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On The Bankruptcy Soapbox

The Soap Box

Before You List Your Home For Sale: The Essential First Task

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Selling your home?  Before you list your home, before you interview a realtor, before you lift a paint brush, or clean a closet, you need to write a letter.

A letter to the servicer of your mortgage.

You want full disclosure of what charges, fees, expenses and other “stuff” they want to collect from you when your sale closes.

For all you know, they’ve stuffed your loan full of fees, not authorized by law or agreement,  that pad their bottom line, and suck money out of your pocket.

Or, they’ve misapplied your payments or failed to note a mortgage modification.

So, your first step in selling your home is to get a handle on the loan payoff, while there’s still time to strip the mistakes and the junk fees from the payoff demand.

Why tackle your loan first?

Is it really necessary to explore your existing loan before you list your home for sale.  Yup.  You start with the existing lender because getting informatin takes time. Federal law requires them to make full disclosure if you ask, but they get 30 business days to do so.

So it may be a month and a half before you have their first response.  And if you don’t agree with the figures they produce, it takes longer still to resolve the dispute.

All too often, the inflated payoff demand doesn’t surface until your sale is about to close.  Maybe the payoff demand from the servicer bears little relation to the mortgage statement you’ve been receiving monthly.

And with a sales contract in place, a deadline for closing, and a buyer’s loan commitment about to expire, too many sellers are forced to accept the servicer’s numbers or lose the sale.

They end up paying too much because there’s no time.

Since good information takes time, start here first.

How to make a Request For Information

The Dodd Frank Act beefed up your rights as a home loan borrower to get information from the servicer of your loan.  Time lines were shortened;  broader inquiries were permitted.  And some consequences created for failure to respond.

Here are the essentials of a Request for Information under Reg. X 1024.36

An enforceable request must

  • Be in writing
  • Identify the borrower, the loan and the property address
  • Indicate that the property is your principal residence
  • Set out the information you seek
  • Be sent to the specially designated address of the servicer for RIF’s

The last requirement, delivery to the servicer’s designated address, that trips people up.  The magic address is often found on the back of the monthly mortgage statement.

Sometimes the address designated uses the previous name for the kind of request we’re talking about: Qualified Written Request.  Servicers usually have the address on their website, tho it may require digging to find it.

Don’t send an RFI with your payment.  Don’t ask for it over the phone.  You have a right to good answers only if you follow the procedures in the regulation.

What to ask the servicer

If you are selling your home, you want a payoff figure, itemized.

RFI example

Chances are you know what the principal balance is.  It’s the other stuff that doesn’t necessarily appear on your statement that you want to flush out.

Are there late fees, escrow deficiencies, non-interest bearing balances, inspection fees, appraisal fees, processing fees.

You get the picture.  Fees, fees, fees.  For too many servicers, their profit is all in the fees.  Find out ahead of time what you are facing.

Heading to sale

With your RFI in the mail, you’re ready to list your home for sale and turn to the myriad of other things to do to get your house on the market.

Mark your calendar for 30 business days so you know when to expect good information.

If you get a response and you don’t agree with it, call the servicer.  Complain to the CFPB.  Ask a HUD certified housing counselor for help.  Get an attorney.

Consumer rights are only meaningful if they are used.

When Is The Time Right To File Bankruptcy

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time to file bankruptcy

Just like stand up comedy and batting in baseball, filing bankruptcy is all about timing.

Timing your bankruptcy filing is no different.

File bankruptcy too early, or too late, and you risk losing assets or advantages that better timing could have assured.

Admittedly, you don’t always have the luxury of filing bankruptcy on your own schedule. But for those who can plan ahead, better bankruptcy outcomes are available.

When IS right time to file bankruptcy

Bankruptcy law measures lots of rights with reference to events occurring before filing. Some of these rights involve you, the debtor. Other rights belong to the bankruptcy trustee, or your creditors.

These time periods affect

  • Exemptions  
  • Discharging taxes  
  • Tax refunds  
  • Clawbacks of money transfers  
  • Eligibility to file bankruptcy  
  • The amount of your Chapter 13 payment  

File bankruptcy before

The most common and avoidable mistake in bankruptcy is waiting too long to file. Filing sooner can avoid

  • Spending money you could keep if you filed bankruptcy  
  • Enduring stress caused by debt  
  • Foreclosure  
  • Creditors get liens you can’t avoid  

File bankruptcy after

Some events you want behind you before you file. Usually, you want to know that the worse of the debt is behind you. File bankruptcy when

  • Finances are improving
  • Tax year is closed
  • Receipt of one time income event
  • Payments to insiders have aged

Juggling timing

It doesn’t take much to realize that each of these timing issues are complicated. And each issue interacts differently with other timing issues.

bankruptcy factors

Sometimes you have to weigh some circumstances that suggest an immediate filing against others suggest waiting.

