As reported yesterday, the Central California Bankruptcy Institute held their annual Fresno bankruptcy conference, and as usuaul the program was excellent featuring Fresno bankruptcy attorneys and judges presenting legal updates and timely review of important topics for local practioners.
One such presentation was a review of the important and conflicting issues surrounding the bankruptcy Means Test as it applies in both Chapter 7 and 13 cases.
The presenters were bankruptcy judge Honorable W. Richard Lee, bankruptcy attorneys Leonard K. Welsh and Peter L. Fear and Chapter 13 Trustee Michael H. Myer.
The intial presentation included an overview of “The Big Picture”, namely that the goal is the “Debtors should pay what they can afford after reasonable and necessary expenses.”
Prior to 2005, this “reasonable and neccessary” standard was determined by applying “projected income and expenses” as set for in schedules I and J of your bankruptcy petition. Schedules “I” and “J” are parts of your bankruptcy petition that set forth your projected monthly income and expenses.
That anaylsis changed to a more formulistic approach following passage of BACPA. (The major law change in 2005 that began the myth that still exists today that you can’t file bankruptcy — yes, I still encounter this question).
Since Congress was the one who passed this law (obstensibly to stop bankruptcy fraud, but really intended to force more debtors into Chapter 13 repayment bankruptcys — the credit card companies were upset that their debts were getting summarily discharged).
Interestingly, this has not been the case, about the same percentage of people who previously qualify for Chapter 7 still qualify today. More over, the law demonstrated that the system was not rife with fraud; nevertheless we are left with the application of the new law to both Chapter 7 and Chapter 13 cases.
The means test formula is more ridgid and unforgiving as it often does not allow for the application of “necessary and reasonable” expenses, but debtors and their attorneys are forced to apply pre-determined (i.e. by Congress and others detached from your real world situation) expenses.
Many of my clients have decried that these “formulas” are unfair since they have no money left each month after paying essentials, but this rigid formula states that they have money left over each month.
Comically, one audience member at the conference blurted out that the new law was “illegal” – this comment was meant with crickets chriping in the background.
There were alot of perplexed faces in the audience since the law was passed by Congress and signed by President Bush, and has withstood an unprecedented amount of legal appeals seeking interpretation and clarification of its provisions.
So yes, the law is legal, but I still understand the frustration of my bankruptcy clients when they’re told they make “too much” money to qualify for a Chapter 7 bankruptcy.
So despite the frustration by everyday Americans, what did Congress intend? (I’m taking this quotation directly from my bankruptcy conference’s hand-out, so thanks to the CCBA and the authors of this section).
“The report by House of Representatives’ House Committee on the Judiciary stated: ‘The heart of the BAPCPA consumer bankruptcy reforms consists of the implementation of an income/expense screening mechanism (‘needs-based bankruptcy relief’ or ‘means testing’) , which is intended to ensure that debtor’s repay creditors the maximum they can afford. ‘(H. R. Rep. No. 109-31, pt. 1, at 2 (2005), reprinted in 2005 U.S.C.C.A.N. 88, 89.”
The key words for all individuals thinking about or investigating whether they should or can file Chapter 7 bankruptcy (or whether Chapter 13 is a better or only option for them) is to understand that the current bankruptcy law is skewed in the favor of your creditors.
Yes, you can stil file bankruptcy — and a record amount of bankruptcies filed last year, but it is important to understand that if you’re thinking about filing Chapter 7 you need to qualify under the means test.
Prior to 2005, the process was easier, but today a through analysis of your financial situation is necessary.
If you should have any questions about qualifying for Chapter 7 under the Means Test, contact my office for a pre-bankruptcy consuling session at the numbers below.
Disclaimer
Fresno-Bankruptcy-Lawfirm.com is owned by the Law Offices of Jeffery D. Rowe. We are a debt relief agency. We help people file for bankruptcy relief under the Federal Bankruptcy Code (Title 11 of the United States Code). If you would like to discuss your situation in further detail, please call our Fresno offices at: (559) 228-1500 or our Merced office at: (209) 722-3700 to schedule a consultation.
