BAPCPA – Page 5 – Rochester Bankruptcy and Debt Relief

Bankruptcy Basics – Credit Counseling and Financial Education Requirements

Under the BAPCPA, debtors planning to file for bankruptcy, under either Chapter 7 or Chapter 13, must complete a consumer credit counseling course before they will be allowed to file a bankruptcy petition. Such credit counseling program needs to be completed within 180 days prior to the filing.

A pre-bankruptcy counseling session with an approved credit counseling organization usually includes an evaluation of the debtor’s personal financial situation, a discussion of alternatives to bankruptcy, and a personal budget plan. A typical counseling course lasts about 60 to 90 minutes, and can take place in person, on the phone, or on internet. The counseling organization is required to provide the counseling free of charge for those consumers who cannot afford to pay. If you cannot afford to pay a fee for credit counseling, you should request a fee waiver from the counseling organization before the session begins. Otherwise, you may be charged a fee for the counseling, which will generally be about $50, depending on where you live, the types of services you receive, and other factors. The counseling organization is required to discuss any fees with you before starting the counseling session.

Once you have completed the required counseling, you must get a certificate as proof. You can check if the organization providing the course is approved in the judicial district where you are filing bankruptcy by going to the U.S Trustee’s web site. Once the course is completed, you will receive the certificate. Credit counseling organizations may not charge an extra fee for the certificate.

In addition, once the bankruptcy is filed, debtor must obtain debt management counseling before being allowed to complete the bankruptcy process. A debtor education course by an approved provider usually includes information on developing a budget, managing money, using credit wisely, and other resources. Like pre-filing counseling, debtor education may be provided in person, on the phone, or online. The debtor education session might last longer than the pre-filing counseling – about two hours – and the typical fee is between $50 and $100. As with pre-filing counseling, if you are unable to pay the session fee, you should seek a fee waiver from the debtor education provider. Make sure that you received the certificate from a debtor education provider that is approved in the judicial district where you filed bankruptcy. Check the list of approved debtor education providers at the U.S. Trustee’s web site.

There are three main objectives of the Personal Financial Management course:

The help the debtor understand the benefits of creating short-term and long-term financial goals.
To teach the debtor how to create a budget.
To teach the debtor how to balance a checkbook and reconcile bank statements.

The purpose of these courses is to help the debtor become financially literate and avoid another bankruptcy.

Once you have completed the required debtor education course, you should receive a certificate as proof. This certificate is a different document from the certificate you received after completing your pre-filing credit counseling. Unless they have disclosed a charge to you before the counseling session begins, debtor education providers may not charge an extra fee for the certificate.

The Personal Financial Management course must be completed within 45 days after filing bankruptcy; but before receiving a discharge through bankruptcy. This is important because if the debtor does not complete this second course after filing for bankruptcy, the Chapter 7 or Chapter 13 bankruptcy may be closed without a discharge.

If you are dealing with debt problems in Rochester, New York; Canandaigua, Brighton, Pittsford, Penfield, Perinton, Fairport, Webster, Victor, Farmington, Greece, Gates, Hilton, Parma, Brockport, Spencerport, LeRoy, Chili, Churchville, Monroe County, Ontario County, Wayne County, Orleans County, Livingston County, and being harassed by bill collectors, and would like to know more about how bankruptcy may be able to help you, contact me today by phone or email to schedule a FREE initial consultation.

Chapter 7 Means Test

Under the current version of the bankruptcy law, in order to file a Chapter 7 bankruptcy, the debtor must pass a “means test” which will determine whether debtor, or his family, is eligible to file Chapter 7 bankruptcy.

The purpose of the means test is to keep debtors from abusing the bankruptcy system by filing when they don’t have to do so. The presumption is that if the debtor fails the means test, he/she is trying to abuse the system.

If the debtor’s income is below the median income for families in New York, based on Census Bureau statistics, the debtor will be eligible for a Chapter 7 bankruptcy. The current means test figures for New York are listed here.

The means test uses the income of the debtor for the six months leading up to the filing of the bankruptcy. The monthly income figure for that time is referred to as the debtor’s “current monthly income”.

Even if the debtor’s income has recently decreased, the use of the six months before the filing date may make the debtor’s income for bankruptcy purposes higher than it will actually be and place him/her into an income situation where he/she may be required to file a Chapter 13 bankruptcy.

If you make more than the median income for families in New York, your income over the past six months is considered, along with mortgage and car payments, back taxes and child support obligations, and school expenses up to $1,500 per year. You won’t be eligible for a Chapter 7 bankruptcy if, after deducting these amounts, and the living expenses provided in the Internal Revenue Service’s national collection standards, you have a monthly disposable income of more than $100.00 per month.

