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6151 Lakeside Dr.,  Suite 2100
Reno, NV  89511

Reno Bankruptcy Attorney

Stephen R. Harris, Esq.

Providing Financial Protection

for 46 Years

There is nothing easy about making the decision to file for bankruptcy. I welcome the opportunity to speak with you personally and confidentially to help you find the ideal solution to your financial challenges.

Bankruptcy for the Elderly: Beware of This Horrific Fact; 1 in 8 Filers Were Over 65 Years of Age.

Bankruptcy for the Elderly: Beware of This Horrific Fact; 1 in 8 Filers Were Over 65 Years of Age.

Senior-citizen bankruptcies are on the rise, driven by socioeconomic factors such as insufficient Social Security payments, higher health-care costs, and increased individual responsibility for retirement savings.

Between 2013 and 2016, 1 in 8 filers in the U.S. was age 65 or older; during the same time period, 21% were age 55 to 64, according to Robert Lawless, law professor at the University of Illinois’ College of Law who has co-authored research on the subject. There’s been an overall trend toward older filers since the study was first conducted in 1991, he says.

While some of the stigma of declaring bankruptcy has dissipated, there can still be negative consequences such as losing property and long-lasting effects on credit. Before filing, make sure you weigh your options and avoid these potentially costly mistakes:

  • Not sufficiently exploring self-help options
  • Haphazardly liquidating assets
  • Taking on additional financial obligations to pay the bills
  • Not seeking legal help

If you’re feeling in over your head, it’s advisable to consult an attorney. The Eldercare Locator connects older Americans and their caregivers with trustworthy local support resources, including legal help, based on their location. Seniors can also use the Legal Services Corp. website to locate nonprofit legal aid organizations in their state that may be able to help them navigate debt and bankruptcy-related issues.

The website of the National Association of Consumer Bankruptcy Attorneys is another resource seniors can use to locate an attorney in their area. For seniors who don’t qualify for legal aid, but are concerned about fees, there are a number of firms that will do pro-bono work and sometimes firms will offer reasonable and discounted payment plans.

Why Many Older Americans Are Going Into Debt?

Experts have observed a rapid surge of retirees getting into insurmountable debt. The skyrocketing figures are due to the following reasons:

  • Credit card debt
  • Medical expenses
  • Job loss
  • Reduced income
  • Expensive insurance co-pays

Many seniors also experience a lack of support, lack of access to necessities, and isolation. Filing in Nevada for bankruptcy offers a way to ease the burden of debt and get peace of mind in their golden years.

What Kind of Bankruptcy Can Seniors Qualify For?

Most older adults filing for bankruptcy will qualify for either Chapter 7 or Chapter 13 bankruptcy:

Chapter 7 Bankruptcy

This type of filing will allow seniors to discharge most or all their debts. Chapter 7 is usually granted to filers who make less than their state’s median income.

The court may also order a means test to determine if an elderly filer can pay a Chapter 13 plan. Under Chapter 7, the court trustee may ask the debtor to turn over any non-exempt assets. These assets will be sold to help pay the petitioner’s creditors.

Chapter 13 Bankruptcy

This type of filing involves a three-to-five-year repayment plan. Successful filers generally get to keep their property and assets.

Older adults who still have steady income may prefer this repayment plan, especially for those who do not pass the means test or make more than the state’s median income. The success of filing may depend on selecting the right type of bankruptcy to file for. Therefore, it is best for petitioners to seek the help of a bankruptcy lawyer in Raleigh for expert assistance on the next steps.

Seniors May Be Able to Keep Their Homes After Filing for Bankruptcy.

There is something called a homestead exemption when it comes to bankruptcy laws. It is a certain amount of home equity that’s protected under bankruptcy. However, some seniors may risk losing their homes, especially if they have large amounts of equity or unpaid mortgage.

It is critical to learn how much equity the debtor’s state protects under bankruptcy. Some cover the full value of the petitioner’s home under Chapter 7 in Nevada. On the other hand, older adults may keep their home under Chapter 13, provided they are able to continue paying the mortgage. The repayment plan can also help debtors pay mortgage arrears.

