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What is a Bankruptcy Discharge?

Craig Robins — Sat, 07 Jan 2012 11:00:39 +0000

The bankruptcy discharge means freedom from debt. That's my son, Max.

Written by Craig D. Robins, Esq.

The general objective in filing a consumer bankruptcy is to eliminate debts. At the conclusion of a Chapter 7 or Chapter 13 bankruptcy case, the consumer receives a discharge.

The bankruptcy discharge releases the debtor from personal liability for most debts. That means the consumer is no longer legally required to pay these debts. Certain debts are non-dischargeable such as most taxes, student loans, alimony, child support and traffic tickets.

The discharge comes at the conclusion of the bankruptcy case. For Chapter 7 filers, that is typically about three and a half months after the bankruptcy petition is filed. For Chapter 13 filers, this typically occurs a month or two after the Chapter 13 payment plan is completed.

The actual discharge is in the form of a permanent court order, signed by the bankruptcy judge assigned to the case. The Bankruptcy Court sends a copy of it to the debtor and all creditors and parties listed in the petition.

The order of discharge prohibits creditors from taking any action to collect a debt. This means that it becomes forever illegal for creditors to phone the debtor, send collection letters, sue the debtor or take any other action to collect the debt.

If a creditor has a secured debt, such as a mortgage or car loan, the creditor is still prohibited from collecting the debt. However, the creditor has the right to recover the collateral.

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About the Photograph: This is one of my fine art shots of my son, Max.

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Filing Bankruptcy After Taking a Cash Advance — Beware

Craig Robins — Wed, 04 Jan 2012 19:00:32 +0000

Written by Craig D. Robins, Esq.

Most of my Chapter 7 bankruptcy clients have rather large amounts of credit card debt. This comes from making purchases, incurring services charges and interest, and taking cash advances. Almost all credit card debts are dischargeable in bankruptcy. However, there are a few exceptions.

When it comes to cash advances, those about to file for bankruptcy should be careful. The Bankruptcy Code provides that any cash advance, or combination of cash advances from one lender, totaling more than $875 obtained within 70 days of the bankruptcy filing date are presumed to be non-dischargeable. This is contained in Bankruptcy Code section 523(a)(2)(C)(i)(II).

Congress imposed this provision because it felt that consumers who obtained significant cash advances relatively close to time they filed for bankruptcy knew or should have known that they would be seeking bankruptcy relief, and should not be able to eliminate such debts. It was also designed to prevent consumers from running out and taking cash advances on the eve of a bankruptcy filing.

Even if a recent cash advance is presumed to be non-dischargeable because of the above provision, the credit card bank must still file objections in the bankruptcy court in the form of an adversary proceeding. Such proceedings are rare.

If you are considering filing for bankruptcy it is important to tell your bankruptcy attorney about any recent large cash advances to make sure that the petition is not filed too soon.

The dollar amount of the cash advance, as set forth in Bankruptcy Code section 523(a)(2)(C)(i)(II) changes every three years. It is scheduled to change again in April 2013 and will probably increase about $50.

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Unborn Children and the Bankruptcy Means Test: Can You Include Them?

Craig Robins — Tue, 03 Jan 2012 04:00:25 +0000

Written by Craig D. Robins, Esq.

In order to qualify for filing a Chapter 7 bankruptcy petition, you need to pass the means test, which is designed to prevent those individuals with relatively high incomes from easily eliminating their debts in a Chapter 7 proceeding..

The means test formula makes it easier for a larger family to be eligible for Chapter 7 relief than a smaller one. Each additional family member enables the debtors to take an additional, very significant deduction on the means test. These deductions are based on census tables and IRS charts of living expenses. See: New Changes to Means Test.

Most consumers will pass the means test and will not have any problem qualifying for Chapter 7 bankruptcy. However, some individuals, who are just barely failing the means test, can pass if they have the ability to add an additional family member to the calculation. The Means Test is Often the Key to a Successful Chapter 7 Bankruptcy Case .

Dealing with the Means Test If a Female Debtor is Expecting

If the wife is pregnant and expecting, can you include the unborn child as household member of the family to calculate family size for means test purposes? If you could, this might mean the difference between passing or not.

In at least one case, the United States Trustee has taken the position that an unborn child cannot be included as a family member for means test purposes. Some bankruptcy courts have adopted this position stating that a debtor may not rely on events which have not yet occurred.

That was the case in In re Pampas, 369 B.R. 290 (Bankr.M.D.La. 2007). In that case, the child had not been born as of the date of the bankruptcy filing, and the debtor was still carrying at the time the U.S. Trustee brought a motion do dismiss. The court dismissed the case, although the unborn child issue was just one of several concerns the court addressed.

However, this case and outcome does not necessarily spell doom for the debtor, and I do not think a similar result would have occurred if this situation had arisen here in New York.

Arguing “Special Circumstances” As a Way Around a Failing Means Test

A debtor who has filed with an unborn child, can argue “special circumstances” under Bankruptcy Code § 707(b)(2)(B).