Weighing those competing factors is what a good bankruptcy attorney does for you.

Nationally recognized financial writer Liz Weston had thoughts about considering bankruptcy. Her thoughts boil down to plan ahead. Get advice early, so you can pick the time that’s right.

Any attorney can fill out the forms for you. Skilled attorneys understand what the information in those forms means for the outcome of your case.

Just as importantly, skilled attorneys help you understand the pro’s and con’s of filing at any particular time.

More

What you have to do to file bankruptcy

How to interview a bankruptcy lawyer

Debt Settlement Is A Dud

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debt settlement

Debt settlement is often dangled in front of the financially challenged as an alternative to bankruptcy.

Sounds good:  making a deal with your creditors has enormous appeal when you can’t pay everything that you owe.

And debt settlement companies count on it.

The pitch for “settling your debts” touches a nerve.  Almost everyone WANTS to pay their debts.

But the truth is :  Debt settlement companies rarely deliver what they promise.

Their pitch shouts that debt settlement is superior to bankruptcy.

It just ain’t so.

All too often, the client of the debt settlement company is exposed to continuing collection calls, lawsuits, plumeting credit scores, and garnishments while the company is attempting to settle the debt.

And in the end, many dollars later,  debt settlement delivers neither a debt free life nor an undamaged credit report.

The appeal of debt settlement

What is it that makes a chancy, drawn out, expensive relationship with one of these debt settlement companies seem attractive to the financially overwhelmed?

I’d suggest:

  • Enrollment  appears to offload the problem on someone working for you
  • High profile media types like Suze Orman and Dave Ramsey badmouth bankruptcy
  • Promoters suggest that there is a “secret” to settling your debt for pennies on the dollar
  • Paying some part of debt is morally satisfying

As long as the public buys the idea that bankruptcy is akin to leprosy, those who, for a fee, offer the secret, non bankruptcy solution get rich.

Settlement company gets theirs first

The truth is that most debt settlement companies get their money upfront.  The first several months of payments don’t go to creditors or to building a settlement kitty, they go to the debt settlement company.

When the consumer figures out that paying the debt settlement people for months on end has not resolved any of the life-sapping incidents that come with being in debt: collection calls, law suits, levies, the debt settlement folks can move on to the next troubled consumer, with money in their pocket.

Bankruptcy works

By contrast, bankruptcy is available for a flat filing fee of around $300 to the court, plus attorneys fees.

It costs the same whether you have modest debt or huge debt.

It is instantly effective to stop collections.

Creditors can’t opt out, like they can with debt settlement.  All creditors are bound by the automatic stay and ultimately by the discharge.

And, the rules are enforced by a judge, with powers of sanctions and even incarceration.

What a bankruptcy judge does

The cherry on the top is that bankruptcy doesn’t generate cancellation of debt income issues. like debt settlement does. By law, debt cancelled in bankruptcy isn’t taxable income.

The long-term tax advantage for homeowners in bankruptcy over debt settlement

Bankruptcy bashes debt, for certain and for all time.

More

Pay off credit cards with no interest

Make no changes til you see a bankruptcy lawyer

What to ask a bankruptcy lawyer before signing up

Image courtesy of derekbruff.

How To Pick A Bankruptcy Lawyer

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interview a bankruptcy lawyer

How do you pick a bankruptcy lawyer when you’ve never hired any lawyer and never before considered filing bankruptcy?

What do you ask a bankruptcy lawyer to determine if the lawyer is the right one for you? After all, the conversation has to move beyond “what does bankruptcy cost?”

Financial troubles are tough and bankruptcy can seem scary.

So, you want to find a lawyer who can make it easier. You need to know if bankruptcy is really the right thing for you.

But what do you ask a prospective lawyer to make your decision?

Interviewing a bankruptcy lawyer

Actually, it probably doesn’t matter what you ask.

It matters how the lawyer answers.

Here’s a starter set of questions to get the conversation going

1.  Do I have a meaningful alternative to bankruptcy?

Asking about alternatives to bankruptcy allows the lawyer to talk about the scope of your financial difficulties.  

