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Update on Discharge of Student Loans – $221,000 in Student Loans Discharged

One of the more difficult problems associated with bankruptcy has been discharge of student loans. A recent decision by Chief Judge Cecelia Morris of U.S. Bankruptcy Court for the Southern District of New York, In re: Kevin Jared Rosenberg, enabled law grad Kevin Jared Rosenberg to discharge the $221,000 loan debt he acquired as an undergraduate at the University of Arizona and later at the Cardozo School of Law. The win by Rosenberg, who represented himself in the matter, is surprising in view of the common belief that student loan debt is all but impossible to discharge in bankruptcy.

What made this case different is how the bankruptcy judge applied “Brunner test”—which lays out the three criteria student loan borrowers must meet to demonstrate that repaying their loans poses an undue hardship—that has caught the attention of the bankruptcy law world. Morris’ opinion includes a strongly worded rebuke of how judges have traditionally applied the Brunner test, saying they have made it more onerous on borrowers than it was intended to be. “Over the past 32 years, many cases have pinned on Brunner punitive standards that are not contained therein,” Morris wrote. “Those retributive dicta were then applied and reapplied so frequently in the context of Brunner that they have subsumed the actual language of the Brunner test. They have become a quasi-standard of mythic proportions so much so that most people (bankruptcy professionals as well as lay individuals) believe it impossible to discharge student loans.”

Judge Morris’ application of the second two prongs of the test in the Rosenberg case are surprising. Rosenberg claimed in his bankruptcy petition that his annual income as an outdoor guide is $37,000 and that he has a negative monthly outlay of $1,500. But the court did not consider any potential increase in his earnings on the grounds that the entirety of his $221,000 loan balance is due because he went into default. Judges usually take a 10 or 25-year view of earnings based on the length of the repayment plan. What makes this decision particularly interesting is that Judge Morris declined to use Rosenberg’s decision not to pursue a legal career, as evidence that he has not made a good faith effort to repay his loans. In finding that Rosenberg made a good faith effort to repay his loans, Judge Morris credits him with making about 40% of his required loan payments, even though he was only required to make 26 payments over the course of 13 years due to securing multiple loan deferrals.

But whether Rosenberg’s case will be followed by other bankruptcy courts, including here in Western New York, is uncertain and will largely depend on whether Judge Morris’ decision is upheld on appeal. If the district court for the Southern District of New York, and subsequently U.S. Court of Appeals for the Second Circuit, uphold it, that would make it more likely that more borrowers will see their loans discharged.

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, Henrietta, 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.

Determining Chapter 13 Repayment Plan Payment

If debtor does not qualify for Chapter 7 bankruptcy, that debtor is likely to qualify for Chapter 13 bankruptcy. The most important issue for anyone filing Chapter 13 is to know is how much their Chapter 13 Plan payment will be. In my opinion, given the typical 5 year duration of Chapter 13, properly set plan payment is the most important factor in whether the case will be a success.

Determining the amount of the payment can be challenging at the very beginning of the case. Early estimates of plan payment can change significantly as more information becomes available.

Generally, there are four tests applicable to determining the amount of the Chapter 13 Plan payment:

The Chapter 13 Means Test (officially, the “Chapter 13 Statement of Your Current Monthly Income and Calculation of Commitment Period and Calculation of Your Disposable Income”);
The Disposable Income Test;
The Chapter 7 Liquidation Analysis Test; and
The Required Payments Test

The Chapter 13 Means Test was imposed when BAPCPA became law in 2005. The Means Test’s purpose is to determine whether debtor’s Plan would be 3 years or 5 years long, and to have an objective way to determine the amount of the payment. This calculation uses one of the established four methods of determining your Chapter 13 Plan payment.

The Disposable Income Test is the only one of the four tests that is strictly based on debtor’s ability to pay. Initially, debtor’s net household income is calculated and from that figure, debtor’s actual reasonable monthly expenses are subtracted. The resulting number–disposable income–is Chapter 13 Plan payment. That calculation does not include a deduction for the debts that will be paid through the Chapter 13 case, such as mortgage arrears, car loan payments, student loan payments, tax payments, and credit card bills.

