New Bankruptcy Laws
Call experienced Denver bankruptcy lawyer David M. Serafin at (303) 862-9124 for a free initial consultation to determine whether you are eligible under the new laws to file for chapter 7 or chapter 13 bankruptcy.
Even though the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) went into effect back in October 2005, many clients in Denver and other areas of Colorado who meet with me continue to harbor the misconception that they do not qualify for bankruptcy. Even though the new laws restricted eligibility for chapter 7 based upon income and expenses, it still is very possible to meet the chapter 7 eligibility standards. In fact, the Federal government recently confirmed that the new bankruptcy laws only affect 3% of all filers.
For most debtors, chapter 7 is preferable as almost all types of unsecured debt will be eliminated without any requirement to pay anything back to creditors.
To qualify for chapter 7, it is first necessary to examine your Median Family Income for the 6 full months prior to the date of the filing of the petition. For Colorado, as of November 1, 2010, the United States Department of Justice (DOJ) has outlined the Median Family Income as follows:
- One Member Household: $47,814
- Two Member Household: $63,635
- Three Member Household: $69,717
- Four Member Household: $82,621
$6,900 is added for each additional household member.
Gross income is broadly defined under the Bankruptcy Code. Generally speaking, gross income includes wages, business profits, rental income, most types of retirement income and unemployment compensation but does not include Social Security Income or Social Security Disability (SSD). Unless the debtor and a spouse are physically separated, the spouse’s gross income (and deductions if required to pass the Means Test) is included regardless of whether the spouse is also filing.
If a bankruptcy filer’s gross income and that for any other household member, before any deductions, is lower than the Median Family Income for the applicable size household, chapter 7 eligibility will automatically be available without the need to take the Means Test. (BAPCPA further made Chapter 7 eligibility automatic for those whose unsecured debt is mostly business related (including personal guarantees for business debt), and for a debtor has at least a 30% disability rating and primarily incurred the debt while serving in active duty or homeland defense.)
However, if the debtor’s gross income (as compared to the household size) exceeds the inflation adjusted DOJ standard and no exclusions apply, it will be necessary to pass the Means Test to obtain a chapter 7 discharge. The Means Test first allows for Federal and state withholding taxes, payroll taxes for Social Security and Medicare, state taxes, and any local taxes to be deducted from gross income. Then, despite your actual, monthly living expenses, the Means Test only allows for a deduction of certain expenses which are limited by regional and local IRS allowances for housing, food, transportation and other living expenses. After a deduction for all mandatory and allowed expenses, a debtor will be required to file for chapter 13 and make monthly payments (for typically 60 months) to a trustee if any disposable income remains to pay unsecured creditors.
Even a debtor who fails the Means Test may qualify for chapter 7 upon a showing of special circumstances, such as having lost a job within the 6 month look back period, a serious medical condition or even the debtor’s death. Unfortunately, monthly repayment of student loans does not constitute special circumstances. If no special circumstances exist, the debtor’s income is not too high and if chapter 13 is not preferable, it may be possible to wait a couple of months and then re-examine any Means Test issues.
On the other hand, a debtor who otherwise automatically qualifies for chapter 7 or passes the Means test, may be denied a discharge if acting in “bad faith” such as making excessive luxury purchases (by credit card or cash advance) immediately prior to filing.
Because of the fact intensive nature of determining eligibility for chapter 7 or 13, each situation is evaluated on a case-by-case basis by the Law Office of David M. Serafin. Denver bankruptcy lawyer David M. Serafin will extensively review your entire financial budget so that you can have the best opportunity for a fresh start.