It allows you to gauge whether the lawyer can only see you as a buyer for what he sells. Or, has the lawyer considered both issues and timing to see if you need bankruptcy.

In fact, most people who sit down with a bankruptcy lawyer really need bankruptcy.  They have ignored the signs that the situation is beyond repair for a long time.

So, the answer that bankruptcy is appropriate isn’t a black mark on the lawyer.  Inability to explain why the alternatives don’t work well is a negative.

2.  What’s the most serious complication for me?

Few cases are problem-free.  Whether it’s protecting assets, passing the means test, or finding the money to fund a Chapter 13,  almost every set of facts has bankruptcy challenges.

You want to know if the lawyer is forthcoming about the expected rough spots.  Can he talk candidly about what might be challenging in your case?

3.   How many cases like mine have you handled?

While the answer may be short, you do want to talk about the lawyer’s bankruptcy experience.  Generally, the larger portion of a lawyer’s work load that is bankruptcy, the better.

Bankruptcy is a recognized legal specialty and if your case has a complexity, experience is an asset on your bankruptcy team.

4.  Who will work on my case?

A bankruptcy legal team usually includes both a lawyer and staff.  Much of the work in preparing the all important schedules is routine.

What you want to avoid, however, is a business model where all the work and the analysis is done by those without a law degree.  Bankruptcy is not just “filling out forms”.   Each answer in the form has a legal consequence that’s important to your case.

Ask, too, how you and the lawyer will communicate when you have questions during the process.

5.  What is not included in your fee?

Those drowning in bills often think price is important in picking a lawyer.

From experience, about the only time I think it’s important is when the price is unreasonably low.  Either you aren’t getting much service at that price, or the lawyer can’t compete on quality and therefore cuts the fee.

Ask if lien avoidance or reaffirmation issues are extra.  Ask if there are costs beyond the court’s filing fee that you must pay.  Ask about representation should there be a trustee audit, a 2004 examination, or an adversary proceeding.

It’s attitude that matters

As I said at the top, these questions are as much about the lawyer’s approach to you and your case as they are about the answers.

  • Is the lawyer comfortable with you driving the agenda?
  • Can he/she explain admittedly complicated matters clearly in a way you understand?
  • Are your questions welcomed?

If communication between you and your lawyer  isn’t open and valued, there’s trouble ahead.  You need to be comfortable enough with the relationship to disclose the troubling or the embarrassing.  Otherwise, you and your lawyer are playing without a full deck.

It needs to be OK to say “I don’t understand” or “I’m worried”.  Otherwise, you may be setting off into the bankruptcy jungle without a current map or an adequate guide.

Don’t be afraid to leave an initial meeting with a lawyer without making a commitment.  If you are uncertain about the fit, think it over.

Or interview another lawyer.  Several data points will make things clearer.

Stop Making Quarterly Tax Payments

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quarterly tax paymentUncle Sam expects a quarterly tax payment from the self employed.  Since you don’t get a paycheck with regular tax withholding, the burden’s on you.

Lighten the burden. Make this the last quarterly tax payment you pay.

Seriously.  Don’t make any quarterly payments for this coming year.

Think I’m advocating tax resistance?  No way.

The tax collectors  have more weapons than you want to encounter.  It’s like the advice from the era of newspapers:  don’t pick a fight with someone who buys ink by the barrel;  

Don’t spit in the face of the tax man.

Give up making them quarterly, I say.

Pay taxes monthly, just like every other recurring bill in your life.

Why quarterly tax payments invite trouble

Folks who get a paycheck have their income tax liability, or at least some estimate of that liability, deducted from each paycheck.  No fuss, and, well,  only some bother.

Their take home pay has already paid the taxes.  The paycheck is what is available to pay the bills.

Not so the self employed.

We are expected to make quarterly estimated tax payments in January, April, July, and October.

I’m sure the quarterly arrangement was seen as a convenience when instituted.

But it’s not necessarily convenient.  You have to set aside money regularly so you have a fistful come quarter day.

If you free lance or run a small business, budgeting may be the hardest think you do.  Who knows, in this economy, how much you’ll make this quarter, or how you’re going to pay the bills?

Quarterly payments invite us to fudge.

Get caught not having prepaid enough and you get  hit with penalties.

Get really behind, and it’s tax liens and levies.

Pay this year’s taxes monthly

My charge?  Add Uncle Sam to your list of creditors that you pay monthly.

Most creditors expect monthly payment:  the rent, the car payment, the credit card.  Add your estimated taxes to that list.