This section enables a debtor to argue that a presumption of abuse, which is what happens if the debtor fails the means test, can be rebutted by demonstrating that there are special circumstances that justify additional expenses or adjustments to the current monthly income.

Generally, to support a claim of special circumstances, the debtor must itemize each additional expense or adjustment of income, and provide documentation and a detailed explanation of the special circumstances that make those expenses or income adjustments necessary and reasonable.

Perhaps the U.S. Trustee Would Be Reasonable

I would like to think that most local offices of the U.S. Trustee would be reasonable under such situations and keep the case in abeyance, pending the birth of the child. It would seem unlikely that a US Trustee would put much effort into seeking dismissal of a case, when shortly after the dismissal the debtor would qualify anyway because of the increased family size after the baby is born.

I personally represented a debtor last year where this became an issue. I did not include unborn children in the family size at the time of filing. However, the Chapter 7 trustee questioned the propriety of some of the other deductions on the means test and debated whether to refer the matter to the U.S. Trustee for further review as to whether the meanst test meant that this was an abusive filing.

My response to the Chapter 7 trustee was that it didn’t matter because the debtor was several months pregnant with twins, and even if the trustee was able to disallow some of the debtor’s means test deductions, the debtor would still quickly qualify in any event because of the increased family size. After some back-and-forth discussion, and proof that the debtor was pregnant, the trustee let the matter go, and the debtor received her discharge.

I also find that communicating in advance with the U.S. Trustee is very important. If I had to file a case in which the debtors had to rely on an unborn child to pass the means test, I would disclose the information early on.

If the U.S. Trustee believes that the debtor has filed in good faith, then it is much more likely that they will evaluate the case in a fair and equitable manner and give due consideration to the debtor’s special circumstances.

An Objection by the U.S. Trustee Can Be Politically Charged

In parts of the country, the U.S. Trustee might want to avoid raising controversy over the potential for politically-charged issues which can result in Roe v. Wade type arguments that are used in debates over the right to abortion.

There’s Always Waiting a Few Months so the Unborn Child Can Undisputedly Be Included in the Bankruptcy Means Test

If debtors want to play it safe, they can wait until the baby is born before filing. That way, there would not be any controversy of dispute over family size. However, sometimes debtors need immediate bankruptcy relief and simply cannot wait.

In a worse-case scenario, if the U.S. Trustee brought a motion to dismiss the case, refusing to accept the unborn child as a member of the household for means test purposes, the debtor could always let the case be dismissed, and then re-file after the child is born.

Also see my post: Options If You Fail the Bankruptcy Means Test .

Other Issues Concerning Family Size for Bankruptcy Means Test Purposes

Calculating family size for the means test can be tricky. This subject seems to be a never-ending source of issues and bankruptcy court decisions. See my post: Determining Household Size for the Means Test .

Unborn Children in Chapter 13 Bankruptcy Cases

In Chapter 13 cases, a debtor will often pay less into a monthly Chapter 13 plan if there is another member of the household. This savings is usually many hundreds of dollars a month. Therefore, an expected child could make a great impact as to the affordability of a Chapter 13 plan.

If the issue of an unborn child arose in the context of a Chapter 13 filing, I would argue that confirmation should be delayed until the child is born if the Chapter 13 trustee is not willing to count the unborn child right away. Then, assuming the child is indeed born, the baby should be included in the household size.

Most Bankruptcy judges, at least in New York, are forward-thinking judges who want the means test in Chapter 13 cases to be based on realistic events going forward, as opposed to looking backward. I explored this concept in my post: Deciphering the Plethora of Means Test Cases Across Many Bankruptcy Courts .

In one Colorado case, the bankruptcy court stated that a debtor had the right to amend schedules to show an increase or decrease to household size prior to plan confirmation, to reflect changed circumstances. In that case, the unborn child was delivered just days after the Chapter 13 trustee filed a pre-confirmation motion to dismiss. In re Baker, (Bankr. Court, ND Illinois 2009).

In the Baker case, the court interpreted Bankruptcy Code § 1325(b)(1) (which states that the applicable commitment period should be determined as of the plan’s effective date), as meaning the date when the plan is confirmed. Thus, the Baker court permitted the debtors to include the unborn child in the means test over the objections of the Chapter 13 trustee.

The Importance of Consulting with Experienced Bankruptcy Counsel When There Are Means Test Issues

When unusual issues arise that can mean the difference between qualifying or not for bankruptcy relief, it becomes that much more important to seek out experienced bankruptcy counsel.

The means test is rather complex and complicated. Retaining an experienced Long Island bankruptcy attorney is your best way to ascertain whether you qualify for Chapter 7 bankruptcy filing, and if not, to learn what your other options are.

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How American Airlines Sought Bankruptcy Court Approval to Continue its Frequent Flyer Programs in its Chapter 11 Filing

Craig Robins — Mon, 02 Jan 2012 04:45:10 +0000

Written by Craig D. Robins, Esq.

