Posted by on May 28, 2016 under Bankruptcy Blog | 
From the mid-1990’s to 2005, the creditor lobby worked hard to change the Bankruptcy Code. In their eyes, too many people, who could afford to pay part of their debts, were filing under Chapter 7 and walking away scot free. They wanted people to be forced into Chapter 13, where you have to make monthly payments to a Trustee for 36-60 months if the prospective debtor had the means to pay. Finally, in 2005, Congress changed the law which is called “Bankruptcy Abuse Prevention and Consumer Protection ” Act (BAPCPA). 11 years later, there is still confusion among the public about whether you can still file for Chapter 7, or you must file under Chapter 13. To qualify for Chapter 7, you have to pass the Means Test, the bankruptcy court version of what the IRS uses to determine what you can pay on back taxes. The Means Test is not straightforward, and some issues concerning its application are not clear even after a decade of BAPCPA. However, the bottom line is that you can still file under Chapter 7.
1. Bad Publicity
The creditor lobby, the media and sometimes even the bankruptcy system have all had a hand in making many people think that qualifying for “straight bankruptcy” is hard. While it is true that for the first couple of years, Chapter 13 filings were up, after debtor attorneys started to understand the new system, the vast majority of filings in New Jersey are still under Chapter 7.
2. A Confusing Statute
Upfront, BAPCPA is loaded with abuse prevention but I don’t see much consumer protection. The law is poorly written, confusing and sometimes one section contradicts another section. Moreover, because of these statutory contradictions and ambiguities, Courts, all the way up to the Supreme Court, have been scratching their heads trying to make sense of it. If the judges are having trouble with the complexities of the new law, then it is no surprise that ordinary people are confused.
3. Most Can “Skip” the “Means Test”
Parts of the “means test”–the major mechanism now for qualifying under Chapter 7—are mind-numbingly confusing, but many people can avoid all that simply by virtue of their income. Without getting into the calculations here, basically if your “income” (as specially defined for this purpose) before filing was no more than the published median income amount for your state and size of family, then you qualify for Chapter 7 without needing to go through any more of the “means test.”
Also, certain kinds of folks can skip the “means test” no matter the amount of their income, specifically present or recent business owners who have more business debt than consumer debt.
4. Passing the Means Test turned out to be easier than we thought
Even if you are a consumer debtor whose “income” IS higher than the applicable median income amount, through some good lawyering, which is creative but perfectly legitimate, you may well be able to lower your “income” or increase the reporting of your expenses to bring your overall under the applicable median amount. If so, you qualify for Chapter 7.
5. Chapter 13 is Sometimes the Better Option
The purpose of the “means test” is to make people who have the “means” pay back some of their debts through a Chapter 13 case. In the relatively few times that a person does not qualify under Chapter 7 and so has to do a Chapter 13 case, in almost all cases, the amount that must be paid in the Chapter 13 case to the creditors is much less than the total debt, making it not such a bad deal. Also, often a person who “just wants to file Chapter 7 and get it over with” learns that Chapter 13 comes with surprising advantages, which are more helpful to the debtor in the long run.
Posted by Kevin on August 11, 2013 under Bankruptcy Blog |
The Constitutional Convention adopted the U.S. Constitution. Its Bankruptcy Clause was a quiet but crucial component of a much stronger national government.
Most people know that the U.S. Constitution refers explicitly to bankruptcy. The provision is short and sweet. Included among a long list of legislative powers given to Congress in Article 1 of the Constitution is the power “to establish… uniform laws on the subject of bankruptcies throughout the United States.” (Article 1, Section 8, Clause 4.) Here’s some of the exciting (if you are at all historically inclined) backstory.
The Bankruptcy Clause Goes Right to the Heart of the Constitution’s Purpose
Back when we were kids we learned in school that before we had the Constitution, our new country floundered during its first few years under the loose Articles of Confederation. Each state acted pretty much as a sovereign country, with its own money, independent militia, and laws regulating trade with other states and even with other countries. There was no national court system and no executive branch to enforce the acts of Congress. The national government had no power to pass laws on interstate commerce, including on bankruptcy.
At the heart of the issue at the Constitutional Convention of 1787 and during the following year and a half of its ratification by the states was how strong of a national government to create. During colonial times and under the Articles of Confederation each colony or state could have its own laws of bankruptcy and insolvency, creating intense confusion and conflict among them. A national government with power over interstate commerce would sensibly avoid these problems by providing a bankruptcy law uniform among all the states.