Learn More About Bankruptcy for the Elderly in Reno.

Bankruptcy can pave the way for a more secure retirement for debt-ridden older adults. It is natural to have many questions about the decision to file, especially when it involves factors like your social security income and retirement accounts. Call the Harris Law office today at 775-786-7600 for a free consultation, also visit our new Facebook Page for more information.

Chapter 7 Bankruptcy & Chapter 13 Bankruptcy Processes You Should Know

Chapter 7 Bankruptcy & Chapter 13 Bankruptcy Processes You Should Know

This post will primarily deal with Chapter 7 bankruptcy and 13 bankruptcies. Chapter 11 business reorganization bankruptcies are a different animal all to themselves. You will follow the steps below when you file for a personal or as it’s sometimes termed ‘consumer’ bankruptcy for debt relief.

STEP 1 – Assessing Your Case

In order for the attorney to be able to properly assess your case, an initial interview will gather the following information:

  • Copies of three years of your most recent tax returns.
  • The amount of income tax that you may owe.
  • The amount of domestic support obligations in any arrears.
  • What is your home worth and the balance owed on recorded mortgages and the amount of monthly installments that you are behind.
  • How much are your cars worth and the amount that you owe on them.
  • An approximate of balances that you owe on all your bills including credit cards.
  • A copy of pay stubs for the last 60 days.
  • Your home mortgage documents.
  • The certificate of title on any motor vehicles you on.
  • In court papers for lawsuits you are involved in.
  • Divorce, domestic support orders or marital settlement agreements.
  • Documents showing the amount of income from any sources.

STEP 2 – Finding Creditors

Begin finding your creditors. In most cases you know who you owe money to.  Remember, you only receive a discharge for those creditors you list in your bankruptcy schedules, notwithstanding the correctness of the amounts owed. You have outstanding invoices and bills which detail the amount of money owed, the account numbers and their contact addresses. In a few instances, you may be unsure of any outstanding balances. You want to be sure that there are not any old or forgotten debts.  Again, creditors you do not include on your bankruptcy documents will not be discharged.

Order credit reports from all three of the major credit reporting agencies. Some creditors may have not reported to all the agencies, and some are missed by others.

STEP 3 – Choosing an Experienced Attorney

Interview and decide on an experienced attorney. Now that you have all your information gathered, you can interview attorneys well-armed about your specific circumstances, and you will receive informed answers to your questions.

After deciding on an attorney, ask them for a worksheet of all information they are going to need. This will require you to gather as much information as possible. The answer to all these questions is going to wind up in the bankruptcy filing, so it is important to have accurate and timely information.

STEP 4 – Credit Counseling

Arrange for credit counseling. Ask your attorney for local recommendations. BARF or BAP requires you have a certificate from an approved credit counseling agency within 180 days of your petition filing for chapter 7 bankruptcy.

STEP 5 – The Questionnaire

Many law firms will give you a questionnaire to complete at home, click on the link for an example. Fortunately, you have already taken a big step toward completing this paperwork by gathering the data in Step One. It’s important to complete the questionnaire accurately. Remember this information is going to the bankruptcy court and it will be reviewed and even sometimes audited. Take your time.

Return your paperwork to your attorney and they will make up the official documents and pleadings from the questionnaires you have completed.  When they give you the draft, take it home and review it thoroughly and make any corrections before you return it to the attorney.

STEP 6 – Filing the Petition

Once all the documents are complete, you and your attorney assess your situation and will decide on the actual date to file the petition and pleadings with the court. There are several considerations that may come into play as to the filing, or petition date. For example, you may have recently lost your job. You may want to delay the filing so your average income for the last six months would be lower, thereby making it easier to pass the Means test. Your attorney will guide you to this decision.

Once you do file, the section §362(a) automatic stay kicks in. The stay simply means that creditors are forbidden to take any action against you. Collection calls and actions will stop immediately. It usually takes about 7 to 10 days for the courts to notify your creditors. If you receive collection calls, simply tell them you have filed for bankruptcy and they will receive their notice in the mail in a few days.