The recent bankruptcy filing of American Airlines on November 29, 2012 got me thinking in several ways about the interplay between airlines, consumers and bankruptcy.

How does an airline seeking bankruptcy protection continue its frequent flyer programs and honor tickets? I’ll answer this question in this column.

What happens when a consumer, who has a cache of frequent flyer miles, files a consumer bankruptcy — can the consumer keep those miles? I’ll answer that question next month.

As a regular flyer on American Airlines, I get e-mails from AA almost daily. Within hours of the Chapter 11 bankruptcy filing, which AA commenced in the Southern District of New York under AA’s parent company, AMR Corporation, AA sent me an urgent e-mail assuring me that all would be OK and that it would be“business as usual” during the course of the bankruptcy.

The e-mail stated that miles “you’ve earned are yours and will stay yours.”

AA’s spin doctors included verbiage that the bankruptcy proceeding was going to make the airline leaner and stronger, and better for its customers.

As a bankruptcy attorney, I wondered what procedural path they would take in bankruptcy court to continue its business practices.

American Airlines Files a First-Day Application Seeking Special Bankruptcy Court Approval to Continue Certain Business Practices

On my own, I tracked down one of the first-day applications that AA filed, which sought an immediate order permitting AA to continue its customer programs and practices in the ordinary course of business and honor existing obligations to its customers.

It is standard Chapter 11 practice for debtors to bring several “first day” applications seeking various types of immediate relief. This application was necessary because technically a Chapter 11 debtor is prohibited from honoring pre-existing debts and obligations.

The 23-page application, which was prepared by the Manhattan bankruptcy powerhouse firm of Weil, Gotshal & Manges, sought authorization pursuant to Bankruptcy Code sections 105(a) and 363(c), to continue a multitude of programs including the AAdvantage frequent flyer program, as well as seek permission to honor pre-petition tickets, refunds, access to Admirals Club lounges, gift cards, etc.

Bankruptcy Caselaw and Statutory Authority for the Application

Section 105(a) is the Bankruptcy Code’s general catch-all provision that grants bankruptcy judges broad equitable powers to “issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title.”

The application discussed how the airline’s customers were the lifeblood of their business, which is highly competitive, and that customer satisfaction is the key to survival.

Airlines routinely offer travel to many of the same locations as their competitors. The application discussed the concept that this competition makes retaining loyal customers and attracting new customers critically important.

AA argued that the Chapter 11 filing would negatively affect customers’ attitudes unless AA was able to continue its customer practices. The airline also argued that continuation of its customer programs on an uninterrupted basis is critical to maintaining this support and loyalty.

Incidentally, AA created the first frequent flyer program in 1981, by rewarding its loyal customers with frequent flyer miles. The application stated that there were 69 million members of their AAdvantage frequent flyer program.

There is precedent for granting such relief, as Eastern Airlines requested similar relief about two decades ago when it filed for reorganization and sought authority to continue its pre-petition obligations.

It has become well-established that bankruptcy courts have the power to permit the post-petition payment of pre-petition obligations where necessary to preserve or enhance the value of a debtor’s estate for the benefit of all creditors.

This is sometimes referred to as the “doctrine of necessity.” See the Eastern Airlines case, which is: In re Ionosphere Clubs, Inc., 98 B.R. 174, 176 (Bankr. S.D.N.Y. 1989).

The airline argued that if they could not get the requested approval, the consequences would be draconian. Their customers would lose confidence, question the airline’s ability to survive, and likely take their business elsewhere. All of the loyalty and customer goodwill that AA had engendered over years would be lost.

It was therefore no surprise that the bankruptcy court granted the application, thus permitting AA to continue its customer programs on an uninterrupted basis.

Thus, the experience of flying on American will likely stay the same for the short-term, but as the airline tries to reorganize itself through bankruptcy, it will probably make significant changes down the road.

Incidentally, most financial commentators suggest that AA will successfully emerge from bankruptcy, as several of its legacy competitors have done this past decade, and that AA is in no danger of liquidation at this time.

One industry analyst quipped, “Airlines do a better job at filing bankruptcy than delivering luggage.”

I personally have a boatload of American Airlines Aadvantage miles, some of which I earned traveling to conventions and workshops of the National Association of Consumer Bankruptcy Attorneys. It is therefore a relief to know that they will be protected!

The Effect of Consumer Bankruptcy on Frequent Flyer Miles

These days, most consumers have an assortment of frequent flyer miles, whether they earn them from flying or credit card spending.

These miles can have a substantial value to the consumer as they can be used to obtain tickets worth thousands of dollars or purchase goods or store gift certificates.

What happens to these valuable miles when a consumer files for bankruptcy relief? Can they be protected? I will cover this question next month.