In the Chapter 7 Liquidation Analysis Test, bankruptcy attorney looks at how much debtor’s general unsecured creditors (typically credit cards, medical bills and personal loans) would receive in a hypothetical Chapter 7 case. In many cases, they would receive zero, because there are no non-exempt assets with equity, and creditors would get nothing in a Chapter 7 case. The total amount of payments under Chapter 13 plan can’t be less than the amount determined under the Liquidation Analysis Test.

The last test is the Required Payments Test. Usually, priority debt, such as recent taxes and domestic support obligations, must be paid in full during the course of the Chapter 13 case. Mortgage and other secured debt arrears must also be paid in full, along with unpaid attorney fees, trustee commissions and (in most cases) at least a nominal amount to the general unsecured creditors. Add these payments up, and you reach the Required Payments.

After all of the numbers under each test have been calculated, debtor is required pick the highest amount, which becomes the plan payment. At the same time, that figure may change during the case as creditors submit their proofs of claim, as debtor’s income, expenses and assets change. This figure may also change depending on trustee’s view of the debtor’s financial circumstances.

Debtor and Ability to Reopen Bankruptcy

Generally, chapter 7 debtors have the right to reopen their cases for various purposes after their case is closed. Usually, the court will allow the debtor to do so to remove judicial liens for otherwise discharged debt via 11 U.S.C. §522(f) motion, or to add an overlooked creditor, or to file a financial management course certificate, or perhaps for another purpose. In In re May E. Jones, Case No. 03-21929, debtor moved to reopen the case 13 years after it was closed, to amend the schedule of real property, disclosing (for the first time) her interest in a parcel of real property and seeking to have the property abandoned to her under 11 U.S.C. §554. If the court were to reopen the case, a substantial real estate asset would likely revert to the debtor.

After reviewing the parties’ submissions and conducting an evidentiary hearing, Judge Warren found that the debtor was aware of her interest in the real property at the time the bankruptcy was filed but did not disclose that interest in her petition. The court further found that reopening of the case would not be to the benefit to the creditors, and the debtor could not establish that she had acted in good faith at the time her Chapter 7 bankruptcy case was filed.

Concluding his decision, Judge Warren wrote:

The Court will not accept Jones’s invitation to turn a blind eye to the signals pointing toward bad faith, so that she can have the undisclosed assets abandoned back to her. That seems a bit like a parent rewarding a child who was caught hiding her failing report card with a hot fudge sundae.

What is the takeaway from this case? The cardinal rule of bankruptcy is full and complete disclosure. Here, the debtor did not fully disclose all of her assets and did not act in good faith. Thus, the court denied her motion and debtor could not benefit from her actions. The above situation is unusual both in the length of time from the time of discharge and the relief sought. However, I believe that it illustrates a simple principal that in bankruptcy a debtor cannot benefit from his wrongful conduct.

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.

Timeline of Chapter 7 Bankruptcy Case

Typical debtor(s)’s Chapter 7 bankruptcy case begins once a Petition is filed with the Bankruptcy Court. If the debtors are married, they may file a joint Petition. Debtor’s petition includes schedules listing assets, creditors, income, expenses, executory contracts, leases, and co-debtors. The Schedules are customarily filed along with the Petition. The Declaration Regarding Payment Advices and Credit Counseling Certificate are also usually filed along with the Petition. The filing fee is paid at the time of filing.

After filing Chapter 7 Bankruptcy, the following events take place.

Immediately:

Automatic Stay Order will be issued which prohibits creditors from sending you letters, calling you, or taking any additional collection and/or legal action against debtor(s). Garnishments on bank accounts and paychecks must stop.

Bankruptcy Trustee will be assigned to your bankruptcy case and Meeting of Creditors will be scheduled.

The date to complete Financial Management Course is scheduled.

Approximately 15 days after bankruptcy case filing:

The Bankruptcy Clerk will mail debtor(s) and creditors the Notice of Chapter 7 Bankruptcy Case, Meeting of Creditors, & Deadlines, which provides the date set for your meeting of creditors and other important deadlines.