Income taxes are a cost of doing business.  No reason not to pay them as you go, just like the folks on salary do.

  • You avoid the need to set up a separate savings account in which to accumulate the taxes to be paid quarterly.
  • You resist the temptation to use those savings for some intervening crisis.
  • You escape the urge to make no provision “just this month”.

Making regular and smaller payments makes it easier to get the total bill paid in a manner that avoids penalties for not paying regularly.

Send your monthly income tax prepayment to the same place the quarterlies were headed.  Write on your check your Social Security number and “estimated 2017  tax liability”.

Take care of taxes monthly and you don’t find yourself in a tax hole come next April.

Here’s the IRS  on making estimated tax payments.

More on taxes

Unfiled taxes live forever

Dig out of payroll tax trouble

  Getting rid of tax liens

Find the mortgage interest deduction in Chapter 13

Image courtesy of Wikimedia.

Right To Support When Your Ex Files Bankruptcy

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Fotolia_82167730_S-angry-cropped_opt

Outrage is the usual reaction when a former spouse who owes you child support or alimony files bankruptcy.

It reinforces all those less-than-flattering thoughts you harbor about your ex.

But maybe that’s not the right reaction for two reasons, one old, one new.

One is old: support debts can’t be wiped out in bankruptcy.

The second reason is new: failure to pay support is grounds for dismissal of a bankruptcy case.

You may have levers that weren’t available to you before as a former spouse.

Unpaid support dooms reorganization

Chapter 11 and Chapter 13 are reorganization chapters of bankruptcy.  The person filing for relief stays in possession of their assets and proposes a plan to solve their financial problems.

If you’re in financial trouble, it seems to offer the best of both worlds:  you keep your stuff and get immediate protection from your creditors.

But there’s a condition.  The debtor needs to stay current on support obligations that come due after he files the bankruptcy case.

Failure to pay domestic support obligations (the Bankruptcy Code’s catch phrase for alimony, spousal support, child support or family support) is ground for dismissal of the reorganization case, or conversion to Chapter 7, where a bankruptcy trustee takes control with an eye to liquidating assets.

That is just what happened in a case where I represented a spouse with an order for temporary support.

Husband had never paid on the support order before or after the the bankruptcy was filed.

Consequence:  husband’s Chapter 11 case was converted to Chapter 7 because he failed to meet the terms of the family court support order.  Section 1112 (b)(4)(P) lists failure to pay a domestic support obligation cause for conversion or dismissal of the case.

For this client, conversion has a second benefit:  husband’s wages earned after conversion are not protected by the bankruptcy code. My client will be able to get an earnings withholding order to direct his future earning toward the unpaid support.

Support debts never dischargeable

No matter what chapter of bankruptcy is selected, the debtor cannot wipe out support obligations.  Support is expressly made non dischargeable by 11 USC 523(a)(5).

If the bankruptcy case is one where payment is going to be made to creditors, support is the very first debt in line for payment.  The distribution scheme in bankruptcy provides that a debt with priority gets paid in full before debts with lesser priority are paid.

You need to file a proof of claim, however, in order to be paid.

Property that the debtor is able to exempt from the claims of other creditors is not protected from claims for a domestic support obligation.  11 USC 522(c)(1).

The unanticipated benefit of a bankruptcy of the spouse ordered to pay support is that other, non support debts may get discharged.  That leaves fewer creditors competing for payment with the support order.

So, things may not be so bad as they first seemed.

If you have an unpaid domestic support order and your ex files bankruptcy, get help from an experienced bankruptcy lawyer.  You may have cards to play in this game.

More

How to make your divorce bankruptcy-proof

Dividing debts in divorce

Bankruptcy myths

Bankruptcy Drives Credit Score Surprise

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credit score increaseBefore bankruptcy, a miserable credit score was no surprise.  My client reported a 498 credit score before he filed.

What was surprising is that, three month after he filed bankruptcy, his score was 614!

That’s a 116 point increase in his score in three months. 

That’s while his bankruptcy case is still active, and long before he gets a Chapter 13 discharge.

So let’s hear no more about bankruptcy always trashing your credit score.

Setting worries about future credit issue aside allows you to  focus on the health of your balance sheet.  And enjoy the peace that comes with reduced debts.

What credit scores measure

Credit reports and credit scores explained

Credit scores are supposed to measure the likelihood that a borrower will repay future credit. Makes sense that lenders would want to measure that.

But credit scores are based on information found in credit reports.  And credit reports are notoriously inaccurate. Twenty five percent of credit reports contain material errors, according to government studies.

