Issues Involving New Bankruptcy Laws

Written by Craig D. Robins, Esq.

Several times in the past month this issue has arisen with my Long Island bankruptcy clients:  Can they deduct their children’s college tuition expenses on the means test?  The means test does not provide any specific category for doing so. 

I previously addressed this issue a few months ago:  Can You File For Bankruptcy and Still Pay Your Child’s College Tuition?    I will now expand upon that prior post.

Unfortunately, those bankruptcy courts which have addressed this issue have found no statutory support for such deductions.

Certain educational expenses can be deducted on the means test.  These include deductions for elementary and secondary education expenses, although the amount is limited.

The means test also permits debtors to deduct expenses for contributions to family members, but this category is also limited to elderly, chronically ill or disabled family members.

Accordingly, at this time, there does not appear to be any way to include a debtor’s contributions to their children’s college expenses on the means test.

The following are some recent cases involving college expense deductions.

In re Baker, No. 08-13987, 2009 Bankr. LEXIS 193 (Bankr. N.D. Ohio Jan. 30, 2009): Recognized that special circumstances might justify allowance of college expenses for adult children, but found that this case does not rise to that level because it is not apparent that the debtor has made a reasonable effort to mitigate her expenses as her adult child could live with the debtor rather than on her own.

In re Saffrin, 380 B.R. 191 (Bankr. N.D. Ill 2007): Held that a debtor may not deduct his daughter’s college expenses because the Code only allows education expenses related to elementary or secondary education.

In re Boyd, 378 B.R. 81 (Bankr. M.D. Pa. 2007): Found that a debtor may not expense her adult daughter’s college education because the Code does not expressly provide such deduction and it does not qualify as another necessary expense.

In re Hess, No. 07-31689, 2007 Bankr. LEXIS 3553 (Bankr. N.D. Ohio Oct. 15, 2007): Found that “[w]hile a parent’s desire to assist a child…pursuing a college degree is laudable, a debtor is not free to do so at the expense of her unsecured creditors.”

In re Featherston, No. 07-60296, 2007 Bankr. LEXIS 4578 (Bankr. D. Mont. Sept. 28, 2007): Held that a debtor may not deduct college expenses for adult children because children are not elderly, chronically ill or disabled as required by the Code to qualify as an acceptable contribution to family members.

In re Goins, 372 B.R. 824 (Bankr. D. S.C. 2007): Held that the Code limits education expenses to those related to elementary and secondary school.

In re Hicks, 370 B.R. 919 (Bankr. E.D. Mo. 2007): Found that a debtor paying college expenses of an adult child is a luxury, not a necessity, and that the Code does not provide any support for allowance of such deduction.

Written by Craig D. Robins, Esq.

The 2005 Bankruptcy Amendment Act changed how a debtor determines which state’s exemptions statutes to use.  If you’ve lived in the same state for the two years prior to filing then you have nothing to worry about.  You use the exemptions from that state.

However, if you moved from state to state during the prior two years, then some important rules apply.

The 730-day Rule

If you resided in the same state for at least 730 calendar days continuously (two years) prior to the filing of your bankruptcy petition, then you can use that state’s exemptions.

The 180-day Rule

If you did not live in your current state continuously for at least 730 days, then you must pick the state in which you lived most of the time during the 180 days prior to the 730 days. In other words, the state that must be selected is where you lived most of the time between 2 and 2 ½ years before filing.

The Default Rule

If no state qualifies using the above rules (i.e., you lived in abroad) or if the 180-day state requires current residency or domiciliary to use its exemptions (a tricky issue), then you must use the federal exemptions. The default rule will only apply if you did not live in any state during the 180 day period that began 730 days before filing, or if the state requires current residency or domiciliary.

If You Moved, Seek Advice From an Experienced Bankruptcy Attorney

The above rules can be somewhat confusing.  If you moved between different states in the past two or three years, then you should consult with a knowledgeable bankruptcy attorney.

Written by Craig D. Robins, Esq.

Written by Craig D. Robins, Esq.

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Yes!  Bankruptcy Is Still Available in New York

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In 2005, Congress made drastic revisions to the bankruptcy laws.  Even though that was three years ago, clients regularly ask me if they can still file for bankruptcy.

Most people still qualify.  We find that 7 out of 8 people who would have qualified for Chapter 7 bankruptcy under the old laws still qualify under the new laws.

These laws make the bankruptcy process more involved, and impose many new obligations on both debtors and their attorneys.  However, most consumers, especially those on Long Island, are still eligible for Chapter 7 bankruptcy.

The essence of the new laws is demonstrating eligibility for filing by using a series of formulas and calculations called the “means test.”

The new bankruptcy laws also require a 30-minute bankruptcy credit counseling session by phone with a court-approved not-for-profit credit counseling agency prior to filing, and a similar session, called debtor education, after filing.

Debtors must also produce copies of pay stubs and recent tax returns.

Here’s the bottom line:  Although the laws have made bankruptcy much more complex than it ever was before, the truth is that most people who would have qualified for Chapter 7 bankruptcy under the old laws still qualify under the new laws. Those who don’t qualify for Chapter 7 can usually file a payment plan bankruptcy — Chapter 13 bankruptcy.

An experienced New York bankruptcy lawyer should be able to quickly ascertain which bankruptcy chapter is best.