TO BE CONTINUED: Next Blog Post – Information about the automatic stay provision.

Bankruptcy: Who Are the 4 People Important to You During Your Filing?

Bankruptcy: Who Are the 4 People Important to You During Your Filing?

Your Bankruptcy Attorney

It is imperative that you have an attorney to deal with the current bankruptcy laws. In almost all cases, an experienced attorney will save you at least the amount of their fees by avoiding pitfalls that you will inevitably make trying to do it yourself. Your attorney will become your direct interface with the other players in the bankruptcy process and will keep the interaction that you have with the other players to a minimum.

Insist on an experienced bankruptcy attorney, not a credit counselor, debt counselor or paralegal.

After you have settled on an attorney to handle your filing, it is important that you be candid, honest and straightforward with him. This is the only way in which your attorney can provide the best outcome for your individual circumstances. Remember, your bankruptcy attorney is not going to assist you in hiding assets or fail to disclose assets.

Once your attorney has all the facts of your specific situation, he or she will spend a great deal of time discussing whether Chapter 7, Chapter 13 or Chapter 11 is the best way for you to proceed. He or she will discuss the advantages and disadvantages of each kind of bankruptcy. Therefore it is so important for you to disclose all accurate facts and circumstances of your case with your attorney.

The best method of finding a reputable, competent lawyer is through a referral. If you know an attorney who does not handle bankruptcy, ask them to recommend a specialist. They will tend to recommend someone that they respect. Ask any friends or relatives who may have filed bankruptcy about their past experience with their attorney. Go interview those referred attorneys to see what your comfort level is with them. Many times the initial consultation is free. Be sure you talk directly with the attorney that would handle your case, not an assistant or paralegal.

There are several reasons to hire a local bankruptcy specialist:

  1. Your attorney will have knowledge of the policies and procedures of your local bankruptcy court. Even though the bankruptcy law is nationwide, how things are handled, and local customs vary in each jurisdiction. Also, the state law on exemptions may dictate the guidelines of your specific case.
  2. Your attorney will help you with pre-filing guidance. He or She will point out things to do and things to avoid prior to filing.
  3. Your attorney will help you with timing issues. There are many deadlines both before and after filing that can become critical to a successful bankruptcy. Poor timing can cost you thousands of dollars. Only experience will help you avoid disastrous pitfalls.
  4. Your attorney can help you with tax issues. Regardless of when you file, the tax clock will always be ticking.
  5. Your attorney will protect you from creditor claims. Sometimes creditors will not agree with you on repayment plans, exempt property issues, fraud claims and other issues. Your attorney will know how to best shield you from these claims.
  6. Your attorney will help you determine the best kind of bankruptcy to file considering your individual financial circumstances.
  7. Your attorney will help you complete and file the bankruptcy documents and pleadings required by the Court.
  8. Your attorney will represent you at the 341 first meeting of creditors hearing and the planning for it.
  9. Your attorney will keep your filing from being denied or revoked or dismissed.
  10. Your attorney will guide you through the endless minefield of Chapter 11.
  11. Your attorney will help you propose a Plan of Reorganization that will allow you to potentially retain valuable assets, assuming the value of the assets are paid for through Plan Payments, and to hopefully to receive a discharge of all the unpaid obligations at the end of Chapter 11 Plan repayment period.
  12. Your attorney might guide you in the timing for filing, such as any potential re-payment of loans to non-insiders or insiders are beyond the applicable time limitations found in §547 of the Bankruptcy Code.
  13. Your attorney can legally assist you in legally redeploying assets from non-exempt holdings to exempt holdings.

The Bankruptcy Judge

In most cases you may never even see the US Federal Bankruptcy judge where your case is assigned. Bankruptcy Judges are appointed to 14-year terms. Most of them are well versed in the intricacies of bankruptcy law and are quite competent and conscientious. Most issues are resolved by negotiation with bankruptcy case trustees. The judges are usually called into play to make decisions over problems and disputes.  The judges may make decisions on creditor’s objections to proceedings. He will approve leases and sales requests. Their decisions can be reviewed by U.S. federal judges.