Isn’t it ironic that the oh-so-precise number in your credit score is based on bad information?  As we say in number-obsessed Silicon Valley:  garbage in, garbage out.

Misuse of credit scores

As if inaccuracy isn’t bad enough, credit scores are increasingly used for issues far removed from the extension of credit.  Auto insurance rates, utility service,  employers and even immigration decisions are influenced by credit scores.

So questionable information invades your life far beyond issues of consumer credit.

And, even worse, in my view, is the commercial exploitation for profit of consumer’s focus on credit scoring.

Credit anxiety is profitable

The widening use of credit scores outside of finance created a entire industry of supplying credit scores, weekly or monthly, to consumers.

Originally credit scores were used by lenders, internally.  But these days, credit card companies, personal finance sites, and even my credit union, try to sell you access to your credit score.

And by the time they’ve convinced the public that their credit score is as vital a measure as blood pressure or body-mass index, lenders and debt collectors can use that belief to demonize bankruptcy.

But, as my client’s experience shows, it just isn’t so.  (And a national study says credit scores trend immediately upward after bankruptcy.)

More

Credit reports heal

The most compelling reason to file bankruptcy

Life after bankruptcy

New California Bankruptcy Exemptions

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california exemptions

Californians filing bankruptcy got an increase in the exemptions that protect their assets on April 1, 2019.

Every three years, the dollar amounts are adjusted for changes in the cost of living.

Californians don’t get to protect possessions under the Bankruptcy Code’s exemptions.  Instead, a California resident who files bankruptcy must use California exemption law. That’s the case even though bankruptcy is governed by federal law.

Don’t shed a tear for the bankruptcy exemptions:  the state exemptions are arguably better.

You have a choice of two exemption systems.  One choice is the standard California state law exemptions found in Code of Civil Procedure 704. These are the exemptions  applicable in state law collections as well as bankruptcy.

The second choice, appealing to those without significant equity in their home, is the California bankruptcy exemptions found at CCP 703.140(b).

What do debtors get to keep

Here’s the new  list of increasedCalifornia bankruptcy exemptions:

Principal residence$29,275
Vehicles$5,860
Household goods per item$725
Jewelry$1,750
Grubstake$1,550
Business assets$8,725
Loan value of life insurance$15,650
Personal injury claims$29,275
Other misc. exemptions703.140

Californians, because they are required to choose one state exemption system or the other rather than the federal bankruptcy exemptions, can also use the federal list of non bankruptcy exemptions.

Bankruptcy wild card exemption

The trickiest part of the California bankruptcy exemptions is what’s called the “wild card”. (It’s also called the “grubstake”.)    When 703.140(b)(1) and (b)(5) are added together, the debtor can protect $30,825 of equity in any asset or combination of assets.  That’s the wild card.wild card exemption

The wild card amount can be parceled out to protect some cash in a bank account;  some equity in a vehicle that exceeds the car exemption; stock; a  business or whatever else you have.

The point is that the exemption isn’t restricted to a certain kind of property. It can be used to protect anything.

How exemptions work

Exemptions protect the specified amount of equity in an asset.

If it’s a house, the exemption protects a certain amount of value in the property that exceeds the liens on the property.  It doesn’t matter if the value of the house is $200,000 or $1,200,000.  The exemption protects the specified amount of equity in the house.

If there is equity in a house over and above the total of liens and the homestead, a Chapter 7 trustee can sell the house and give the debtor the homestead exemption in cash.

That doesn’t happen very often.  Because, there has to be enough equity to pay the exemption, the costs of sale, any capital gains taxes and the trustee’s commission before the sale benefits creditors.

More about secret exemptions

If neither California exemption system adequately protects your  assets, consider Chapter 13.

More

Exemptions in Chapter 13

Debts of spouses

Wild card:

Image courtesy of Flickr and k2d2vaca.

Does This Struggling Business Have A Future?

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virus damaged business

Long after the human patients recover from the coronavirus, small businesses will still be struggling.

And long nights will be spent deciding whether to try to stay in business.

Here are some things to weigh as you consider the future of a struggling small business.

The desire to continue

The most important part of most small businesses is the owner. The owner supplies the vision and the drive that makes the business run.

If you are drained of vision and drive, then allow yourself to exit. Soldiering on just so you don’t have to admit you’re done is unlikely to have a good result.

If you’re game to continue, there are more questions.

Is the business viable

When the lock-down is over, and we creep back to the new “normal”, the next gating question is whether there’s a post pandemic market for the business’s product .

