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FAQ'S

Tuesday, May 11th, 2010

by Theodore Sliwinski, Esq.

1. I am in so deep in debt that I feel like jumping off a bridge. What can filing for bankruptcy do for me?

Bankruptcy is designed to give financially overwhelmed debtors fresh start. However, many people are embarrassed and humiliated at even the thought of filing for bankruptcy. Everyone wants to pay their bills. However, if there is a choice between paying for your rent or paying your VISA bill, then you have no choice. You can’t live in the woods or in your neighbor’s garage. My bankruptcy clients are not dishonest people who are looking for the quick and easy way out. They are hard-working people who are living in the hardest times since the great depression. They are looking for some relief from the miseries of life. It is embarrassing your boss sees that your  paycheck is now being garnished. It is mortifying to open up the newspaper and see that your home is listed in the classified and listed for a Sheriff sale. It is downright humiliating to see strangers drive past your home and then try to inspect it so that they can buy it at a Sheriff’s sale. Finally, it can cause you major headaches if your creditor zaps a bank levy on your checking account and seven of your checks then bounce. The nightmares never end when you are living like a gerbil on a treadmill on the never-ending cycle of debt.

Bankruptcy is not a fun experience at all! Of all my hundreds of clients, not one of them enjoyed the bankruptcy filing process. In fact many of my clients cry in my office and they feel shameful about filing. Most people earnestly believe that they have a moral obligation to repay their debts. Most hard working New Jersey’ites honestly believe that since they borrowed the money they should repay the money. Because of these beliefs, many people have a very difficult time coming to terms with even the thought of filing bankruptcy.

However, I am here to advise you that filing for bankruptcy is perfectly legal. Therefore, until it becomes illegal to file for bankruptcy, there is absolutely no reason not to file if you are living on the brink of a financial disaster. You deserve the fresh start that bankruptcy offers. You deserve the peace of mind and relief from the endless barrage of phone calls from your creditors. You deserve to know that you’ll be able to feed and clothe your children and keep a roof over their heads while you get your financial life back in shape.

2. What are the basic requirements for a person to be permitted to file for bankruptcy?

Pursuant to the Bankruptcy Code, a chapter 7 case allows debtors who qualify to discharge most of their unsecured debt. Prior to October, 2005, it was much easier for a debtor to file chapter 7. The BAPCPA now requires anyone seeking to file a chapter 7 to satisfy a certain threshold called the means test. The means test requires any prospective debtors to have an annual income of less than the state median income for a family of the equivalent size. The U.S. Census Bureau maintains a list of the median incomes for each state.

If a prospective debtor’s annual income is more than the median income for a family of the same size in his state, then there is a presumption that he can afford to pay at least a portion of what he owes to his unsecured creditors. Therefore, before he can file a chapter 7 case, he must demonstrate to the court that his monthly expenses for housing, transportation, utilities, etc. are within the national and local standards as determined by the IRS and that once he pays those expenses, he has nothing left to pay into a chapter 13 plan. If he can’t satisfy this second requirement of the means test, then the debtor will have to pay at least $100 per month into a chapter 13 plan for five years.

Does this legal process sounds complicated? Yes, the means test certainly is complicated. The bottom line is that you have to speak to an experienced bankruptcy lawyer to determine if you can qualify for a chapter 7 or 13. The main goal of the BAPCPA is to push debtors into a chapter 13 if they can afford to repay some of their debt. However, the legal process to determine which debtors can repay a portion of their debt is a very complicated process. Moreover, the answer to this question can only be answered with the assistance of a qualified bankruptcy lawyer who is “in the know” about how the system works.

3. What is a chapter 13 bankruptcy?

Chapter 13 bankruptcy is a debt consolidation plan that allows a debtor to restructure his debt and pay it over a three to five year period. In some cases, debtors who have planned on filing chapter 7 are forced to file a chapter 13 because they cannot satisfy the means test that is required of chapter 7 debtors.

To file a chapter 13 case, a debtor must have enough income, after paying all monthly expenses, to pay into the chapter 13 plan. These funds that are then paid into the plan and are used by the trustee to pay the administrative costs of the case, the debtor’s attorney’s fees, priority claims such as taxes and child support, secured claims such as mortgage arrears and auto loans, and unsecured claims such as credit cards and medical bills.

To determine how much a debtor can afford to pay into the chapter 13 plan, the bankruptcy attorney reviews the debtor’s income from all sources and subtracts the debtor’s monthly expenses from his net monthly income to arrive at his net monthly disposable income. The bankruptcy code requires that 100% percent of a debtor’s net monthly disposable income must be  paid into the chapter 13 plan. If a married debtor is filing bankruptcy without his spouse, then his spouse’s income and expenses must also be considered to formulate the chapter 13 plan.

Once the court approves or confirms the debtor’s chapter 13 plan, the debtor must continue to make his plan payments and to comply with the other terms of the plan. If the debtor’s financial circumstances should change, then he should notify his bankruptcy attorney immediately so that he can advise him, and to file any motions that may be necessary to protect his interests.