Kevin's Corner
Practice Management Tip on the Reason to Delay a Bankruptcy Filing
"When a client comes to you seeking to file bankruptcy, he or she is probably not thinking about the appropriate time to file the bankruptcy petition in court.
"In your client's mind, the most important thing is to proceed with the filing as soon as possible and get a fresh financial start. However, as the advocate for your client, you should think about scenarios where a less hurried filing would be favorable.
"Once such case would be if there are major medical expenses to be incurred. Although your client may have health insurance, the co-pays and deductibles associated with major medical procedures can be overwhelming.
"Unless your client has a compelling reason to file bankruptcy while preparing for a major medical procedure, it may be best to wait. Compelling reasons to file may include, but are not limited to:
- Pending Foreclosures
- Wage Garnishments
- Pending Vehicle Repossession.
"If your client is not facing an emergency situation such as those listed above, consider delaying the bankruptcy filing until all medical bills have been received to avoid the scenario of having undischarged debt.
"While your client's focus may be fixed on submitting the bankruptcy filing to the court without delay, in certain circumstances you may need to remember that good things come to those who wait – in this case, a complete discharge of all eligible debt."
- Kevin Chern
President, Start Fresh Today
Bankruptcy Legislation Update
Sens. Charles E. Schumer (D-NY) and. Dick Durbin (D-IL) have tentatively reached an agreement with Citigroup, Inc. on changes to the proposed mortgage modification bill, known as Helping Families Save Their Homes in Bankruptcy Act of 2009. The changes are as follows:
- Limit relief to existing mortgages
- Debtors must attempt a loan modification with the mortgage holder within a specific time period prior to filing bankruptcy.
Currently, the bill does not include remedies for those who are already trying to save their homes in an existing bankruptcy or those who are already in foreclosure. Since the bill has not become law, further changes may be incorporated in the final version.
On the Bankruptcy Calendar
Some bankruptcy-related events to keep in mind for the upcoming months include:
- ABI—Atlanta Consumer Bankruptcy Skills Training, Atlanta, Ga., January 28 & June 4, 2009;
- ABI—Caribbean Insolvency Symposium, Grand Cayman, February 5-7, 2009;
- ABI—Bankruptcy Battle Ground West Conference, Beverly Hills, Ca., March 13, 2009;
- ABI—Annual Spring Meeting, National Harbor, Md., April 1-4, 2009;
- NACBA – 17th Annual Convention, Chicago, Ill., May 29-31, 2009.
Bankruptcy Article of the Week
Key Exceptions to the Bankruptcy Means Test
When the means test was initially passed by Congress, the intent was to provide judges with a clear indicator as to whether a debtor qualified to file Chapter 7 bankruptcy or had the ability to repay his or her debts within a three- to five-year period under Chapter 13.
Prior to October 2005, judges had a great deal of discretion in reviewing bankruptcy petitions and deciding if a filing constituted abuse under the Bankruptcy Code.
After the means test was implemented, all bankruptcy filers were required to complete Form B22 and have their income compared to the data valid for their state in relation to the information provided by the U.S. Trustee Program.
In completing the means test, there were two key exceptions that came into play: Social Security income and non-consumer debt.
For purposes of the means test, Social Security is not considered as income. Also, if the majority of the listed debt falls within the non-consumer category, the means test will not apply. Non-consumer debt may include the following:
- Taxes
- Business Debts
- Automobile Accident Debts
- Investment Real Estate Debt
- Car Loans on Business Vehicles
- Business Utilities
- Business Insurance
- Business Credit Card Debt
Debts which may fall within the consumer or non-consumer debt category (depending on the immediate circumstances) are:
- Student Loans
- Medical Debt
- Real Estate Debt
- Credit Card Debt
In addition to these exceptions, on October 20, 2008, former President George W. Bush signed the National Guard and Reservists Debt Relief Act of 2008, Pub. L. No. 110-438.
This act provides for the temporary exclusion from the bankruptcy means test for reservists and members of the National Guard called for no less than 90 days to active duty or homeland defense activity following Sept. 11, 2001.
The amendment to section 707(b)(2)(D) of the Bankruptcy Code to include this particular exception took effect on December 19, 2008. If the debtor's duty is less than 90 days, he or she does not qualify under this exception. Also, if the debtor is only active duty military he or she will not qualify for the temporary exclusion under this exception.
The temporary exclusion expires 540 days after the debtor is released from active duty or no longer performing homeland defense activities. With the addition of the third exception, the test created to administer a bright-line rule to eliminate judicial discretion in detecting bankruptcy abuse is starting to lose a bit of its luster.
Although the means test still requires a very firm and rigid calculation in respect to debtor income, the inclusion of the exceptions shows that there is still room for compromise concerning the means test and the old standard approach of judicial discretion.
The Numbers Game on Consumer Bankruptcy Filings
Here's some of the latest bankruptcy related figures to be aware of:
- Bankruptcy Filings in 2008 were up over 30% from 2007.
- In 2008, almost 1.1 million bankruptcies were filed.
Almost 100,000 cases per month were filed for the year 2008.
SFT Product Features
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