Means Test Update, May 2017

The means test is a six-month income look back that is calculated when filing a bankruptcy. It determines if an individual must repay unsecured creditors in a Chapter 13 bankruptcy. This threshold is determined initially by looking at gross household income and household size. The gross income thresholds are periodically updated by the bankruptcy court for each region, to take into account inflation and other factors. They were most recently updated on May 1st, 2017.

The gross income limits for the six months before filing, above which you no longer qualify for Chapter 7 bankruptcy in most cases, are now the following in Allegheny County (as of May 1st, 2017):

• Household of 1: $25,569.00
• Household of 2: $30,635.50
• Household of 3: $37,509.00
• Household of 4: $45,410.50
• Household of 5: $49,610.50
• Household of 6: $53,810.50
• Household of 7: $58,010.50
• Household of 8: $62,210.50

Each additional household member beyond 8 will add $4,200.00 to the threshold.

A few things to point out about this chart. Once again, this is for all household income for the six months previous to filing, including non-filing spouses. Even if a spouse has no debts, or no desire to file, their income will be a part of the calculation if they are married and living in the same household. Pretty much all sources of income outside of Social Security payments is considered income. This includes unemployment, bonuses, retirement distributions, lottery winnings, and rental income. If in doubt, assume it will be income for means test purposes.

Second, dependents are generally determined by their federal income tax status in the family. In short, if you claim a child on your federal income taxes, you can claim them as household members for purposes of the means test. Adult dependents can sometimes be claimed, but you will need to consult an experienced bankruptcy attorney to determine this with certainty.

Finally, remember these numbers are for gross (before tax) income, not net (after deductions) income. If you are above the threshold, but just barely, your attorney can review your deductions to determine your "Disposable Monthly Income", or DMI. This calculation will determine how much, if anything, you must pay your unsecured creditors.

The means test is a moving six month window. Contact us to take a look at your recent income and determine if the means test will be an issue in your case. It may be necessary to wait, or hurry up and file, depending on your recent (and future) income. I will be happy to look at your situation at a free consultation.

Some Bad Habits That Lead To Bankruptcy

Focusing on consumer bankruptcy practice, I file a lot of Chapter 7 and Chapter 13 bankruptcies. I get to meet with a lot of people in similar situations, and I see some similarities in their concerns and problems. Some common trends develop. While these are far from universal, they are some simple things to avoid when trying to fix your credit or limit your debt.

• Open all of your mail. Many of my clients stop opening their bills at some point. I can understand the reluctance to do so. You can only receive so many threatening letters and admonishments before the idea of opening your mail starts causing stress and anxiety. But, it is best to keep opening your mail. For one thing, it keeps you appraised on how much money you owe, and information is extremely important. Second, it can keep you notified about potential lawsuits, repossessions, and garnishments. Too many clients are confronted with problems too late in the process to do anything about it because they do not open their mail.
• Don't buy brand new cars. The value of a new car plummets when you drive it off the lot. Most people know this, but it is a bad idea to overlook this knowledge when you are facing debt problems. Many of my clients are forced to scrap these expensive loans in Chapter 7 bankruptcy and scramble for a more affordable vehicle. Or, they must file Chapter 13 bankruptcy and keep making the payment, which makes completing the process more difficult. Buying a car that is even a year or two old will potentially save you more than $100 per month. Also, rolling old car loans into new car loans can further complicate the problem by putting you even further underwater.
• File your taxes as they become due. Taxes are one of the types of debt that are not dischargeable in Chapter 7 bankruptcy. They won't go away if you ignore them. In fact, failure to pay taxes can lead to future tax returns being withheld, or even worse, garnishments on your wages. Finally, you cannot file for bankruptcy and receive a discharge unless all of your taxes are filed.
• Taking out "payday" loans. These short term bridge loans are normally at extremely high interest rates. While they are dischargeable in bankruptcy, they should still be avoided if at all possible.