And if there is continuing demand for the product, how long is the ramp up?  What financial resources does it take to survive the ramp up? And what’s the likely volume of business to be expected over the short run? The longer run?

Reorganize for survival

The pandemic has forced change and re evaluation on all of us.  When things are already disrupted, considering change seems less overwhelming. And more essential.

Could the business continue with

  • fewer owners
  • fewer employees
  • no brick and mortar premises
  • narrower market
  • broader market
  • partnered with others

Embrace the disruption and move the pieces around the board, at least in your mind.

New debt and lingering death

Business loans seem to be at the center of the government’s recovery strategy. Distressingly, the rules about when/if those loans need to be repaid are unclear, incomplete, and subject to change.

It’s worth some thought as to whether the business can handle more debt. What is the current debt structure, and were you paying that debt down before the pandemic?

Another way to think about more borrowing is that it may be essential as a short term strategy to keep food on the table until you have more options outside of the current business.

Wind down and move on

Writing the existing  business off as a lost cause isn’t necessarily an all or nothing choice.

Perhaps you fold the existing business but remain in the same industry, as a proprietor rather than an entity, or as an entity after a personal bankruptcy.

Dangers inherent in corporate Chapter 7

Maybe, this is the time to change industries, take a salaried job, return to school, or ????

Challenges for all

The issues are complex and intertwined. And with the virus still shadowing our lives, uncertainty abounds. Allow yourself some time to consider how you move forward.

More

Collected posts on coronavirus impact on personal finances

Separating yourself from your business

High Income Earners Pass Bankruptcy’s Means Test

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means test

ALERT:   Being above the median income on the means test is not an automatic bar to filing bankruptcy

I’m so used to railing against deliberate campaigns of misinformation about bankruptcy that I forget that there’s a lot of innocent ignorance out there.

Start with “qualifying” for bankruptcy.

A very earnest and ethical financial counselor was telling me about a client of hers trying to find the right moment in time to file bankruptcy.

She was targeting the point in time after the job loss, but before the new business got established.  After the severance pay ran out and before the child left for college.

Yet the story involved a home with a mortgage and tax debts.

I couldn’t get my head around why, on those facts, the means test was a bar to filing a Chapter 7.

Til something she said tipped me off.  She thought the means test barred families with incomes over the median from Chapter 7.

Wrong, wrong,  WRONG.

Only half must take the means test

Median income only determines whether you have to take the means test to qualify for Chapter 7.

  • Families with income below the median income in their state automatically are allowed to file.
  • Families with income above the median have to take the test. Pass the test, and you are free to file Chapter 7.

In almost 10 years of dealing with the means test, I’d guess less than a dozen of my clients have been kept from filing Chapter 7 by the means test.   Median income by state.

The means test is ugly, obscure, time consuming, and still subject to a lot of uncertainty.  But if it was designed to keep people out of bankruptcy, it hasn’t worked very well.

What’s on the means test

In broad strokes, the means test looks at your average monthly household income and deducts from it

  • some kinds of expenses at the rates provided by the IRS collection standards
  • some kinds of expenses in amounts that you actually expect to spend
  • the secured debt payments and non dischargeable taxes you will owe in the next 5 years

While some parts of the formula are rigid and disconnected from the reality of day-to-day living, it presents many ways to qualify a family to file bankruptcy.

The cruelest part of the means test is it seems to favor people with big mortgages,  car loans, unpaid child support and back taxes.  Those debts are all deductible on the means test.

It’s the folks with upper middle class incomes who pay their taxes, rent, and drive paid-for cars that are disadvantaged by the means test.

So where ever the misconception that the means test just looks at gross family income got started,  I want it stopped, you hear<g>.

If you’re above median

Being over the median income is not an automatic bar to filing bankruptcy.

It just means you need sophisticated bankruptcy counsel and some additional work to crunch the numbers so that you have a choice about your choice of bankruptcy chapter.

Remember that the supposed purpose of the means test was to funnel consumers into Chapter 13.  And most of the Chapter 13 cases we file pay little or nothing to unsecured creditors.  The money paid into the plan goes to creditors my clients want to pay, like delinquent mortgages, car loans, and recent taxes.

Not a bad deal.

More

Why I love Chapter 13

Means test is meaningless in Bay Area

Getting excused from the means test

Doing the means test yourself

Image courtesy of photobunny. 

643 Bair Island Road
Suite 403
Redwood City, CA 94063
Phone: (650) 694-4700

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