The new bankruptcy
law brought in a lot of panic and confusion mainly due to the
new
"means test" factor. The test is used to determine whether you
can
file under Chapter 7.
If you do not qualify then you normally have no option but to
file
under Chapter 13. This test is of major importance because under
the old law most clients were almost assured a fresh start if they did
not have the means to pay their huge debts. Under the new law, if
you do not meet the test then you are found to qualify for a chapter 13,
which in essense is a five year payment plan. The benefit of the
chapter 13 is that you still get the protection of bankruptcy, so creditors
are kept at bay for that time period.
To understand the "test," the Courts look at your average income for
the prior six months before filing and compare it to the median income
for your state. As of December 31, 2007, the median annual income
for a single wage-earner in New
York was $ 43,352.00 If your salary falls under that magic number
then you may file Chapter 7.
If you fall slighly over you still may file "IF" 1. Your IRS
allowable expenses when subtracted from your income finds that your "disposable
income" over the next five years totals less than $6,000.00. 2.
If you are over $ 6,000.00 but fall short of $10,000.00 a third more complicated
calculation is required. The final calculation compares your disposable
income in the next five years to your unsecured debt, to find whether or
not you can pay some of your creditors. If your disposable income
over the five year time is less than 25% of your unsecured, non-priority
debts you can file under chapter seven.
Section 707. Dismissal
(a) The court may dismiss a case under this chapter only after notice
and a hearing and only for cause, including -
(1) unreasonable delay by
the debtor that is prejudicial to creditors;
(2) nonpayment of any fees
or charges required under chapter 123 of title 28; and
(3) failure of the debtor
in a voluntary case to file, within fifteen days or such additional time
as the court may allow after the filing of the petition commencing such
case, the information required by paragraph (1) of section 521, but only
on a motion by the United States trustee.
(b) After notice and a hearing, the court, on its own motion or on a
motion by the United States trustee, but not at the request or suggestion
of any party in interest, may dismiss a case filed by an individual debtor
under this chapter whose debts are primarily consumer debts if it finds
that the granting of relief would be a substantial abuse of the provisions
of this chapter. There shall be a presumption in favor of granting the
relief requested by the debtor. In making a determination whether to dismiss
a case under this section, the court may not take into consideration whether
a debtor has made, or continues to make, charitable contributions (that
meet the definition of "charitable contribution" under section 548(d)(3))
to any qualified religious or charitable entity or organization (as that
term is defined in section 548(d)(4).
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I get asked many times by clients if one can still file for bankruptcy
protection under chapter seven. The asnwer is YES. However,
you must meet the above in order to do so, give me a call so we can discuss
your options.
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*Quick footnote, is interesting to note that the credit
card industry spent close to $100 million over the course of eight years
to get The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005
passed.
*New York Times, December 11, 2005