Within 30 days of bankruptcy case filing:

Statement of Intention must be filed, informing the court if debtor(s) plan to keep any collateral property or if you intend to submit it to your creditors. The Statement of Intention is usually filed along with the Petition, but debtor(s) can change his/her position on these issues.

14 days before 341 Meeting:

Debtor(s) most recent tax returns, paystubs, real estate documents, vehicle related documents, and other financial information are due to the Trustee 14 days before the date first set for the 341 meeting.

Approximately 4 weeks after bankruptcy case filing:

Meeting of Creditors, often referred to at a 341 meeting, will be held.

30 days after your 341 Meeting:

Deadline for the Bankruptcy Trustee or your creditors to object to your exemption claims.

Debtor(s) must perform his/her intentions as stated in the Statement of Intentions. Debtor(s) will need to surrender the property, reaffirm the debt, or redeem property for the allowed secured claim.

45 days after 341 Meeting:

Debtor(s) must have completed his/her Financial Management Education Course and filed a certificate of completion within 45 days of the first date set for the 341 meeting.

60 days after 341 Meeting:

Creditors must object to discharge of debts that were obtained by false pretenses, a false representation, or actual fraud; debt from fraud or defalcation while acting in a fiduciary capacity, embezzlement or larceny; and debt for willful and malicious injury. This deadline applies to objections to discharge of: consumer debts owed to a single creditor of more than $500 for luxury goods or services obtained within 90 days before a Chapter 7 bankruptcy. Creditors must also object within 60 days of the original 341 date for debts involving misconduct including transfer, destruction or concealment of property; concealment, destruction, falsification or failure to keep financial records; making false statements; withholding information; failing to explain losses; failure to respond to material questions; having received a discharge in a prior bankruptcy case filed within the last 6 years.

Trustee must determine if debtor(s) bankruptcy case should be dismissed due to abuse or debts discharged.

Reaffirmation agreements, if relevant, must be filed with the court.

More than 60 days after 341 Meeting:

Debtor(s)’s discharge will be filed by the Bankruptcy Clerk. However, at this point in time, the discharge is not absolute or final. The trustee can ask that the discharge be set aside if the debtor does not turn over non-exempt property, if the debtor fails to perform other duties, or if there were other matters pending which would result in the denial of the discharge.

90 days after 341 meeting:

All creditors (except for government entities) must file their proofs of claim if they wish to share in the payments from debtor(s)’s bankruptcy case if any assets are available for liquidation.

180 days after bankruptcy case was filed:

Government agencies or units must file a proof of claim within 180 days of the bankruptcy case filing.

Debtor(s) no longer risk losing property acquired or become entitled to after the bankruptcy case is filed as a result of inheritance, bequest, devise, property settlements involving divorce, or beneficiary on life insurance. Any inheritance that debtor(s) become entitled to after the bankruptcy case is filed is at risk of being liquidated by the Trustee if debtor(s) become entitled to it within 180 days of filing.

Final Decree will be entered by the Court officially closing the bankruptcy case. The Final Decree is often received near the time of the Discharge if your bankruptcy case is a no-asset bankruptcy case. If the Trustee is liquidating non-exempt assets, the bankruptcy case will remain open to allow the Trustee to distribute the funds to creditors and file a final report.

The above represents a typical timeline for a Chapter 7 Bankruptcy case.

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.

Unpaid College Tuition Can Be Discharged In Bankruptcy

Generally, pursuant to Section 523(a)(8) of the Bankruptcy Code student loans are not dischargeable in bankruptcy, unless the debtor is facing truly remarkable circumstances. However, unpaid college tuition is not treated the same way and can be discharged in bankruptcy.

In a recent case, D’Youville College v. Girdlestone (AP 14-1018 W.D.N.Y. 2015), Bankruptcy Judge Carl L. Bucki held that unpaid college tuition is treated differently than unpaid student loans and that the changes in the bankruptcy code in 2005 did not alter the results of the earlier Second Circuit cases. In D’Youville, the debtor attended the college only for a semester and had agreed to pay tuition but did not sign a promissory note.