If your monthly disposable income is more than $166.66, you have failed the means test, and cannot qualify for Chapter 7.

If your monthly disposable income is between $100.00 and $166.66, and that is enough to pay more than 25% of your unsecured, nonpriority debts (credit card bills, student loans, medical bills, and so on) over a five-year period, then you fail the means test, and Chapter 7 won’t be available to you. If it is not enough to pay more than 25% of your unsecured, nonpriority debts over a five-year period, then you pass the means test, and Chapter 7 remains an option.

If you don’t qualify for a Chapter 7 bankruptcy, your only option would be a Chapter 13 bankruptcy.

Bankruptcy Basics – Domestic Support Obligations

On occasion, a divorce may result in one or both of the parties filing for bankruptcy, often without an adequate understanding of the limited relief available in the bankruptcy court. The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (”BAPCPA”) directly addressed issues related to the dischargeability of marital debt and support obligations, as well as to the effect of the automatic stay on collection and enforcement proceedings out of divorce and family law litigation. Under BAPCPA, domestic support obligations (usually alimony, child support and property distribution) are given priority over almost every other creditor.

Under bankruptcy law, a “domestic support obligation” is any debt incurred before or after a bankruptcy filing that is owed to or recoverable by a spouse, former spouse, child or governmental unit; in the nature of alimony, maintenance or support; and established pursuant to the terms of a divorce decree, separation agreement, property settlement agreement, court order or administrative determination.

In Chapter 7 bankruptcy, essentially all marital and domestic relations obligations are not dischargeable, regardless of whether they are support in nature, property divisions or “hold harmless” agreements, provided they were incurred by the debtor in the course of a matrimonial proceeding or a divorce action which resulted in a separation agreement, divorce decree, court order or administrative determination.

A debtor’s obligation to pay marital debts directly to a third party ( ie., pay the mortgage on former marital residence) and to hold the former spouse harmless on said debts is also deemed to be non-dischargeable if the obligation has the effect of providing support to the former spouse. A debtor’s duty to pay the following expenses are usually deemed to be in the nature of support and not dischargeable: educational expenses of a minor child; medical insurance coverage for a minor child; and life insurance, with the minor children as beneficiaries.

Attorney’s fees owed by debtor to his own lawyer are clearly dischargeable in bankruptcy, but as a general rule, attorney’s fees owed by debtor to a former spouse’s attorney are not dischargeable, if the underlying legal proceeding resulted in the entry of an order or judgment directing payment of maintenance or spousal support to the former spouse.

The division of a debtor’s pension benefits during the divorce action is usually accomplished by entering a Qualified Domestic Relations Order (”QDRO”). Since division of a pension is considered to be a transfer by debtor of a present interest in his pension, and as such, it is not a debt that can be discharged in bankruptcy.

If there are assets in a Chapter 7 bankruptcy, and you owe any domestic support obligations (alimony, child support, that sort of thing) to your spouse, former spouse or child, the trustee will pay that first. Next, the trustee will pay any domestic support obligation owed to a governmental unit.

In Chapter 13 bankruptcy, past due domestic support obligations owed by a debtor are not dischargeable, unless they are paid in full over the life of the Chapter 13 plan. However, if a debt created by a separation agreement or judgment of divorce is not in the nature of support, it sometimes can be discharged in Chapter 13 without being paid in full.

For a Chapter 13 Plan to be confirmed by the Bankruptcy Court, it must: pay in full to the former spouse all domestic support obligations owed by debtor at the time of the bankruptcy filing, and the debtor must be current on all domestic support obligations incurred after the bankruptcy filing. Past due support obligations are generally required to be paid in full through the debtor’s plan but an exception can be made if the creditor agrees. Support debts have a first priority, meaning they are paid before other kinds of priority debts, like taxes.

A Chapter 13 Plan, even if confirmed by the bankruptcy court, is subject to dismissal if the debtor fails to pay any post-petition or post-confirmation domestic support obligations, and a Chapter 13 discharge will not be entered by the bankruptcy court unless and until a debtor certifies that all domestic support obligations have been paid and that the debtor is current on such obligations.

The automatic stay created by a bankruptcy filing bars the commencement or continuation of most legal proceedings, but it has no effect on a proceeding to establish paternity; to establish or modify a child support order, determine child custody or visitation issues, or dissolve a marriage, except to the extent that such proceeding may seek to determine a division of marital property in which the bankruptcy estate also has an interest. In those situations, the divorce can be granted without first obtaining relief from the automatic stay, but the marital property cannot be divided without obtaining such relief.