Avoiding the above suggestions will sometimes prove impossible, and doing one of the above on its own will not of course automatically lead to bankruptcy. No one is saying, for instance, that you can never buy a new car. But, taken together, these can be viewed as situations that lead to bankruptcy. If you can't pay your taxes, you shouldn't buy a new car. If you take out a payday loan, you better keep track of exactly what you owe, before the debt explodes, etc. Keep these in mind if your debts become a bigger issue every month. Contact us if you feel the need to discuss your issues, we'll be happy to set up a free consultation!

Medical Bills and Bankruptcy

When I speak with a potential new client, and I am trying to get a feel for their situation, one of the first questions I ask is, "how much credit card and medical debt do you have?" There is a good reason I ask this question, because these are the primary types of debt that weigh most of my clients down. Medical bills are only growing larger.

Medical bills can be downright astronomical, especially for individuals without health insurance. Many clients face five-figure medical burdens. I have had multiple clients with over $100,000 in medical debts. These is not much you can do about debts this large, unless your income is enormous. Bankruptcy must be a strong consideration in these cases. Medical bills do not spiral as quickly as credit cards, because there is normally no interest owed. However, the underlying debts are often far larger.

Not all medical debt burdens are this dramatic, but medical debt in the thousands or ten-of-thousands can be just as onerous when combined with credit card debt, mortgages, car payments, and student loans. The good news is that medical is almost always dischargeable in bankruptcy, whether it is made up of several small co-pays, or a huge six-figure bill. Eliminating them can be the main purpose of your bankruptcy.

Unfortunately, this is a problem that will only get worse, as Congress seems intent on limiting who can receive affordable health care, and how much it will cover. Uninsured debtors are always a sever injury or extended illness away from financial ruin. Bankruptcy will be the best, and most legitimate option for dealing with the huge bills that result. This is a problem worth watching in the coming years. I expect more and more people being forced to file over the next 3 or 4 years.

When I meet with individuals facing medical bills, I always make sure they gather up every bill they have in their possession. Medical debts are often not reported to credit agencies, and therefore do not show up on credit reports. Debts not disclosed are not discharged though bankruptcy, so it will be important to provide your attorney with every statement. Trying to decipher medical bills can be headache-inducing, as statements on the same service often show up in different forms, with different return addresses and account numbers. More is better... gather everything up and let your attorney review it. There is no need in missing a bill due to lack of thoroughness.

A final thing to consider with medical bills is whether you will have any upcoming or ongoing bills. If you file bankruptcy too early, these bills will not be discharged, as only debts accrued before bankruptcy can be discharged. Let your attorney know about your medical future so he or she can help you best determine when to file your case.

Medical bills will become a growing debt problem as Congress reduces and limits access to many working Americans. I have seen this in the past, and it is sure to reoccur as the number of uninsured Americans increases. Contact us if you are facing medical bills you can't pay to set up a free consultation and learn about your options.

You Can Keep Your Car In Bankruptcy... But Should You?

Bankruptcy affords numerous opportunities to keep your vehicle. This is important, because you need your car to get to work, pick up your kids, and in general get around a town that doesn't have great public transportation. However, just because you can keep your car in bankruptcy doesn't mean that you necessarily should.

Bankruptcy allows you to keep your vehicle as long as you can show that you can afford the payment. In Chapter 13 bankruptcy, you can even catch up on arrears owed and/or stop a repossession. The arrears can be made current over the three-to-five year repayment. So, in most cases, a car can be retained. However, there are situations when you should consider surrendering it through the bankruptcy.

The most common situation for surrender is when the arrears are too great to pay. If you qualify for a Chapter 7, and there are arrears on your vehicle, you would need to file a Chapter 13 bankruptcy to keep it. Chapter 13 bankruptcy is more expensive and time consuming that Chapter 7 bankruptcy, and it just might not be worth it. You can walk away from your obligation in Chapter 7, which may be an attractive option. When you walk away from a car in Chapter 7 bankruptcy, surrendering it to the creditor, your financial obligation is wiped away. You will not owe any deficiency.

