Chapter 13 – Page 3 – Rochester Bankruptcy and Debt Relief

Changes to the Bankruptcy Means Test as of April 1, 2013

Once again, the means test figures for median income have changed as of April 1, 2013. In New York, it means that the amount of income that the debtor can have before being forced into a Chapter 13 Bankruptcy is going to increase.

Through March 31, 2013, a single debtor in New York could have $46,821 in income in income and still be able to file Chapter 7 Bankruptcy. Starting April 1, 2013, that figure has been increased to $47,790. Similar increases will take place for all family sizes. The comparison of the existing and new income limits is below.

Old Income Limits

FAMILY SIZE

1 EARNER 2 PEOPLE 3 PEOPLE 4 PEOPLE *

$46,821 $58,106 $67,652 $81,522

New Income Limits

FAMILY SIZE

1 EARNER 2 PEOPLE 3 PEOPLE 4 PEOPLE *

$47,790 $59,308 $69,052 $83,209

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

While the increases are not large, they are an improvement on the last set of income limits. The reason for a slight growth in the median income is the slight growth in the earnings of an average American family. Since the economy is down, employers do not give employees significant wages increases. As a result, the American median family income has grown only slightly, and means test figures increased only moderately.

If you are contemplating filing Chapter 7 Bankruptcy or Chapter 13 Bankruptcy, or are dealing with debt problems in Western New York, including 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 with a Rochester, NY, bankruptcy lawyer.

Dischargeability of Debt and Objections by Creditors

When debtors meet with me and tell me that they want to file for bankruptcy, I ask them questions about their debts, assets, and their financial affairs over the last few years. I also ask is how long ago they last used their credit cards. If they tell me that the credit cards were used within 90 days prior to the filing, I ask them to provide me with their credit card statements and information with regard to what was bought. All of this information helps me to assess whether I am likely to see potential objections from creditors with regard to dischargeability of one or more debts.

According to 11 U.S.C. §523(a)(2), a debt is presumed to be nondischargeable if a Debtor charges more than $600 for luxury goods on a credit card with in 90 days, or takes cash advances of more than $875 within 70 days of filing for bankruptcy. This presumption can be rebutted, but the burden is on the debtor to prove that the purchases did not involve luxury goods or services.

Another reason a creditor may object to the discharge is fraud and misrepresentation of debtors’ assets or income in order to obtain credit. If debtors misrepresent their financial condition in order to obtain a loan or credit line, and the creditor relies upon such misrepresentation when agreeing to extend credit, the creditor can object. For example, if the debtor earned $15,000 a year, but stated on the credit card application that he was earning $50,000 per year in order to get get approved, this would be a material representation likely to result in objections being filed.

Hiding an asset or failing to disclose it in a bankruptcy proceeding are also grounds to challenge a debtor’s discharge. For example, if you own an investment property, especially one with equity, which could not be protected under the Bankruptcy Code, and fail to inform the bankruptcy court of this asset, then a creditor may challenge debtor’s right to a discharge pursuant to 11 U.S.C. §727. Under such circumstances, a debtor may also get charged criminally.

Finally, the transfer of assets to family members or others just before filing bankruptcy can cause a creditor to challenge the bankruptcy case. It is particularly a problem if the asset transferred would not have been fully exempt in Chapter 7 Bankruptcy, and the transfer was made with the intent to deprive a creditor of a benefit. If the debtor does this, either the bankruptcy trustee or any creditor who might have received a benefit from the sale of this asset may allege you committed a fraudulent transfer of an asset. The Federal look-back period under 11 U.S.C. §548 and New York’s look-back period is six years.

In view of the above, I always advise my clients to stop using any credit cards at least 90 days prior to filing for bankruptcy, disclose all their assets, and be honest with regard to any financial transactions.

If you contemplating filing Chapter 7 Bankruptcy or Chapter 13 Bankruptcy, or are dealing with debt problems in Western New York, including Rochester, 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 with a Rochester, NY, bankruptcy lawyer.