The automatic stay also does not prevent the post-petition collection of domestic support obligations such as alimony or child support from any property belonging to the debtor, providing that the bankruptcy estate does not also have an interest in the same property; from automatic wage deduction orders created by a statute or judicial or administrative order; from the interception of debtor’s federal or state income tax refunds, or
from the withholding, suspension or restriction of a debtor’s driver’s license or professional or occupational license. Therefore, Bankruptcy Court does not offer much protection for someone seeking to avoid the domestic support obligations.

The above rules will apply to the proceedings in New York State courts. In Ross v. Sperow, 57 A.D.3d 1255 (3rd Dept. 2008), the Appellate Division had to address a situation where one of the parties was seeking to enforce a counsel fee award after the other party filed for bankruptcy. In Ross, multiple violation petitions had been filed by the parties over the course of several years. In August 2006, Family Court upheld mother’s motion for attorneys fees and directed father to pay $5,000 of the mother’s attorneys fees. Father filed for a Chapter 7 bankruptcy thereafter, and listed the award of attorneys fees as an unsecured debt. Father’s bankruptcy was discharged in January 2007. Mother brought a violation petition which alleged that father failed to pay the attorneys fees. Father moved to dismiss petition on ground that he discharged counsel fee award in bankruptcy. The Appellate Division stated that state and federal courts have concurrent jurisdiction over issue of dischargabilityof a particular debt and held that domestic support obligations in the nature of support are exempt from discharge in bankruptcy. While father contended that counsel fees incurred were for custody and visitation proceeding, the record reveals that mother’s initial petition commencing the proceeding raised issues of financial need and hardship. According to the Appellate Division, term “in the nature of support” is broadly interpreted in the context of discharge of debt obligations in bankruptcy and held that the award of counsel fees was in part in the nature of support, and as such, exempt from discharge in bankruptcy.

It is very important for your bankruptcy lawyer to be aware of any outstanding domestic support obligations if you are filing for bankruptcy. Here in Rochester, bankruptcy trustees routinely ask during the meeting of creditors (also known as 341 meeting), if the debtor has a domestic support obligation. If there is a domestic support obligation, the bankruptcy trustee will want to know to whom such obligation is payable, will ask the debtor to provide the claimant’s address and telephone number, and will inquire if the debtor is current on his or her post-petition domestic support obligations.

If you are dealing with debt problems in Rochester, New York, Canandaigua, Brighton, Pittsford, Penfield, Perinton, Fairport, Webster, Victor, Farmington, Greece, Gates, Hilton, Parma, Brockport, Spencerport, LeRoy, Chili, Churchville, Monroe County, Ontario County, Wayne County, Orleans County, Livingston County, and being harassed by bill collectors, and would like to know more about how bankruptcy may be able to help you, contact me today by phone or email to schedule a FREE initial consultation.

Bankruptcy Basics – The Process of Filing and Completing Chapter 13 Bankruptcy

Chapter 13 has helped many to resolve their debts and save their homes from foreclosure. The following is a short description of a typical process that someone filing Chapter 13 bankruptcy goes through, from the initial meeting and until a discharge is received.

The initial stage of a Chapter 13 bankruptcy usually involves meeting with your bankruptcy attorney and discussing the case. The attorney will typically ask you to prepare a bankruptcy questionnaire, in which you will be asked to list your income and expenses, assets and liabilities, and describe your financial dealings over the past few years. Once the questionnaire is completed, your bankruptcy lawyer will be able to review and identify various exemptions applicable to your assets, determine whether certain of your debts are dischargeable or not, and will try to do bankruptcy planning to preserve as many of your assets as possible.

Your next step will be taking the credit counseling course. Under the bankruptcy law, you must complete the course before your bankruptcy petition can be filed with the bankruptcy court. The course must be taken from an authorized provider and can be done in person, over the telephone or internet. You will also have to provide your bankruptcy attorney with copies of your pay stubs for 60 days preceding the filing, and a copy of your most recent tax return.

Once the above steps are completed, your petition will be prepared and filed with the bankruptcy court. Concurrently with the petition, a copy of your credit counseling certificate and copies of your paystubs will be filed. Once the bankruptcy petition is filed, the automatic stay begins and protects you from all collection activities by your creditors. The automatic stay will last until the end of your bankruptcy case, unless it is lifted by the bankruptcy court. Your petition will include a repayment plan pursuant to which your disposable income will be used to repay creditors.