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About the Author. Long Island Bankruptcy Attorney Craig D. Robins, Esq., is a regular columnist for the Suffolk Lawyer, the official publication of the Suffolk County Bar Association in New York. This article appeared in the January 2012 issue of the Suffolk Lawyer. Mr. Robins is a bankruptcy lawyer who has represented thousands of consumer and business clients during the past twenty years. He has offices in Mastic, Patchogue, Commack, West Babylon, Coram, Woodbury and Valley Stream. (516) 496-0800. For information about filing bankruptcy on Long Island, please visit his Bankruptcy web site: http://www.BankruptcyCanHelp.com.

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The Business Debt Loophole to the Bankruptcy Means Test

Craig Robins — Thu, 29 Dec 2011 05:00:57 +0000

Written by Craig D. Robins, Esq.

Some Debtors Who Have Primarily Business Debts Can Avoid Having to Do the Bankruptcy Means Test

The means test, which turned six-years old last month, was intended by Congress to create an objective standard for permitting only those consumers who are not “abusing” the privileges of bankruptcy to get Chapter 7 relief.

In general terms, if a consumer debtor has an income that is relatively high in relation to his or her expenses, the consumer will not pass the means test and will not be eligible to file Chapter 7 bankruptcy.

The Business Debt Exception to the Means Test

The means test only applies to individuals whose debts are “primarily” “consumer debts,” as opposed to business debts, as set forth in Bankruptcy Code §707(b).

A debtor can check a box on the first page of the means test to declare that his or her debts are primarily non-consumer debts, and then avoid the rest of the means test, also known as Form B22A. Click here to take a look at the actual Means Test form.

Congress could have told us what exactly “primarily” means, but they didn’t bother to, so we have to analyze this word. Webster’s Dictionary defines “primarily” as “for the most part.” Most courts have focused on this definition to mean “more than half.”

Thus, if more than 50% of the debtor’s debts are non-consumer debts, the debtor is automatically eligible for filing a Chapter 7 case without having to bother with the means test. There is no presumption of abuse for such cases.

Determining What “Consumer Debts” Are in Bankruptcy Cases

So what exactly is a consumer debt? The Bankruptcy Code defines “consumer debt” as “debt incurred by an individual primarily for a personal, family, or household purpose.”

In analyzing whether a debt is a consumer debt or not, bankruptcy courts have developed a “profit motive” test: if the debt was incurred with an eye towards making a profit, then the debt should be classified as a business debt.

Thus, the mortgage on an individual’s home would clearly be a consumer debt, and the mortgage on a vacation home would also be a consumer debt. However, if that vacation home was also purchased as an investment and rented out, then the mortgage would qualify as a business debt.

One bankruptcy court permitted a debtor to deem one of the three mortgages on his home to be a non-consumer debt because the proceeds were used to fund a business venture.

Most credit card debts are obviously consumer debts. However, if an individual used a credit card for business purposes, then it could be reasonably argued that the resulting liability is a business debt.

Other examples of business debts include personal guaranties on business obligations, investment losses, and motor vehicle accident liabilities. Domestic support obligations such as child support and maintenance are generally considered consumer debts.

Some Varieties of Debt Are Neither a Business Debt Nor a Consumer Debt

According to conflicting bankruptcy court decisions, some debts are in limbo. For example, although some courts have held that student loans are not consumer debts, the Second Circuit has held that they are.

Any liability as a responsible person for taxes on a business is clearly business debt. However, there is no clear-cut answer in this jurisdiction as to whether personal income tax obligations are consumer debts or not. Courts outside of New York and the Second Circuit have reached different conclusions on income tax debt.

In one case in the Sixth Circuit, the court rejected the application of the profit motive test, concluding that income taxes can be distinguished from consumer debts for several reasons. Tax debts are not incurred like consumer debts as they are not incurred voluntarily.

Tax debt is assessed for the benefit of the general public whereas consumer debt is incurred for personal and household purposes. Finally, tax debt arises from income and earning money whereas consumer debt results from consumption and spending money. In re Westberry, 215 F.3d 589 (6th Cir. 2000).

Most of the debtors that I have represented in my Long Island bankruptcy practice who were able to make a means test business debt declaration were victims of a failed business who owed substantial sums — either directly or through personal guaranties — to various trade creditors, taxing authorities or business partners.

Most individuals with a failed mom and pop business will not be able to take this shortcut as their mortgage debt alone will likely exceed their business debt.

The Business Debt Exception to the Means Test Has Limitations

Just because a debtor can by-pass the means test does not mean that a debtor can use it as a loophole to escape other good faith requirements.

In a Michigan decision from earlier this year, the bankruptcy court addressed a situation involving husband and wife debtors whose debts were genuinely primarily business debts. They had over six million dollars of unsecured debts from failed real estate investments.

However, both debtors were doctors whose budget showed that they were living on $42,000 of monthly expenses – what the court described as a very lavish and extravagant lifestyle. They each drove a Mercedes Benz and had a BMW in the garage.