Bankruptcy Almost Left Out of the Constitution
And yet the initial draft of the U. S. Constitution did not contain any reference to bankruptcy. Then towards the end of the Convention the issue went to a committee, which recommended the addition. The clause was adopted by the Convention by a vote of 9 states against one. “The only vote against was by Connecticut, with… concern that bankruptcies could be punished by death [!!], as was still the law in England. Connecticut also had a comprehensive bankruptcy law of its own, which it wanted to preserve free of federal control.” (From “A Brief History of Bankruptcy Law,” by Prof. Charles J. Tabb.)
In the next blog: what The Federalist Papers, 85 essays written by Alexander Hamilton, James Madison, and John Jay to convince readers to ratify the Constitution, say about the Bankruptcy Clause.
Posted by Kevin on July 9, 2012 under Bankruptcy Blog |
Most experienced bankruptcy attorneys know that there is a moral consideration in filing bankruptcy. We know that many clients wrestle with the idea of whether it is morally right for them to file. Books are written about the bankruptcy filings of famous Americans through the years for the dual reasons of demonstrating that filing bankruptcy does not necessarily make you a bad person, and also to demonstrate the moral ambivalence that confronted these famous people when they filed bankruptcy.
You could consider the choice whether or not to file bankruptcy to simply be a “business decision.” Merely a weighing of the costs and benefits of filing and not filing. For many people, that is as far as it goes (and I do not have a problem with that). After all, corporations of all sizes file “strategic bankruptcies” all the time. Their very smart and well-informed managers decide that bankruptcy is the best way to reduce debt and streamline their operations, so that the business can survive and hopefully thrive into the future.
And who doesn’t want to survive and thrive?
But for you, it may not be that cut and dry. You consider yourself more than a business. More than a corporation. For you, the human costs and benefits have to be added into the equation.
For many people, the decision to file bankruptcy is more than a business decision. For many, that’s where morality comes into the decision. We humans are moral creatures. That means that our important choices include the moral assessment of the situation. If we don’t engage in the moral component of this choice, we may experience something akin to “buyer’s remorse”; that is, after the fact we look back and say to ourselves, “why did I do that”?
So what do you need to do to make a good moral decision?
First, accept the choices that you made—good and bad, sensible and short-sighted, intentional and forced—and review the circumstances that got you where you are now. Accept that you made a series of legal commitments to pay your debts, consider how much choice you had at the time about them, and in hindsight what you could have done differently, if anything. Analyse honestly why are you now not able to keep those commitments? Is it because you lost a job or because your spending habits, especially in the area of non-necessities, are out of control? By analyzing choices made, you are not only assessing whether to file bankruptcy, but you are putting yourself on the path not to repeat your mistakes.
Second, consider both the financial costs and benefits of bankruptcy versus the moral costs and benefits of continuing to try to meet those financial commitments. Yes, you can get my debts discharged. But, how will your family, friends, co-workers view you in the future.? Am you being an honest debtor or are you gaming the system? Or will it be viewed that you are gaming the system? Do you have a realistic chance of successfully paying off your debts, and even if so, what would be the likely human costs while doing so? And if you do not have a realistic chance, how do you weigh the benefit of putting up a good fight against the costs that come from just delaying the inevitable?
Third, recognize that you now have both the opportunity and obligation to make a good decision about whether to continue trying to meet those commitments. To just accept the status quo without facing the situation honestly and bravely is making a decision by default, which is likely neither your morally best nor practically wisest move. In other words, you should control your destiny rather than destiny controlling you.
Fourth, get advice so that you know your legal options. You cannot make decisions, whether business or mixed business and moral, without knowing the facts and the law. An experienced bankruptcy attorney not only knows the law, he or she knows what you are going through. More importantly, an experienced bankruptcy attorney can guide you to bankruptcy alternatives if that makes sense for you. You may have the best of all intentions, but with your hours at work cut back, lots of debts, and bill collectors badgering you at work and home, bankruptcy is probably your best and only realistic alternative. On the other hand, you may be a candidate for debt consolidation through a reputable non-profit debt counselor. Or you may have enough equity in your home to get a second mortgage and consolidate your debts. Finally, filing under Chapter 13, where you pay back a portion of your debt, may be economically feasible and fit into your notion of fairness and morality. One size does not fit all. An experienced bankruptcy attorney can put you in a position to make the right decision for you and your family.