Bankruptcy Trustees

Other than your attorney, the bankruptcy trustees are the real work horses in the process. In Chapter 7 cases, the bankruptcy trustee’s primary job is selling non-exempt property and distributing the proceeds to your creditors, if there are any non-exempt properties.  In over 90% of Chapter 7 cases, there are not any assets that are liquidated, because all of them are exempt or not worth the trouble to liquidate. The trustee is compensated on a commission basis of how much money they collect and pay creditors, as directed by the Bankruptcy Code.

The trustees and their staffs will review your bankruptcy documents and pleadings and ask you questions in a 341 meeting (more later) to determine whether any assets can be sold to pay some or all your debts. He may also gather monies from tax refunds, or divorce property settlement you may have received and collect inheritances you may be entitled to collect in the six months after filing. He may also ask you about any payments or transfers of assets that are made within two years prior to your filing to see if he can recover additional monies for creditors.

The standing bankruptcy trustee’s job in a Chapter 13 case is a bit different from Chapter 7 cases. They also ask you questions about your assets and expenses. They’re trying to assess whether your repayment plan meets the court’s requirements and assess how likely it is to succeed.  Specifically, the standing trustee’s mission is to collect the monthly payments that you make under the repayment plan and distribute them to creditors.

Creditors

After your bankruptcy filing date, you probably will have very little to do with your previous creditors. Sometimes they will attend the 341 meeting, where they can ask questions on your assets and liabilities, but typically few actually do. Most contact is handled by the trustee or your lawyer. Occasionally a creditor will hire their own attorney to protect their claim, where there are substantial assets in a Chapter 13, or 7 or 11 case. After you file, all creditor’s collection activity will stop or be stayed, so you will not hear from them.

I know there is a lot of information here so my advice is to call our office at (775) 786-7600 or (775) 690-2190 anytime to set up a complimentary and confidential consultation with me at your earliest convenience. You can also visit our new business Facebook Page for more information.

Chapter 7 Bankruptcy: What Other Personal Bankruptcies Are There?

Chapter 7 Bankruptcy: What Other Personal Bankruptcies Are There?

Depending on your individual circumstances, choosing which kind of bankruptcy to file can be very difficult. Let’s look at some of the factors that may help you make the right decision.

Chapter 7 Bankruptcy

Chapter 7 bankruptcy allows a person to keep all their exempt assets and discharge their debts. The trustee is appointed to gather all the nonexempt assets, sell those assets, and distribute them pro-rata to the creditors.

Chapter 7 bankruptcy may be your best choice under the following circumstances:

  • If all the property you have is exempt under both state and federal bankruptcy laws. In other words, you do not have assets that you will have to give up. Over 90% of all bankruptcy cases are this variety.
  • You are current on your home and automobile payments before filing for bankruptcy.
  • You are willing to give up your house and automobile before filing bankruptcy.
  • You do not have any extra funds left over each month after paying all your expenses. In other words, you don’t have money to reclaim assets like in a Chapter 13 bankruptcy case.
  • You don’t have a previously discharge chapter 7 bankruptcy, or chapter 13 bankruptcy in the last eight years.

If you qualify for chapter 7 bankruptcy under the means test and Median test, you give up all your nonexempt assets, and keep those that the law allows. This option gives you a new and clean start without the pressures and anxiety hanging over your head.

Chapter 13 Bankruptcy

Chapter 13 bankruptcy allows you to make partial payments to your creditors for 3 to 5 years and obtain a discharge of all your remaining debts. Chapter 13 in many instances will allow you to retain some or all your non-exempt assets, as long as you pay for the value of those nonexempt assets in your Chapter 13 repayment plan. Chapter 13 will also allow for liens and liens strip downs under certain circumstances. Chapter 13 allows “first aid” pursuant to section 362 of the bankruptcy code, in that any foreclosures at the time bankruptcy filing are stayed until future order of the bankruptcy court.

