I can share a secret, just between us.

Bankruptcy “reform” in 2005 tried in a number of ways to discredit and gag lawyers from helping debtors.

One of those additions to the Bankruptcy Code prohibits lawyers from advising those filing bankruptcy from incurring new debt.  The statute makes no distinction about the kind of debt involved or the purpose served by the loan.

Lawyers are not to advise incurring new debt.

But I’m not your lawyer, so I can tell you what you need to know about cars.  Or really about car loans, since I know nothing about cars beyond that.

Cars and the means test

Car loans are the most frequently found secured debt.  And secured debts on cars are deductible on the means test introduced by bankruptcy “reform”.

The IRS standards, on which the means test is based, allowed a debtor deduct a certain amount per month to acquire a car.  Courts were split on whether you had to have a car payment to get the ownership allowance.

Then the Supreme Court in Ransom said  the debtor with a paid for car gets no ownership deduction.  But if you have some remaining payments on a car loan, you get to claim the full car ownership deduction  of $517 here in California on the means test.

More deductions on the means test, more likely you qualify for Chapter 7, or for a very cheap Chapter 13. [Read more…]