Tuesday, 5 April 2011

Thomas Hogan, Stockton Bankruptcy Attorney

One of the primary changes made by Congress and the President when they enacted the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 is the implementation of a “means test”. The means test focuses on the combined gross income of all members of the marital community, regardless of whether only one or both members of the marital community file bankruptcy. Income is determined based on an average over the past six month, regardless of whether the average income over the past six months reflects future earning ability. Subtracted from income are various household expenses, some based on objective standards created by the Internal Revenue Service, and some based on the debtor’s actual spending history. If the net surplus is greater than the state’s median level of income for a family of the debtor’s size, the presumption exists that the debtor is not eligible for Chapter 7. If the debtor’s net surplus is below the state’s median level of income for a family of the debtor’s size, but there is still sufficient income to repay a portion of the debtor’s debt if forced to do so in a Chapter 13 proceeding, the debtor may nonetheless be ineligible for Chapter 7 relief. It is anticipated that approximately ten percent of the debtors that previously could have filed Chapter 7 successfully will be forced to either file Chapter 13 instead, or not file bankruptcy at all.
The scrutinization of the debtor’s income and expenses in order to determine whether giving the debtor a Chapter 7 discharge constitutes a “substantial abuse” of the bankruptcy laws is another price one pays for the privilege of receiving a Chapter 7 discharge.

Will My Bankruptcy Discharge All Of My Obligations?
Not necessarily. There are certain types of obligations which are automatically not dischargeable in a bankruptcy services, such as recent income taxes; fiduciary taxes; past and future alimony and child support; most student loans; liability created in a driving under the influence incident; fines and penalties; and criminal restitution awards. There are other obligations which are potentially nondischargeable as a result of the debtor’s conduct, such as incurring debt, often credit card charges, without the intent to repay it; actual fraud; embezzlement; breach of a fiduciary obligation; and willful and malicious injury to others.

Can I Keep My Home If I File Bankruptcy?
A trustee in a Chapter 7 will only have an economic incentive to liquidate your residence if there is sufficient value to pay costs of sale of approximately eight percent including commissions to a broker, pay the mortgage or mortgages in full, pay you whatever exemption you are claiming to protect the residence whether it be the homestead exemption or the wildcard exemption, other liens of record such as unpaid county real estate taxes law or unavoidable judgment liens, and still net for the bankruptcy estate no less than say $5,000. Although trustees don’t always do so, they can be expected to independently value properties by having a real estate broker run comparable sales and listings and conduct either a drive-by valuation or a walk-through valuation, especially during periods of rising real estate values. It is therefore imperative that you have a strong handle on the value of your home and that you not guess. You should strongly consider purchasing an appraisal from a certified real estate appraiser or at least meeting with a real estate broker or agent who can provide you an approximate range of value based upon comparable recent sales and listings. In the event the trustee determines that there is administrable equity, the trustee will usually offer the debtor an opportunity to purchase the property back from the bankruptcy estate for the amount that the estate would have realized had the trustee in fact sold the property.