In Girdlestone, Judge Bucki followed the holding in Cazenovia College v. Renshaw (In re Renshaw), 222 F.3d 82 (2d Cir. 2000), which held that the mere obligation to pay tuition does not constitute a loan that is non-dischargeable under the Bankruptcy Code.

D’Youville College argued that under the amendments to 11 U.S.C. § 523(a)(8) that Congress adopted in 2005, unpaid tuition should be treated the same was as student loans. In 2005 the Bankruptcy Code provisions related to student loans were changed, and even private student loans, not guaranteed by the government or provided by a school receiving government funding, were no longer dischargeable in bankruptcy. Section 523(a)(8)(B) of the Bankruptcy Code now states that the debtor will not receive a discharge of “any other educational loan that is a qualified education loan, as defined in section 221(d)(1) of the Internal Revenue Code of 1986, incurred by a debtor who is an individual.” According to Internal Revenue Code §221(d)(1), a “qualified education loan” means “any indebtedness” that a taxpayer incurs to pay certain qualified higher education expenses.

Judge Bucki held that “under the Bankruptcy Code, nondischargeability extends not to any such “qualified education loan,” but only to “any other educational loan that is a qualified education loan.” Further, according to Cazenovia College, “to constitute a loan there must be (i) a contract, whereby (ii) one party transfers a defined quantity of money, goods, or services, to another, and (iii) the other party agrees to pay for the sum or items transferred at a later date.” 222 F.3d at 88. When a student unilaterally does not pay tuition, the student may be indebted to the school, but that indebtedness does not make the transaction a loan. Based on the above, Judge Bucki held that because Cazenovia College would deny this status to the claim of D’Youville College, D’Youville’s claim is not excepted from discharge under 11 U.S.C. § 523(a)(8).

Since it is very difficult to discharge student loans, the above decision represents a rare positive result for the debtor. However, most college graduates do not deal with the same issues because most colleges require payment before students can graduate and a significant number of students take out student loans as opposed to owing money directly to their school.

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.

Debtors and Failure to Turnover Nonexempt Assets

In Chapter 7 bankruptcy cases where debtors have nonexempt assets, debtors have an obligation to transfer those assets to the bankruptcy trustee. It is very common for such assets to be debtors’ tax refunds. In this situation, at the meeting of the creditors, debtors are asked to sign a stipulation which is usually incorporated into a subsequent court order, agreeing to turn nonexempt tax refunds, or a part of them, to the bankruptcy trustee. If debtors do not do so, they are subject to serious consequences which may include loss of their discharge, contempt of court or monetary penalties. The loss of discharge is the most serious penalty from the debtor’s point of view, since it will leave the debts nondischargeable in this or any subsequent bankruptcy that the debtor may file.

But what if the debtors are unable to turn over such assets due to financial reasons? What if the tax refunds were used for living expenses since debtors simply had no other choice?

This issue was recently addressed in In Re Swan, Case No. 08-11210 (W.D.N.Y. 2014), where Judge Michael J. Kaplan had to decide what the consequences should be for the debtors who had failed to turn over nonexempt portion of their tax refunds to the bankruptcy trustee. The Chapter 7 trustee sought denial of discharge, as well as a finding of contempt of court and monetary penalties. Judge Kaplan held that in the absence of dishonesty on the part of the debtors, loss of discharge would be too harsh of a remedy and the court should not automatically deny or vacate discharge. Judge Kaplan held that if failure to turn over the assets is not as a result of dishonest conduct on the part of the debtors, the appropriate remedy is a monetary judgment that the trustee would be free to collect. Further, Judge Kaplan also held that if the debtors are unable to turn over such assets to the trustee, they have an obligation to seek immediate relief from the Court.

This case further confirms that debtors always have to try to follow the court’s orders and, if they are unable to comply with them, they have to seek relief from the court. While the debtors in Swan did not lose their discharge, they were held in contempt of court and were subject to monetary penalties. All of this could have been avoided if they kept their bankruptcy attorney involved in the case and notified him of their financial difficulties.

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.

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.

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.

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.

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.

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.