The court commented that even though the debtors did not fail the means test, they nevertheless lacked good faith because they could have easily adjusted their budget while still maintaining a nice lifestyle, and paid their creditors a significant dividend through a Chapter 11 plan. In re Rahim and Abdulhussain, No.l 10-57557 (Bankr.E.D.Mich 12/16/10).

Practical Tips for Bankruptcy Attorneys to Help Their Clients

If the characterization of a particular debt that is not clear-cut in this jurisdiction, such as tax debt, enables your client to pass the means test, how should you tackle the situation?

That really depends on how aggressive you want to be. My recommendation is to take an aggressive position as long as it is reasonable and you have a good basis for taking your position.

You should be prepared for presenting your arguments to the U.S. Trustee as they have the initial burden of proof to support a dismissal motion under Bankruptcy Code § 707(b).

You would also want to review the matter with your client before filing the petition and prepare a letter that the client signs, acknowledging the aggressive position and the potential risk of defending a dreaded Bankruptcy Code §707(b) motion that the U.S. Trustee brings. Defending Bankruptcy Code §707(b) motions will certainly be a topic for a future column.

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About the Author. Long Island Bankruptcy Attorney Craig D. Robins, Esq., is a regular columnist for the Suffolk Lawyer, the official publication of the Suffolk County Bar Association in New York. This article appeared in the November 2011 issue of the Suffolk Lawyer. Mr. Robins is a bankruptcy lawyer who has represented thousands of consumer and business clients during the past twenty years. He has offices in Mastic, Patchogue, Commack, West Babylon, Coram, Woodbury and Valley Stream. (516) 496-0800. For information about filing bankruptcy on Long Island, please visit his Bankruptcy web site: http://www.BankruptcyCanHelp.com.

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Bankruptcy Court Filing Fees Increase November 1, 2011

Craig Robins — Wed, 02 Nov 2011 01:00:16 +0000

Written by Craig D. Robins, Esq.

With relatively little notice, bankruptcy court filing fees have increased.

The Judicial Conference of the United States Bankruptcy Court voted to increase various bankruptcy court filing fees, including the fees to file bankruptcy petitions.

For most of us, the increase primarily affects the fees consumers pay to file their bankruptcy cases. They are increasing by $7.00.

Here are the New Filing Fees, Which Go Into Effect November 1, 2011:

Chapter 7 bankruptcy cases: The filing fee is increasing from $299 to $306.

Chapter 13 bankruptcy cases: The filing fee is increasing from $274 to $281.

Various Other Bankruptcy Filing Fees Are Increasing as Well:

Amending Schedules: Increase from $26 to $30

Filing Adversary Proceeding: Increase from $250 to $293

Filing Motion for Relief from Stay: Increase from $150 to $176

There are other miscellaneous fee increases as well: Full Schedule of Bankruptcy Court Fees and Charges Effective November 1, 2011.

When did the Bankruptcy Filing Fees Change Last?

In my Bankruptcy Update back in February 2006, I wrote that the filing fees were increasing again.

In February 1, 2006, the House of Representatives passed the Budget Reconciliation Act which included fee increases for various court filings, including bankruptcy filings. The Senate previously had approved the measure.

That fee increase, which went into affect on April 6, 2006, was strictly a revenue-raising measure.

The bill increased the Chapter 7 filing fee by $25 to $299, and increases the Chapter 13 filing fee by $85 to $274. The apparent purpose of the fee increases at that time was to balance the budget though payments from those who could least afford it.

Prior to that, on October 17, 2005, when the bankruptcy laws were reformed by BAPCPA, the filing fees increased for Chapter 7 cases from $209 to $274, and for Chapter 13 cases from $194 to $189.

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New York Bankruptcy Means Test Figures Change November 1, 2011

Craig Robins — Wed, 19 Oct 2011 01:30:24 +0000

by Craig D. Robins, Esq.

New Bankruptcy Means Test Criteria Going Into Effect November 1, 2011 Will Make It Harder for Some New York Consumers to Qualify for Chapter 7

The state median income figures that you need to use for the means test change periodically. The last change was on March 15, 2011, and the change before that went into effect exactly a year before that, on March 15, 2010. The change before that was November 1, 2009.

The means test median income figures usually change twice a year — in March and November.

The changes earlier this year in March 2011 actually made it slightly easier to qualify. However, the changes going into effect next month will make it slightly harder for most Long Island and New York consumers.

In order to automatically pass the bankruptcy means test your income must be less than the median income in the state where you live. For New York residents, it will be slightly harder for some families to qualify for Chapter 7 bankruptcy than earlier in the year.

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New Median Family Income Figures for New York Effective Nov. 1, 2011

(Effective for cases filed after 1/01/11)

Family Size Amount

1 $45,931

2 $56,113

3 $66,953

4 $81,212

Add $7,500 for each individual in excess of 4.

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New, New York Means Test Figures Compared to Current Means Test Figures

Family Size of One: If you are a single individual, which means that you have a “family size of one”, the New York median income has decreased, from $46,295 earlier this year to $45,931. This is a minor change of $364 per year, or about $30 per month.

