterize your home. A big food expense could mean cutting back on eating out. It is easy for even frugal people to lose track of expenses.

Bankruptcy should be strongly considered when you go through a budget, cut out all of the fat, and there is still not enough money to pay credit cards, past-due payments, and other expenses. Honestly, most of my clients have already cut back on every expense before speaking to me. But, if you are not sure whether bankruptcy is an option, go through the numbers on paper. The numbers won't lie.

Chapter 13 bankruptcy can be an option when you are behind on a mortgage or a car payment. You might not be able to make a lump sum payment to cure these arrears, but spreading the payment out over 3 to 5 years might be an option. It is important to know how much you can realistically afford. A budget can help.

What is the best way to go through this information? Have a recent bank statement and credit card statement(s) ready in order to review your automatic deductions. Next, go through home expenses, such as rent, mortgage, utilities, or maintenance. Do the same for your cars, with monthly payments, gas, maintenance, and insurance. Go through your bills, such as credit cards, student loans, and bank loans. And finish up by reviewing expenses for food, activities, health care, and special expenses. Be thorough.

You might be able to balance your books. When you can't make the budget work in order to pay the bills, you should strongly consider a bankruptcy. Contact us if you would like to review you budget and expenses. We'll be happy to meet you for a free consultation.

The Means Test and Non-Consumer Debts

Individuals looking to file for relief under the Bankruptcy code will normally be subject to the "means test". The means test is a six month look-back of all income earned by the household in the period right before filing bankruptcy.

This definition of income is broad. It will not only include salaried income, overtime, commissions, and bonuses, but it will include one time payments such as lottery winnings and inheritances. It will include unemployment compensation, and it will even include money that is not taxable, such child support. This broadly defined income will be compared against household size, and if your income is above the threshold, you may be required to repay your creditors in a Chapter 13 bankruptcy. For a household of one, the threshold is about $25,000 in gross income over the previous six months. The threshold increases with household size.

The means test is very important, as the result can lead to thousands of dollars of repayments if it is failed. In the vast majority of bankruptcy filings it applies and must be completed. The vast majority of cases... but not all.

The means test does not apply when the majority of your debts are business in nature, not consumer. 11 United States Code 707(b) says the means test only applies when, "debts are primarily consumer debts." So, if you your debts are primarily from a failed business, the look-period on your income described above does not apply. This is obviously very important if your income is potentially above the threshold. You may be able to avoid filing a Chapter 13 bankruptcy.

So, when are debts primarily business? Is it the number of debts, or the dollar amount? Most courts hold that the dollar amounts of your debts is the determinant amount, and this makes sense. A handful of credit cards in the thousands with a single massive business debt in the hundreds of thousands could hardly be described as "primarily consumer" in nature. Still, it is advisable to consult an experienced bankruptcy attorney with debts of a mixed business and consumer nature, or when the amounts could be in dispute. Generally, if the debt was used to pay primarily personal, family, or household debt, it is consumer, and you will be subject to the means test.

What kind of proof will you need that your debts are primarily non-consumer? The statements themselves will often make it clear, especially if they show the purchase of business assets. The Court may want to see original paperwork related to loans from banks, so you may want to gather that information. Proof of other business statements, such as LLCs and operating agreements can also show that the debts were incurred while in business, for the benefit of the business. Any proof you can provide that show non-consumer intent will be helpful in your bankruptcy case.

Contact us if you have significant business debt. The Bankruptcy Code can be used to your advantage to eliminate these debts and give you a fresh start. We will be happy to discuss your situation in a free consultation. Don't let old business debts drag down your future.

Should I Stay of Should I Go?

Deciding on whether or not you should keep a home in bankruptcy

Bankruptcy provides the option of keeping your home or walking away from it, whether you are current on the payment, or months behind. Sometimes this is an easy decision. If you love your home and want to live there the rest of your life, and you are current on the payment... of course you will stay. If you are six months behind on a home that you only purchased to make your ex-husband happy... you can go. But, sometimes there are situations that fall between these two extremes that are not so clear cut.

The bankruptcy discharge can eliminate your personal obligation on your mortgage loan. The "mortgage" is your obligation to pay, while the "deed" lists who has ownership rights. By wiping out your personal obligation, you eliminate the possibility of the mortgage company suing you for any deficiencies and penalties. This is very important if your home is going up for sheriff sale auction. Homes often sell far below their normal value in a sheriff sale, and this can leave you with a huge deficiency on what is owed. Bankruptcy is a great way to get out from under this obligation.

At the same time, Chapter 13 bankruptcy can be used to catch up on arrears on your home when you have fallen behind on the payments. The arrears are caught up over three-to-five years, and paid without interest. This can even save a home on the brink of a sheriff sale. As long as you have the income to save it, you can catch up on large arrears.

The dilemma arises when you are somewhere in between these extremes. For instance, you may be 6 months behind on a house you like, but you were having difficulty making the payment to begin with. Or maybe your payment is current, but the home needs major repairs. Deciding whether or not you want to keep the home in these situations can be a difficult decision. Here are some things to consider:

• How much equity do you have in the home? If your home is "under water" (that is, you owe more than it is worth), you should consider surrendered more that if you have a lot of equity. If you have equity, you should be everything you can to salvage the home, even if you just want to resell it yourself (remember, sheriff auctions often fetch ridiculously low bids)
• Can you realistically afford the payment going forward? You have to think long and hard about whether making the monthly payment will be feasible over the coming decades. This can be a hard reality to face, but living in a less expensive home can make life a lot easier. You don't want to be "house poor".
• Do you have other living options? Have you considered moving back with your parents or a roommate? Do you have a good rental lined up? It is easier to walk away when your next move is planned.
• How much do you love your home? If you really love it, and you can afford it going forward, you should stay! Sometimes people fall behind their mortgage because of a temporary loss of income. Once you are earning again, you can often afford to keep your home in Chapter 13.
• Does the home need major repairs? If repairs for foundation or structural damage are too great to finance, it is often times to walk away.

Keeping their home is often a first priority for my clients. If you have the income to afford the payment, you can always keep it in bankruptcy. But, if you are questioning whether it is worthwhile, contact us to discuss your options.