Chapter 13 bankruptcy is probably your best choice under the following circumstances:

if you need time and/or have adequate income to pay passed bills.

  • You need time to catch up on back mortgage payments. Chapter 13 repayment plans give you 3 to 5 years to make up your arrears.
  • You need time to pay off old tax debt without penalties in interest. This can be a huge savings under some circumstances.
  • You need time to pay alimony and child support that is best due.
  • You already received a discharge in a bankruptcy case within the last eight years.
  • You may be able to reduce payments on unsecured loans to the value of the collateral, and not the full amount of the loan. For example, you may owe $15,000 on automobile, but is currently worth only $10,000. So, you might get relief of the $5,000 difference.
  • You will get to keep the nonexempt property by making payments on it through your Chapter 13 repayment plan.
  • Any cosigners of your debt would be spared the harassment of bill collectors by making payments through your plan.
  • You may back of out of a chapter 13 plan and take another route without the court’s permission. A big part of choosing Chapter 13 depends on your income. Many Chapter 13 repayment plans are proposed with too much optimism. Only about two thirds of Chapter 13 plans are fulfilled. Most of those failed plans are forced into Chapter 7 or the bill collectors come back with a vengeance since you are no longer protected by the bankruptcy automatic stay provisions.

Chapter 11 Bankruptcy

Chapter 11 is your best choice if you have a business and/or substantial assets and want to continue in business. The Chapter 11 also gives you the most flexibility in negotiations. You can also withdraw from the Chapter 11, which would put you back to where you were with creditors before filing.

Chapter 11 filings allow individuals and business entities to file for reorganization, thereby allowing the petitioner to repay their general unsecured debt in their priority unsecured debt such as taxes, and their secured debts over a period, such as five years. Chapter 11 petitions also invoke the provision of 1129(b) Chapter 11 filings are known for “cram downs,” which allows a treatment term and for interest rates to imposed on a security and or unsecured creditors over their objection.  Thus, cram down or forced acceptance under certain terms and conditions are set forth in section 1129(a)(b) of the Bankruptcy Code.

The provisions of the Bankruptcy Code governing Chapter 11 filings also allows for repayment of tax debt over a five-year period commencing on the date of assessment. Further, bankruptcy court has the authority under section 507 to determine the validity, extent and amount of tax claims. In the instance of an individual filing Chapter 11, relief or a partial discharge of debt is allowed if the individual debtor contributes to disposable income, over five-year plan.

The best next move is to call an experienced bankruptcy lawyer for a free and confidential consultation, such as Harris Law in Reno, Nevada at (775) 786-7600 or (775) 690-9120 anytime.

Three (3) Adjustment of Debts – Essential for a Family, Farmer or Fisherman

Three (3) Adjustment of Debts – Essential for a Family, Farmer or Fisherman

Chapter 12 filing is for the single purpose of protecting family, farms, or fisherman with regular annual income.  A Chapter 12 filing not only allows for a stay of action against a co-debtor, but allows the adjustment of the debts, more than likely a large lien secured by the farms/family farm house, in such a way to allow the family farmer or the fisherman to retain the property.

Adjustment of Bankruptcy Fees

Chapter 7 bankruptcy costs you $335 in court filing fees, assuming it does not involve any kind of repayment plan. All attorneys’ fees must be paid before filing in these cases.

Attorney Fees are Public Record

That’s right — your attorney has to disclose his or her fees and any adjustment made thereupon and they’re available to the public. You can research any bankruptcy law firm’s fees on the federal PACER website. PACER costs $0.10 per page viewed and you can search either by bankruptcy district to get a general sense of the fees in your area of by specific law firm to get an idea of what a particular attorney will charge. Local rules may require additional disclosure, but at a minimum attorneys must list their fees on the Statement of Financial Affairs, which requires a list of:

… all payments made or property transferred by or on behalf of the debtor to any persons, including attorneys fees, for consultation concerning debt consolidation, relief under the bankruptcy law, or preparation of a petition in bankruptcy within one year immediately preceding the commencement of this case.

