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“ Craig D. Robins, Esq., has been a practicing Long Island bankruptcy attorney for over twenty-four years ”
Archive for October, 2011
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:
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.”
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.
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.
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.
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
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.
Written by Craig D. Robins, Esq.One of the most important features of any bankruptcy filing is the automatic bankruptcy stay. This is the very powerful federal law that prevents any creditor from taking any action to collect a debt once any bankruptcy case is filed. It goes into effect immediately upon the filing of any bankruptcy case.
When it comes to tax debt, the automatic stay requires tax authorities to stop collection activity and release any tax levies.
The Co-Debtor Bankruptcy Stay
When a consumer files for Chapter 13 bankruptcy relief, the stay also protects any other individuals who are also obligated on the debt, even if they did not seek bankruptcy relief. This is set forth in Bankruptcy Code section 1301.
Thus, if a husband files for Chapter 13 protection and the wife does not, and the husband listed a credit card debt that they both signed for, then the bankruptcy stay protects both of them from collection efforts — even though the wife did not file.
The co-debtor stay only exists in Chapter 13 cases — not in Chapter 7 cases.
Co-Debtor Stay Only Applies to “Consumer Debts”
However, this protection only applies to “consumer debts.” Fortunately, the definition of consumer debts include almost all debts that the typical consumer would schedule in their bankruptcy petition — credit card obligations, car loans, mortgages, and medical debts.
The Bankruptcy Code does not define consumer debts to include tax debts. A consumer debt is a debt “incurred by an individual primarily for a personal, family, or household purpose.” Most bankruptcy court decisions have held that tax debts are not consumer debts.
Thus, the co-debtor stay does not protect a non-filing spouse from efforts of the IRS or New York State Department of Taxation to collect the tax debt. Of course, the bankruptcy stay does protect the party who files for bankruptcy relief; it just does not protect anyone else from collections on joint tax debt.
Since taxes are not considered consumer debt and there is no co-debtor stay for tax debt, serious thought should be given to including both spouses in a Chapter 13 filing when the joint tax debt is substantial.