Archive for November, 2012

Bankruptcy Not Just For The Low Income Folks

Thursday, November 15th, 2012
article from by Cathy Moran, Attorney
Bankruptcy Law Network

The lawyer’s website described Chapter 7 as the choice for families with low income.


The site recounted how “bankruptcy reform” tried to exclude higher income folks from Chapter 7.  That may have been the intent of the 2005 Congress but that isn’t the way the law they wrote works.

Means test in operation

Bankruptcy’s means test allows people with high incomes who have certain kinds of expenses to file Chapter 7.

The perverse truth is that payments on secured debt are deductible from income. Big mortgage payments, past due property taxes, car loans, all count as reductions in income for means test purposes.

Recent unpaid taxes are deductible on the means test. Delinquent child or spousal support is deductible.

It often seems to me that the people caught by the means test are middle class people who rent, drive paid for cars, pay their taxes, and don’t have lots of toys bought on time. Financial moderation merits no reward on the means test.

Just because you are over the median income for families of your size in your state does not mean you can’t file Chapter 7.

In fact, over the past three years in my bankruptcy practice, the average annual income of my clients has gone up at least $50K each year. Yet these clients are able to file Chapter 7 because of the composition of their debts.

Bankruptcy “reform” did not confine Chapter 7 to those making little money.

Means test escape hatch

Even stranger, people whose debts are not primarily consumer debts don’t even have to take the means test. Regardless of their income and regardless of their on going expenses.

So an individual who has hundreds of thousands in unpaid taxes of any age, or business debts, or even large tort liabilities may avoid jumping through the means test hoop. Those debts are not classified as consumer debts.

Congress certainly mucked up their device to sort out the people who need bankruptcy relief from those who don’t. In my experience, exceedingly few consider bankruptcy who don’t need it.

Lawyers should do better

Lawyers who practice in this area need to be more precise in explaining the law. The consuming public assumes that what lawyers write and publish is gospel.

Simple statements are punchy and appealing, but seldom accurate.

Carolyn Secor is a Clearwater bankruptcy attorney and Clearwater foreclosure attorney serving Palm Harbor, New Port Richey, Oldsmar, Tarpon Springs, Seminole, St. Petersburg and the Tampa Bay area.

If you would like more information on our practice, please consult our website at:
or call (727) 254-1704

Personal Loans, Revenge and Bankruptcy: Not a Good Combination

Thursday, November 1st, 2012
article by Jonathan Ginsberg, Atlanta Bankruptcy Attorney
Bankruptcy Law Network

challenge to discharge of a debtYou are probably aware that the Bankruptcy Code includes Section 523 which sets out the rules whereby a specific debt can be deemed nondischargeable in a bankruptcy case. Certain types of debt, such as damages arising from a DUI or past due child support, can never be discharged. Other debts, like student loans can be discharged only in very limited circumstances.

In real life, the most common challenges to a debtor’s bankruptcy comes from credit card companies or other unsecured lenders. So called “credit card binge” debt serves as the most typical example of abuse of the bankruptcy process – most people would understand why a judge would not allow an unemployed debtor to buy a big screen TV and high end stereo system, then file a bankruptcy six months later, wiping out thousands of dollars of recent charges, while keeping all of his purchases.

Other dis-chargeability challenge cases may be a little less obvious – for example, an unemployed debtor may use his credit cards to buy food, but also to purchase a new cell phone and to buy movie tickets. In these circumstances, your lawyer will most likely be able to negotiate a reasonable settlement of the challenge, leaving some debt to survive your case but payable under reasonable terms.

Credit card and other vendor challenges can give rise to litigation, but usually in those cases I can see the problem coming and the resolution usually involves a financial settlement.

The more unpredictable challenges to a bankruptcy case are usually not filed by large, corporate lenders. Instead, you may find yourself litigating the dis-chargeability of debts owed to former friends and acquaintances who challenge the discharge of debt more out of principle than out of desire to actually collect.

Several years ago, for example, I represented a dynamic, well educated business consultant who came to me to file bankruptcy because his former business partner had just won a multimillion dollar judgment against him. It turns out that the dispute between these former partners had been festering for several years and earlier on in the state court litigation, my client had won a large judgment against his partner, and had levied against his former partner’s business banking account causing several checks to bounce.

My client’s state court victory was short lived, however, and an appeals court had reversed the judgment and now my client’s adversary was holding the upper hand. We filed a bankruptcy and the former partner hired a very aggressive and thorough lawyer to contest dis-chargeability of the judgment debt. During the course of negotiations, the former partner let slip that he did not care if he ever collected a dime – his goal was to see my client and his family homeless and on the street.

The former partner had deep pockets and he was prepared to spend tens of thousands of dollar in bankruptcy court litigation. More importantly, my client had to respond to this litigation and spend thousands of dollars himself in attorney’s fees.

Obviously not every business or personal dispute reaches this level of personal animosity but a deep pocketed creditor who is driven by motivations other than money can leave you in a very difficult position.

As the bankruptcy filer, you obviously know the back story behind all of your debts much better than your lawyer. If you suspect that a particular creditor might have non-financial motivations, let your lawyer know. You may find that bankruptcy is not the best venue to address the dispute and that your lawyer can use the leverage of a possible bankruptcy to re-open negotiations.

If bankruptcy does turn out to be the best option then your lawyer can be sure to document every claimed expense and prepare your pleadings for a likely challenge.

Carolyn Secor is a Clearwater bankruptcy attorney and Clearwater foreclosure attorney serving Palm Harbor, New Port Richey, Oldsmar, Tarpon Springs, Seminole, St. Petersburg and the Tampa Bay area.

If you would like more information on our practice, please consult our website at:
or call (727) 254-1704.