Top Five Things Not To Do Before Filing Bankruptcy

Many people try to engage in financial planning once they make a decision to file either Chapter 7 or Chapter 13 bankruptcy. While such planning can be helpful, there are many potential dangers for the unwary debtors who do not involve a bankruptcy attorney in this process. Here is a list of top five things not do since they may cause significant problems in your bankruptcy case.

Number 5: Stop using credit cards once you decide to file.

In bankruptcy, honesty is the best policy. Using credit cards when you have no intention to repay may result in the debt being nondischargeable, especially where credit cards are being used to purchase luxury goods or for vacations, or cash withdrawals are made. The bankruptcy code gives credit card issuers a number of advantages when credit cards are used just prior to filing bankruptcy. If a creditor decides to file objections, the bankruptcy court may determine that the debt is nondischargeable. Before you use a credit card convenience check, transfer a credit card balance, take a cash advance, or go on a spending spree, debtors should speak with a bankruptcy attorney.

Number 4: Don’t transfer property before filing bankruptcy.

The bankruptcy petition requires that debtors identify all financial transfers made before their bankruptcy filing. Further, during a typical meeting of the creditors, the bankruptcy trustee will usually ask about any transfers, and will ask debtors about transfers of real property made within the last 6 years. The bankruptcy trustee will review any transfers within the last year, and any transfers that violate preference rules can be voided by the trustee. If the transfer is voided, the debtor may lose the right to protect such property, and the recipient of the property will have to return that property to the trustee. Before selling or transferring property, debtors should speak with a bankruptcy attorney.

Number 3: Don’t repay loans to friends or family.

Because of the preference rules, any transactions such as repayment of loans to relatives or friends can be voided by the bankruptcy trustee as preference. Once the trustee determines that the transaction is a preference, the trustee then can can recover such funds from your family members or friends, and use them to pay your creditors. Before paying back debts owed to family members or friends, debtors should speak with a bankruptcy attorney.

Number 2: Don’t pay more than $600 to one creditor.

Like payments to family members or friends, any payments that exceed $600 and made to any one creditor within 90 days of the bankruptcy filing, can be avoided as a preference. While those payments will be recovered by the trustee from the recipients, it may make more sense to simply not make such payments and preserve the money. Before paying making significant payments to their creditors within 90 days prior to their bankruptcy filing, debtors should speak with a bankruptcy attorney.

Number 1: Don’t cash out retirement plans or 401k plans to pay creditors.

Since retirement plans are fully protected by the Bankruptcy Code, debtors should not withdraw retirement funds to pay creditors. Not only such payments are likely to be voided as preferences, they are also likely to result in taxable consequences to the debtors. Also, once the money is withdrawn, it may lose its protected status, and it is possible that either the creditors or, eventually, bankruptcy trustee may take it.

The bankruptcy code contains many dangers for the unwary. A bankruptcy attorney can help you avoid these common mistakes. It is always a good idea to engage in bankruptcy planning and discuss your financial situation with a bankruptcy attorney.

Bankruptcy Planning, Debt and 401(k)

Once in a while, I hear from debtors who tells me that they expended all or nearly all of their retirement savings trying to avoid bankruptcy. Unfortunately, if you spend your retirement funds trying to avoid bankruptcy, you cannot get it back. If, ultimately, the use of those retirement funds was insufficient to avoid bankruptcy, that money was simply wasted if the debtor still needs to file either Chapter 7 or Chapter 13 bankruptcy.

As I have written previously, 401(k) and most other retirement plans are exempt in bankruptcy. What that means is that if the debtor engaged in some bankruptcy planning and filed bankruptcy before withdrawing retirement funds, the debtor would be able to keep those retirement funds and discharge his or her debts.

I understand why debtors spend their retirement money on debts that would otherwise be dischargeable in bankruptcy. Usually, they want to repay their debts and they will employ any available means to do so. While most debtors are aware of bankruptcy as an option, most debtors try to avoid it.