Family Size of Two: For a family size of two, the new median income figure has decreased, from $57,777 earlier this year, to $56,113. This is a significant change of $1,664 per year, or about $139 per month.

Family Size of Three: For a family size of three, the new median income figure has decreased, from $68,396 earlier this year, to $66,953. This is a significant change of $1,443 per year, or about $120 per month.

Family Size of Four: For a family size of four, the new median income figure has decreased, from $83,942 earlier this year, to $81,212. This is a very significant change of $2,730 per year, or about $228 per month.

Why Bankruptcy Means Test Figures Routinely Change

The figures used for the each state’s median income are based on United States Census data, and adopted by the Office of the United States Trustee. These figures routinely change once or twice a year. Pursuant to 11 U.S.C. § 101(39A)(B), the means test median income data is regularly adjusted, based upon the Consumer Price Index (CPI) for All Urban Consumers.

Usually, income rises each and every year because of inflation, the cost of living, etc. When we were deep into the recession 18 months ago, income actually decreased slightly from the prior year. That resulted in lower median income figures which made it more difficult to qualify for Chapter 7. Although there was a little bit of inflation after that, we have since gone through another round of deflation.

It appears that we may not be heading out of the recession so fast, as median family income has decreased over the past six months. Accordingly, debtors will suffer.

Links to Official U.S. Trustee Sites Containing Means Test Data Charts

To see the CURRENT DATA STILL IN EFFECT UNTIL OCTOBER 31, 2011 of new median income data going into effect next week, go to Income Means Test Chart for cases filed beginning March 15, 2011.

To see the NEW DATA THAT WILL GO INTO EFFECT ON NOVEMBER 1, 2011 of new median income data going into effect next month, go to Income Means Test Chart for cases filed beginning November 1, 2011.

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To see the very old and now very obsolete median income data for each of the 50 states, go to the U.S. Trustee Census Bureau Median Income Means Test Chart for cases filed between November 1, 2009 to March 14, 2010.

To see the old data from last year of median income data for each state, which is only good through the end of this week, go to Median Income Means Test Chart for cases filed between March 15, 2010 and October 31, 2010.

To see the old data from earlier this year of median income data for each state, which is only good through the end of next week, go to Median Income Means Test Chart for cases filed between November 1, 2010 and March 14, 2011.

The Bankruptcy Means Test

This is a comprehensive, very complex series of calculations that the federal government designed to ascertain whether someone qualifies for Chapter 7 filing.

Under the old bankruptcy law, almost anyone could seek to eliminate their debts by filing Chapter 7. The new laws changed that. Click here to take a look at the actual Means Test form.

The Means Test formula is designed to evaluate whether a debtor has the financial means to pay back a substantial portion of his or her debts. If the person does, then he or she may not be eligible to file Chapter 7 bankruptcy, and may instead have to file a payment plan bankruptcy under Chapter 13.

If debtor’s income is below the New York State median income for a family of that particular size, then passing the Means Test is virtually automatic. If not, the debtor must have a sufficient amount of acceptable deductions permitted by the Means Test.

Impact of New Means Test Figures on Consumers Filing Bankruptcy on Long Island

In my Long Island bankruptcy law practice, I estimate that at least 9 out of 10 clients now seeking to file for Chapter 7 bankruptcy relief do indeed qualify under the means test.

Making the most of qualifying under the means test and making the figures work for you requires that you meet with an experienced Long Island bankruptcy attorney to ascertain eligibility for filing for bankruptcy relief.

There Are Many Other Posts About Means Test Issues on this Blog

I’ve written several dozen articles on various issues concerning the bankruptcy means test. You can see them by clicking the category, Bankruptcy Means Test.

Here are some of the more popular posts:

Determining Household Size for the Means Test

Counseling High-Income Consumer Bankruptcy Debtors

What is “Income” for Bankruptcy Means Test Purposes — Some Recent Decisions Define Income

Deciphering the Plethora of Means Test Cases Across Many Bankruptcy Courts

How a Tax Refund Can Mess Up Your Bankruptcy Means Test

Options If You Fail the Bankruptcy Means Test

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Update on Success of HAMP — Homes Affordable Modification Program

Craig Robins — Sat, 08 Oct 2011 12:00:51 +0000

Written by Craig D. Robins, Esq.

The Obama Administration’s effort to assist struggling homeowners save their homes had been widely criticized. See my post: Problems with HAMP — Too Many to Count?

Treasury Department statistics released this week show that although HAMP has helped a number of American homeowners save their homes by enabling them to permanently modify their mortgages, the number has been substantially less than the administration had hoped for.\

To date, the HAMP program has helped 691,000 homeowners. This is a major disappointment from the projected goal of helping close to four million Americans with mortgage troubles. The HAMP program is almost two and a half years old.

What is very upsetting is that more than 891,000 of those who signed up for HAMP have had their modifications canceled.