Average Cost of Chapter 7 Bankruptcy in Major Cities

So, let’s take a look at some PACER info on the actual bill for an attorney. We took a look at a random sample of Chapter 7 cases in a few major metro areas to get a sense of the bankruptcy attorney fees in each area. In Los Angeles, the tab ranged from $1,500 to $2,000. In Dallas, it was $774 to $1,820. In Miami, attorneys charged anywhere from $1,000 to $2,000, and in New York City, the bill was in the range of $1,000 to $2,200.

There’s a lot of adjustment and variation depending on the complexity of the case. In addition, many debtors qualify for free or discounted legal help, leading to even more variation.

One bankruptcy attorney in Los Angeles warns consumers to be on the lookout for competent, board-certified attorneys to handle their case. A bankruptcy is delicate, and you want someone with plenty of experience to represent you. A difference on the front end of a few hundred dollars could actually cost thousands in the long run, including refiling fees.

Chapter 13 filing fees are $274. These are cases in which you repay all or part of your debts over a period of time.

And finally, Chapter 11 cases have a filing fee of $1,717.

Generally, attorneys may charge in the range of $500-$1500 for simple Chapter 7 cases.  It is quite common for Chapter 13 cases to have fees of $2000-$4000 for the initial retainer before the filing and the balance paid out over a period of time or through the trustee’s disbursements. As the debtor make his monthly payment to the trustee, the trustee pays out the allowed administration fees including the attorney, taxes, and others in line with their priority.

Chapter 11 attorneys are generally chosen for their experience and record of success and are not confined usually by the attorney’s rates.

Your actual legal fees that an attorney would charge will depend on how much time is needed to resolve your case. Before 2005 and the new BAPCPA bankruptcy law, the “Bankruptcy Reform and Consumer Protection Act,” many attorneys quoted a flat fee and additional fees for, particularly complicated cases. Unfortunately, under BAPCPA, all cases are now complicated, and most attorney’s fees depend on the amount of time involved.

There are certain ways to have an adjustment to raise attorney fees in order to pay an attorney, in the most common way is to borrow against non-exempt assets, especially in a case of Chapter 11 filing.  Typically, in Chapter 13 bankruptcy or Chapter 7 filings, at least early on in the year, the Debtor may have access to tax refund money, which allows for payment of some or all those monies to the attorney to fund the bankruptcy filing.

I know there is a lot of information here so my advice is to call our office at (775) 786-7600 or (775) 690-2190 anytime to set up a complimentary and confidential consultation with me at your earliest convenience. You can also visit our new business Facebook Page for more information.

Bankruptcy: The Main 3 Types of Chapter Filings

Bankruptcy: The Main 3 Types of Chapter Filings

Why are there different kinds of bankruptcy? The United States Bankruptcy Code is broken up into several chapters, and each chapter was created to adapt to the circumstances of specific kinds of entities and individuals.  The bankruptcy chapters  that concern us here are for individuals and various kinds of business entities.

Chapter 7 – Straight Bankruptcy and Return of Exempt Properties Only

Chapter 7 individual bankruptcies allow the person filing for bankruptcy to keep all their exempt assets (assets so designated from being taken by creditors or the bankruptcy trustee) and discharges all their debts. For the bankruptcy trustee, the goal of Chapter 7 is to liquidate all of the nonexempt assets belonging to the bankruptcy estate.  Specifically, the bankruptcy trustee is appointed to gather all the nonexempt assets and sell those assets and distribute them pro rata to the creditors.

Chapter 7 filings can also include corporations and limited liability companies, general limited  partnerships and similar corporate businesses . The primary goal of the Chapter 7 is to discharge all of your outstanding debt that is eligible.  There are a number of rules of the bankruptcy law that limit your ability to do this and we will discuss some of those limitations in later chapters.