Since bankruptcy gives you a chance to discharge your debt and protect the assets such as retirement funds, it may be foolish to spend all of your retirement money, and I advise debtors to explore their options before making these decisions. The most important question that the debtors should ask and answer is whether their necessary and reasonable living expenses and debt payments exceed their take home income on a regular basis. If so, is this going to change because of increased income or decreased expenses in the foreseeable future?

If the debtor is left with a permanent deficit and does not expect it to change, then it does not make sense to withdraw retirement funds to continue to pay down that deficit until there is no retirement money left. The bankruptcy system, both New York and federal exemptions, protects your retirement funds.

Chapter 13 Discharge and Child Support Arrears

Chapter 13 Bankruptcy cases can take between 3 and 5 years to complete, and, in a current economy, as many as two thirds of all Chapter 13 plans fail. Thus, any debtor who has completed the plan should be proud of his or her accomplishments.

However, under some circumstances, even if all of the plan payments are made over a five year period, the debtor may not receive his Chapter 13 discharge. Specifically, Bankruptcy Code Section §1328, precludes the judge from issuing a discharge if you do not certify that all domestic support obligations that have come due during the pendency of your case have been paid. Additionally, if the debtor has child support arrears prior to filing of the case, those arrears must be paid in full during the term of the plan.

If domestic support (i.e. child support or alimony) were not paid, and that failure was not excusable, the case will be closed, and the debtor will not receive the discharge. In the case of child support in Chapter 13, the debtor cannot ignore the obligation, even if the custodial parent or child support enforcement is saying and doing nothing. Otherwise, the debtor may end up with a perfect payment history in Chapter 13, but no order of discharge.

If you are contemplating filing Chapter 7 Bankruptcy or Chapter 13 Bankruptcy, or are dealing with debt problems in Western New York, including Rochester, 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 with a Rochester, NY, bankruptcy lawyer.

Should 401k Loans Be Used to Avoid Bankruptcy?

Once in a while I am asked whether 401k loans should be used to pay off credit card debt and, therefore, avoid bankruptcy. In my opinion, it is a bad idea.

Filing for bankruptcy under either Chapter 7 or Chapter 13, is a difficult decision, and most of the time debtors will try to do just about anything to avoid filing. However, if you earn $50,000 in gross income, and you are $50,000 in debt, because of interest and other carrying costs, it is unlikely that you will be able to pay off that debt within a reasonable period of time. Thus, a debtor may think that whatever money he has in his 401k will save him from having to file bankruptcy. Unfortunately, for most people, this is unlikely to come true.

Initially, if 401k loan is used to pay off credit card debts, there is now a significant debt owed to the 401k plan. Usually, 401k loans carry lower interest rates than credit cards. However, while having a lower interest rate, 401k loans have to be paid back over a shorter period of time.

If a loan is taken out and not repaid, it is treated as income, and debtor will incur a 10% early withdrawal penalty since it is a distribution from a tax-deferred plan, and also will have to pay income taxes on the unpaid amount. Unpaid amount of the loan is treated as additional income, and it is likely to increase debtor’s income tax rates as well.

If you quit working or change employers, the loan must be paid back right away. It’s not uncommon for plans to require full repayment of a loan within 60 days of termination of employment. If you can’t repay the loan, it is considered defaulted, and you will be taxed on the outstanding balance, including an early withdrawal penalty if you are not at least age 59 ½.

However, if the debtor decides to file bankruptcy, under either Federal exemptions or New York exemptions, 401k is completely exempt. If you file for bankruptcy, the credit card debt will be gone, and you will be able to retain the money in your 401k plan.

Bankruptcy and Cash Advances

Most of my Chapter 7 bankruptcy clients have a lot of credit card debt that was accumulated over time. That debt may have come from making purchases, incurring services charges and interest, as well as taking cash advances on credit card. While most of credit card debts are dischargeable in bankruptcy, credit card cash advances may represent a significant problem for potential bankruptcy filer.