Within 45 days of your filing, a meeting of the creditors, also known as 341 hearing, will take place. You will have to come to the bankruptcy court in Rochester, if you reside in Monroe County, and answer the questions posed to you by the bankruptcy trustee. The trustee will typically ask you questions about your financial affairs, your income, expenses, assets and liabilities. You also may have to answer questions from your creditors who have the right to appear at the hearing. You will have to swear under oath that the information you provided in your petition is complete and accurate. After the hearing the trustee will issue a report to the bankruptcy court stating whether he recommends that your repayment plan be confirmed.

A typical Chapter 13 plan involves using your disposable income to repay all or a portion of your debts to the creditors over the next three to five years. The plan provides a repayment schedule that you’ll comply with to catch up on your past-due balances while staying current with other payments. Filing of a Chapter 13 bankruptcy can stop foreclosure and allow you to repay any mortgage arrears over the duration of your plan. Your plan can include such debts as mortgage and other secured and unsecured loan arrears and any other debts. You must make your first payment (as part of the repayment plan) within 30 days of filing your petition. If such payment is not made, the court may dismiss your case.

Within 45 days after the meeting of the creditors, you will have to complete the financial management course. If you will not complete it, you will not become eligible for discharge. The course is designed to help you make the most of your bankruptcy and includes tips on saving, managing money and handling credit.

Within 30 days after the 341 hearing, your confirmation hearing will be scheduled. On that date, you will appear with your attorney before Hon. John C. Ninfo, United States Bankruptcy Judge for the Western District of New York, who will make the ultimate decision whether to approve your Chapter 13 bankruptcy.

Once the plan has been approved, the trustee will typically enter a wage deduction order pursuant to which, all or a portion of your plan payments will be taken out of your wages and paid directly to the bankruptcy trustee. The trustee, in turn, will be making the payments to your creditors. You are required to make your final payment under the plan within five years of filing your petition. After doing so, you will receive your bankruptcy discharge and officially be out of Chapter 13 bankruptcy.

You will not be eligible for Chapter 13 bankruptcy protection if you had filed for bankruptcy in the past four years, so make sure you tell your bankruptcy lawyer whether you had past bankruptcy filings.

Chapter 7, Chapter 13 and Means Test in Bankruptcy

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”) included significant changes to the prior bankruptcy law, specifically, a financial test which allowed bankruptcy courts to determine who could qualify for Chapter 7 bankruptcy and who could not. This test is commonly called the “Means Test.” If you fail the Means Test, you may still file for bankruptcy protection, however, you would be limited to filing under Chapter 13 of the Bankruptcy Code, and would have to repay all or a portion of your debt over time.

The Means Test is a two-part test that compares your income and expenses.

The first part of the Means Test compares your current monthly income to the median monthly income in your state for a family the size as yours. For the cases filed after March 15, 2009, this table is found here. If your income is less than the median income, you qualify for a Chapter 7 bankruptcy, and do not need to complete the second part of the Means Test. For New York State, the median income numbers are:

One Earner Two People Three People Four People*

$46,523 $57,006 $67,991 $83,036

* Add $6,900 for every individual in excess of four.

If your income is higher than the median income, it doesn’t necessarily mean that you can’t file for Chapter 7 bankruptcy, but it requires you to proceed to the second step in the test which is more complex.

The second part of the Means Test contains two-parts. First, you subtract your allowed monthly living expenses (determined by IRS guidelines) from your monthly income to come up with your monthly “disposable income.” If your projected disposable income over the next five years totals less than $6,000 ($100/month), you pass the Means Test and can file under Chapter 7.

If your projected disposable income over the next five years is greater than $10,000, you fail the Means Test and will not be allowed to file Chapter 7.

If your projected disposable income is between $6,000 and $10,000, yet another calculation is required. This calculation compares your disposable income over the next five years to a percentage of your unsecured debt to determine whether any significant repayment to your creditors is possible. If your disposable income over that five years is greater than 25% of your unsecured, non-priority debts, you fail the Means Test and cannot file under Chapter 7. If your disposable income over a five year period is less than 25% of your unsecured, non-priority debts, you pass the Means Test and can filed Chapter 7 bankruptcy.

If you qualify under the Means Test, it does not require you to file under Chapter 7. There may additional reasons why you should not file under Chapter 7, and instead choose to file under Chapter 13. Any decision to file for Chapter 7 bankruptcy should be made only after considering alternatives and consulting with a knowledgeable bankruptcy lawyer.

If you don’t pass the Means Test, you may still file bankruptcy but are limited to using Chapter 13 bankruptcy which is a 3 to 5 year debt repayment plan. In a Chapter 13 bankruptcy, your payment plan is based upon what you can afford to pay your creditors, not on what your creditors want you to pay.

The above is a short summary of the Means Test. There are other factors that may have an effect on the Means Test.