An important point will be how much you owe versus what your car is worth. If you owe $20,000 and an additional $5,000 in arrears, but your car only has a Blue Book value of $15,000, it might not make sense to keep such a high payment for such a low-value car. If it is your only vehicle, and you absolutely need it to get to work, and there will be no other way to finance a vehicle in the future, you may need to bite the bullet and keep it. But, if you can use a spouse's or parent's vehicle, or take public transportation, bankruptcy might be a good opportunity to get away from the payment. It will depend on your particular circumstances.

I meet with many clients struggling with large car payments who, upon learning they can get away from the vehicle obligation, are happy to do so. Large car payment weigh my clients down. And cars only depreciate in value. It will not be very difficult to get financing on a more modest vehicle after filing your bankruptcy.

One situation where it probably makes sense to keep the car is when you must file a Chapter 13 bankruptcy that repays your unsecured creditors in full. In these cases, if you surrender a car, you will have to repay the deficiency on the car loan (unlike in a Chapter 7 bankruptcy). It doesn't make much sense to pay for a car you no longer possess, so keeping it is more likely your best option.

So what should you do? Contact us to set up a free consultation to discuss your automobile situation. I will be happy to sit down and review your case in detail. The monthly payment, your future prospects, and the condition of the vehicle should be considered. Your circumstances will probably dictate what you should do, but the decision will always be yours.

Why Are There No Creditors At The "Meeting of Creditors"?

The prospect of the Meeting of Creditors causes a lot of anxiety for many of my clients. While this is understandable (the process is new to them), it is unfounded. There is very little to worry about during the Meeting of Creditors as long as you are honest and prepared.

A major cause of anxiety is the belief that your creditors will be present, and will cross-examine and grill you. People picture a courtroom setting with a judge and prosecuting attorney. Given the aggressiveness of collection agencies that have hounded them for months and sometimes years, debtors understandably believe a similar attorney will appear in an attempt to intimidate and belittle them. In reality, nothing could be further from the truth.

First of all, there is no judge and no courtroom. The Meeting of Creditors is conducted in a normal office room, in front of a "trustee", who is an attorney appointed to review the case. While there are bankruptcy judges and courtrooms, these only become necessary in complicated and disputed cases. The Meeting of Creditors is a much less formal affair. The trustee sits in the place of the creditors who are owed money, reviews the filing, and asks the debtor some simple questions. Your attorney will be at your side to assist you.

And this brings me to the point of there being no creditors at the Meeting of Creditors. As crazy as it sounds, there is normally no reason for them to show up. First of all, they would need to either hire and attorney or in-house council to appear, which is costly and time consuming. Given the fact that they have little hope of recovering any money in a Chapter 7 bankruptcy, this would be a waste of money for most creditors.

Second, the trustee acts in their place. If the debtor appears to have assets or income sufficient to pay their creditors, the trustee will take action. The trustee will object to the bankruptcy filing if there is anything improper about it. The trustee receives a cut of the recovery, and would thus be motivated to act on their behalf if something is available. With little in the way of rights, and very little chance of recovery, and the trustee sitting in their place, it is extremely rare when a creditor shows up. 

There is also little reason for the creditors to show up in Chapter 13 cases. Once again, there is a trustee sitting in their place. Also, the amount of money there are to be repaid is determined by the claim they file, not by a personal appearance.

The only situation when creditors may (rarely) appear is when they are "unsophisticated creditors". This means they are not a credit card or finance company. An example would be someone included on a personal loan, or an ex-landlord. These individuals know very little about the process, and when they receive a notice saying their rights may be affected, they will sometimes show up. Even then, not knowing anything about the process, they normally have very little to add.

The prospect of the Meeting of Creditors is daunting to many bankruptcy filers, but it should not be! The process is very straightforward, you will be very well prepared by my office, and most importantly, you creditors will likely not be at the meeting of their very name!

Contact us if you have any questions about the Meeting of Creditors in particular, or the bankruptcy process in general.