The chief reason many people file bankruptcy is to stay a foreclosure action on their home or investment property. The bankruptcy forestalls action and gives the debtor time to work out solutions to the impending foreclosure.  Another chief reason is to stay a lawsuit and  to remove it into the bankruptcy court.

Chapter 13 – Reorganizations for Individuals Only With Limited Claim Amounts

Chapter 13 filing is for individuals only, but there are strict eligibility requirements. You cannot have more than $383,175 in general unsecured creditor claims, or you cannot have more than $1,149,525 in secured claims. If you have more debts in either of these categories, you’re not eligible for a Chapter 13 filing.  

The primary goal of Chapter 13 is to keep significant nonexempt assets from being taken. For example, in Nevada, real estate prices in some cases fell as much as 50%. If you had relinquished these real estate assets in a bankruptcy near the bottom of their valuations, you would not have been able to reap the benefits of the significant rebound in the last 36 months. The assets would be gone and you would not have regained their value for sale at a later date.

Chapter 13 allows you to make partial payments to your creditors for 3 to 5 years, and it is aimed at discharging all of your remaining unpaid debts at the end of the repayment period. Chapter 13, in many instances, will allow you to retain some or all of your nonexempt assets, so long as you pay for the value of those nonexempt assets in your Chapter 13 repayment plan. Chapter 13 cases also allow for modification of secured debts, including lien stripping and lien strip downs under certain circumstances.

Chapter 13 is a filing that also allows protection from creditors’ collection actions pursuant to section 362 of the Bankruptcy Code, including a stay of any foreclosures pending at the time of the bankruptcy filing, until further orders of the bankruptcy court.

Means Testing

Since the rewriting of the Bankruptcy Code in October 2005, known as Bankruptcy Abuse Prevention and Consume Protection Act (BAPCPA), there have been significant changes in the Bankruptcy Code, making it harder for individuals to discharge their debt if they exceed certain income limitations. The 2005 bankruptcy law set up a requirement for “means testing”. It specified income limitations that dictated whether or not an individual must “means test” in a Chapter 7 or Chapter 13 filing.

The essential idea for means testing is that a formula determines whether you really can afford to pay some money to your creditors. If your “means test” indicates that you have surplus disposable income, your only option is to pay a portion of your debts in a three to five-year Chapter 13 plan. In Chapter 7, your debts are simply discharged by turning over any nonexempt property. If you failed to means test by earning too much to qualify for a Chapter 7, your Chapter 7 case can be dismissed by the court or alternatively, you may elect to convert to Chapter 13.

In the event of a single individual filing for bankruptcy, the limit of the dollar amount limitations on means testing is currently $42,988, which means that you will have to complete the means test analysis if you have annual gross income in excess of this amount.

For a family of two, the limitation is $56,160; for family size of three people, the limitation is $56,160; and for family of four people, the means testing amount is $62,636.

Social Security benefits are not counted for the purposes of the means test. Other income that is not counted toward the means test is payments to victims of war crimes or victims of terrorism. Just about everything else is considered income, whether it’s taxable or not, including wages, salary, fees, commissions, bonuses, retirement income, tax refund, income from business dealings, sale of assets, net rental income, your share of partnership income, inheritances, support payments, awards, prizes, gifts, insurance payments and services.

There is one major exception to the means test. That is, if more than 50% of your debt is for business debt, the petitioner does not have to comply with the means test. For example, I had an airline pilot who worked for a major airline, and he made in the neighborhood of $285,000 a year, and his annual expenses after taxes, were only about $80,000 to $100,000.

Therefore, he had about $4,000 to $6,000 a month in surplus income to pay creditors.  Since more than 50% of his debt was business-related, he did not have to comply with the means test requirements, which means he had $4,000 to $6,000 surplus income per month with which he did not have to pay his creditors.

Median Test

The first thing that you need to know is that the odds are you probably won’t have to take the means test at all, provided you pass the “median test”. The median test says if your income for the six months preceding bankruptcy is less than the median income for your state, then you’re home free. The basic theory behind the median test is that a debtor earning more than the median income should not be able to simply walk away from  his or her debts in Chapter 7, if they can pay a significant amount under a Chapter 13 repayment plan for three to five years. 