One of the reasons the program has not worked as planned is because the troubled mortgage industry had great difficulty adopting procedures to adequately process the HAMP applications, leading to a great amount of frustration suffered by hapless homeowners.

I previously posted a detailed article about the difficulties homeowners in HAMP were facing. WARNING: HAMP Can Drive Homeowners Into Bankruptcy .

New York University law professor Neil Barofsky, who released testimony that he prepared for a Congressional hearing this past week, said “Treasury rushed HAMP out the door in a manner best described as ‘ready, fire, aim,’ leading to mistakes that are still ricocheting today.”

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Seven Reasons Why Consumer Bankruptcy Filings Are Down in 2011

Craig Robins — Fri, 07 Oct 2011 05:00:06 +0000

Written by Craig D. Robins, Esq.

Although Bankruptcy Filings May Be Down, Still More Than a Million Consumers Filed This Year

Any way you look at it there are a tremendous number of American consumers filing for bankruptcy right now.

Recent figures show that about one million consumers filed for bankruptcy relief in just the first nine months this year. That’s a lot of consumers getting a fresh new financial start.

However, this number is slightly lower compared with the number of filers from the same period last year when there were 1.1 million bankruptcy filings.

Long Island Bankruptcy Filings Have Decreased Very Little

Here, in the Eastern District of New York, there were 15,882 bankruptcy filings in the first eight months of last year. Yet, so far this year, there have been 15,607 bankruptcy filings.

In my Long Island bankruptcy law practice, we are still extremely busy, but I’ve noticed a slight drop in the number of cases we’ve been filing the past few months.

Do Fewer Bankruptcy Filings Mean the Economy Is Improving?

Unfortunately, the answer is no. We are still in the midst of an economic slump. It appears that many consumers are merely putting off the inevitable.

I have come up with seven reasons why bankruptcy filings have decreased.

Why Have the Number of Bankruptcy Filings Dropped Slightly From Last Year?

1. As a result of the recession consumers are tightening their wallets and pocketbooks and spending less. Data from a recent Gallup poll revealed that consumers were spending significantly less per month in stores than they were previously. Consequently, they may be charging less and getting into less debt.

As Federal Reserve Chairman Ben Barnake commented before Congress this week, consumer behavior both reflects and contributes to the slow pace of recovery.

2. Banks have tightened their lending criteria these past two years. For years, banks gave out credit cards like crazy to consumers. It used to be that you asked for a credit card and you got one. Banks would give our credit cards with a reckless disregard for the consumer’s ability to pay. However, with banks tightening credit, there are fewer credit card accounts that consumers are defaulting on.

3. Many consumers who have been victims of the recession have already filed for bankruptcy relief in the past two years. During this time, there were about three million bankruptcy filings.

4. Some consumers who have really hit bottom are having difficulty coming up with the bankruptcy legal fees and filing fees — a cost that has increased greatly since Congress changed the bankruptcy laws six years ago.

Bankruptcy filings sometimes increase as a recession is ending since consumers who have been out of work have finally gotten new jobs and now want to get their finances in order. Bankruptcy provides a fresh new financial start that can go hand-in-hand with a new job.

5. For a good part of the past year, mortgage lenders put the brakes on the foreclosure process, which was rampant with defective foreclosure suits and shoddy work done by foreclosure law firms. As a result, there have been fewer foreclosures and hence fewer bankruptcy filings to stop them. For example, New Forelosure Law in New York Requires Attorneys to Verify Foreclosure Papers .

However, now that mortgage lenders have begun getting their papers in order, we are in for a new round of foreclosures, which will certainly lead to an increase in real-estate-related bankruptcy filings.

6. Many consumers previously filed for Chapter 7 bankruptcy relief during the past decade. Under the current bankruptcy laws, a consumer must wait eight years from the date of a previous Chapter 7 filing before being eligible to file for Chapter 7 relief again. see Filing Second Bankruptcy is Simple as 2 - 4 - 6 - 8 .

There were about ten million filings during the past years which is a lot of consumers who are ineligible right now to file for Chapter 7 bankruptcy relief, even if they need to. I have many clients who wait it out until they are able to file again.

7. The government has extended the period of unemployment benefits. Consumers often exhaust all of their other remedies before seeking bankruptcy relief, even when it is not in their best interest to do so. However, when the benefits run out, bankruptcy often becomes a necessity.

The Decrease in Bankruptcy Filings Is No Surprise

In January of this year I wrote that Professor Bob Lawless of the University of Illinois College of Law predicted that bankruptcy filings may decrease slightly this year. See: A Million and a Half Bankruptcy Filings in 2011? As it turned out, he was right.

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Bankruptcy Strategies for Assisting Foreclosure Clients

Craig Robins — Thu, 06 Oct 2011 06:00:56 +0000

Written by Craig D. Robins, Esq.

For Those with Mortgage Problems, Bankruptcy Offers Options

This post was my monthly column that was published in the September 2011 issue of the Suffolk Lawyer. It was aimed at general practitioners and non-bankruptcy attorneys who may not be that familiar with how bankruptcy can be used to help clients with mortgage problems during these recessionary times.