According to the Bankruptcy Code, any cash advance, or combination of cash advances from one lender, totaling more than $875, obtained within 70 days of the bankruptcy filing date is presumed to be non-dischargeable. This particular provision is included in Section 523(a)(2)(C)(i)(II). The dollar amount of the cash advance, changes every three years.

This provision was included in the Bankruptcy Code because the Congress was concerned 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. Another reason for that provision was to prevent consumers from taking cash advances immediately prior to a bankruptcy filing.

However, in terms of procedural issues associated with cash advances taken out with 70 days prior to the filing, in order to have the court declare that the debt is non-dischargeable, the creditor must file objections in the bankruptcy court. Specifically, the creditor must file an adversary proceeding. Since there are filing fees and other expenses associated with such filings, if the amount of the cash advance is not particularly large, most creditors will not bother filing an adversarial proceeding.

However, since a cash advance may result in an adversary proceeding, I always ask my clients about them and, in appropriate situation, may ask the client to postpone the bankruptcy filing until after the expiration of the 70 day period.

Who Will Be the Next Bankruptcy Judge in Rochester?

At the end of the year, Judge John C. Ninfo II, who has been presiding over the bankruptcy court in Rochester since 1992, will be retiring. The Second Circuit Court of Appeals has been interviewing candidates to replace Judge Ninfo since early this fall.

However, since the Second Circuit has not made its selection so far, the Bankruptcy Court for the Western District of New York has established a contingency plan for January and February 2012. The Hon. Michael Kaplan, one of the two Buffalo bankruptcy judges, will be coming to Rochester and Watkins Glen to preside over motions and hearings.

The administrative order posted on the Court’s Website states that the motion calendars for Rochester in January and February will be held on Fridays rather than Wednesdays, but will not be changed otherwise. Since Judge Ninfo has presided over the bankruptcy court in Rochester for the last 20 years, Judge Kaplan may represent a significant change and Rochester bankruptcy lawyers will have to learn about his approach to bankruptcy cases and judicial philosophy.

Upcoming Changes in Bankruptcy Filing Fees

I have previously discussed fees associated with both Chapter 7 Bankruptcy and Chapter 13 Bankruptcy. As of November 1, 2011, those fees are going to increase for the first time in several years.

The filing fee for filing a Chapter 7 Bankruptcy or Chapter 13 Bankruptcy will increase by $7. For Chapter 7, the filing fee will increase from $299 to $306. The Chapter 13 filing fee will rise from $274 to $281. The Court Clerk for the Western District of New York announced changes in the filing fees on the bankruptcy court’s website on October 17, 2011. The cost of filing an adversary proceeding and various motions is rising as well.

Upcoming Changes to the Means Test Figures

Once again, the means test figures for median income are changing as of November 1, 2011. In New York, it means that the amount of income that the debtor can have before being forced into a Chapter 13 Bankruptcy is going to decrease.

Through October 31, 2011, a single debtor in New York could have $46,295 in income in income and still be able to file Chapter 7 Bankruptcy. Starting November 1, 2011, that figure is decreasing to $45,931. Similar decreases will take place for all family sizes. The comparison of the existing and new income limits is below.

Old Income Limits

FAMILY SIZE

1 EARNER 2 PEOPLE 3 PEOPLE 4 PEOPLE *

$46,295 $57,777 $68,396 $83,942

New Income Limits

FAMILY SIZE

1 EARNER 2 PEOPLE 3 PEOPLE 4 PEOPLE *

$45,931 $56,113 $66,953 $81,212

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

While the decreases are not large, they are going to make it more difficult for some individuals and families to qualify for Chapter 7 bankruptcy.

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. Usually, these figures are adjusted based upon the Consumer Price Index (CPI) for All Urban Consumers once or twice per year.

When the economy is growing, typically income rises because of the cost of living increases, inflation and other reasons. When the economy is not growing, income actually decreased from the prior year. As a result, the means test is adjusted and lower median income figures are used which make it more difficult for debtors to qualify for Chapter 7 Bankruptcy.