If you earn less than the median income, you don’t have to worry about the means test.  Again, the number one goal of means testing  is to force debtors to repay a portion of the outstanding debt by forcing them into a Chapter 13 bankruptcy, which requires some repayment over 3 to 5 years. 

Allowed Expenses

After you calculate your income for purposes of means testing, you just need to figure out what expenses are allowed by the court. There are certain IRS national and local standards that set forth standard expenses to determine how much expense is allowable. The allowable expenses are the amount you get to keep before making repayments of your surplus to your creditors.

Passing the Means Test by Showing Special Circumstances

Special circumstances include health insurance, disability insurance, health savings accounts, expense necessary to protect your family from domestic violence, home energy cost in  excess of IRS standards, expense for food and clothing for children above IRS standards, etc. If you have any of these, you might be exempt from the means test requirement.

Ways Around the Means Test

You might avoid the means test because of serious medical condition, call to the armed forces or special consideration for losing a high paying job.

Chapter 11 – Reorganizations for Individuals and Entities

Chapter 11 filings allow for individuals and business entities to file for reorganization, therefore allowing the petitioner to repay their general unsecured debts and their priority unsecured debts (such as taxes), over a period of time, such as five years.

Chapter 11 filings are usually for business debtors, either individuals or business entities, with business entities such as corporations, limited liability companies, partnerships etc. Chapter 11 filings are extremely complicated and time-consuming, but may be the way to go if you have substantial assets and you still want to exercise control them and survive financially.

Good example of Chapter 11 bankruptcy was General Motors, in 2008. They wanted to continue in business but needed time to reorganize their business to solve their businesses problems that lead to the downfall.  They were able to reorganize their business under the Bankruptcy Code and now are profitable organizations, employing thousands of direct employees and many more thousands of suppliers. Another example would be Enron.  Its objective was different.   Enron desired  to totally liquidate the company and its assets.

Of course, your company is probably not a massive multi-billion dollar enterprise, but you could still use the bankruptcy law to regain your financial balance, solve your creditor problems and continue in business. You can successfully use Chapter 11 bankruptcies as a strategic business tool.

Chapter 11 filings are a specialty unto their own. Most attorneys who concentrate on consumer bankruptcies have little experience in Chapter 11 cases. It is wise to seek out an attorney who has extensive experience in Chapter 11 business reorganization cases.

Experienced Chapter 11 attorneys need to be  well versed in the “cram down” provisions of the Bankruptcy Code, also called  a “forced acceptance,” which  is found in 11 U.S.C. §1129(b).  Not only are “cram down” situations involved, but an attorney must know the bankruptcy law and the bankruptcy judge to approach to contested confirmation hearing, in order to pursue reasonable loan extensions and adjustments in the interest rate.  Without knowing the relevant case law, the facts and the bankruptcy previously confirmed cases, it is impossible for an inexperience bankruptcy attorney to attempt a Chapter 11 and navigate a Chapter 11 case through the “Rocky Shoals” of Bankruptcy Law. 

In summary, the course of action involving cram down or a forced acceptance under certain terms and conditions are set forth in section 1129(a)(b) of the Bankruptcy Code. The provisions of the Bankruptcy Code governing Chapter 11 filings also allow for repayment of tax debt over a five year period commencing on the date of the assessment of the tax.  

Further, the bankruptcy court has the authority under section 507 to determine the validity, extent and amount of tax claims. In the instance of an individual filing Chapter 11 relief, a partial discharge of debt is allowed if the individual debtor contributes their disposable income over a five-year plan.

This may seem like a lot of information but it is designed to protect you. Give us a call at (775) 786-7600 or (775) 690-9120 for a free and confidential consultation to discuss your financial situation, alternatives to bankruptcy and the many details of filing for bankruptcy whether it be chapter 7, chapter 11 or chapter 13.