This post should also be helpful to those consumers who are facing foreclosure and need to explore their bankruptcy options.

In the past two years I’ve helped a great deal of clients who were either in foreclosure or who owned homes that were very much underwater. I am also seeing a lot of clients who have been rejected after trying to modify their mortgages, such as under the HAMP program. Many consumers have found HAMP to be a dismal failure as I wrote in Problems with HAMP — Too Many to Count?

Also see my post: Warning: HAMP Can Drive Homeowners into Bankruptcy.

There are several bankruptcy options that can provide great relief for such clients.

Chapter 13 Bankruptcy

Consumers who have seriously fallen behind on their mortgages and who want to keep their homes, can use a Chapter 13 payment plan to cure mortgage arrears over a five-year period.

However, this option is only available to those consumers who can not only afford to make their new post-petition mortgage payments, but can also make an additional monthly Chapter 13 plan payment approximately equal to 1/60th of the mortgage arrears.

A benefit of filing Chapter 13 is that the consumer can also resolve all credit card and medical debt as well, often paying just cents on the dollar.

There is a further significant benefit to those consumers who have a second mortgage that is totally underwater. In these situations where the house is worth less than the balance owed on the first mortgage, the consumer can bring a “cram-down” proceeding and effectively “strip-off” and totally eliminate the second mortgage. This benefit alone can often save the consumer over a hundred thousand dollars.

In order to qualify for Chapter 13 filing, the consumer must have a regular and steady source of income. Some clients who would like to save their home, unfortunately cannot do so if they do not have sufficient monthly income.

Chapter 7 Bankruptcy

Chapter 7 bankruptcy enables a consumer to discharge most obligations including liability on a mortgage.

When I meet with a client who has significant mortgage arrears, and whose mortgage balances greatly exceed the value of their home, I discuss the concept that it may no longer be viable to save the home. Chapter 7 bankruptcy can provide a way out of bad, highly-leveraged real estate. A recent study indicated that one-fourth of all U.S. homes were underwater.

One of the judges in the Central Islip Bankruptcy Court permits Chapter 7 debtors to cram-down second mortgages.

Also see my post: What Happens to Your House if You File for Bankruptcy?

Walking Away from Real Estate

With these clients I often recommend a two-step process to extend their ability to remain in the home for a period of time, and to discharge their liability on the mortgage and ultimately any deficiency owed after a foreclosure sale. It is often possible to remain in the house for one to two years or more, without paying any mortgage or real estate tax payments.

Assuming that you can interpose one or more genuine, good faith defenses in a foreclosure proceeding in Supreme Court, you can then prevent a default judgment and take the foreclosure proceeding out of the automatic conveyor belt type of processing, effectively delaying the process by many months, or a year or more.

These days there are a host of possible foreclosure defenses. These include bringing shoddy or defective paperwork to the court’s attention; citing issues which may indicate that the lender may not have proper standing; and identifying improper mortgage assignments.

By defending a foreclosure proceeding, the foreclosure process can be greatly slowed down.

Strategic Default

Sometimes I come across a client who is current on his or her mortgage, but whose home is extremely underwater. In such instances I discuss the possibility of a “strategic default” which is when the consumer stops paying the mortgage, not because he or she can no longer afford it, but because keeping the house is no longer viable or financially worthwhile.

A Morgan Stanley report last year revealed that about 12 percent of all mortgage defaults are now “strategic,” which is a great increase from mid-2007, when the level was only 4 percent

Bankruptcy Eliminates Recourse

By filing a bankruptcy and possibly engaging in foreclosure defense, the consumer will have to eventually walk away from the home, but they will probably be able to stay in it for several years without making any payments – all without financial recourse from the mortgage company.

There is also a strategy for timing the filing of the bankruptcy. Although the bankruptcy filing can be done at any time, doing so at the right time will get the homeowner a few extra months in the house, as the bankruptcy stay will stop the foreclosure proceeding until the lender can get permission to lift it.

Although most consumers are eligible for Chapter 7 filing, they must nevertheless pass the means test which Congress imposed about six years ago. As such, this approach should work for most consumers except those with high incomes or substantial non-exempt assets.

If the dream of home ownership has become a nightmare, then remember that there are bankruptcy options out there.

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About the Author. Long Island Bankruptcy Attorney Craig D. Robins, Esq., is a regular columnist for the Suffolk Lawyer, the official publication of the Suffolk County Bar Association in New York. This article appeared in the October 2011 issue of the Suffolk Lawyer. Mr. Robins is a bankruptcy lawyer who has represented thousands of consumer and business clients during the past twenty years. He has offices in Mastic, Patchogue, Commack, West Babylon, Coram, Woodbury and Valley Stream. (516) 496-0800. For information about filing bankruptcy on Long Island, please visit his Bankruptcy web site: http://www.BankruptcyCanHelp.com.

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