What is the means test?

The means test is a provision added to the 2005 Bankruptcy Reform Bill.  Many clients believe that it is designed to throw them out of bankruptcy.  It is not.  It is merely designed to throw you out of a Chapter 7 and into a Chapter 13 bankruptcy because you supposedly have the “means” to pay all or part of your debts back in a chapter 13.  You would therefore not be eligible for a chapter 7.   You are not thrown out of Bankruptcy though as another chapter is available to you.  If you don’t pass the test because you make too much money and you filed anyway they will allow you to convert the case to a chapter 13.  Check back for my next blog on the differences between a chapter 7 and 13

The means test is a test where you enter your gross monthly average household income for the last six months and you see if you make more money than the average person in your county.  At the time of writing this, the yearly averages for San Diego county are: $47,969 for 1 person in the household, $64,647 for 2 people, $70,638 for 3, and $79,194 for 4.  You get full credit for each child in the house and you are allowed to make extra money for each one.

If you make more than these allowed amounts you go into the means test.  You then deduct all of the allowable expenses.  First there are your taxes, then medical insurance, and union dues that are allowed to be deducted from the total.  You then get “standard” deductions for medical, housing, living and car expenses.  Many people will lose out here because their actual expenses for these items exceeds what the means test allows and then you will often not be allowed to take them even if you actually do spend that much money on those items.

You will be able to take all of your secured creditor payments for mortgages, and cars, and even thing like jewelry,  electronics, and furniture.  Since you are obligated to make those payments (or lose the item you financed) you can get full deductions for these in the means test.  Then there are additional categories for allowed deductions for things like childcare, charity, care of elderly, certain education expenses, among others.

After all of that is deducted and calculated you see if you pass the means test.  I do it all on software that calculates it for me and tells me if you pass or not.  This test should be done first thing in the Bankruptcy case if there is a situation where a person or a family earns a fairly high income.  The means test looks back six months to see what your average income was in that period so if you just lost your job you may have to wait to file so that you 6 month average income will decline.

The means test is a somewhat complicated test and it is best to have an attorney do this for you and advise you of options if you fail it.  If you are going to get a raise though you might want to file before your income increases so you can get you chapter 7 discharge.

Don’t despair though as most Bankruptcy lawyers are used to dealing with the means test and they (and good software) can guide you through it.

For more info. check out my websites at:   www.farquharlaw.com or www.freshstartsandiego.com.

I am a bankruptcy lawyer in San Diego.

For a free e-book: “13 THINGS YOU SHOULD DO TO PREPARE FOR YOUR BANKRUPTCY FILING” please send a request by e-mail to: farquharesq@yahoo.com.

Don’t be a debt slave to huge corporations- file Bankruptcy and don’t feel bad for the credit card companies

I will be blogging more about this later because I believe so strongly in this.  Most of my clients express some kind of remorse for their inability to pay their debts.  They not only feel like they have failed but they feel like they are obligated to pay these debts and they don’t want to not honor their obligations to these creditors.

To that I say to them to remember that most debts are for credit cards and these creditors are gigantic corporations.  Most are among the largest corporations in the world.  They each have what amounts one of the most profitable business in the world.  There is very little overhead and they charge exorbitant interest rates to lend money that they borrow at very low-interest.  Then when you behind in your payments they  jack up your interest rates to 20% to 30% and then they really make money off of you.

If you watch the documentary “Maxed Out” you see that the debtors who are paying these very high rates are the ones that the creditors make most of their profits off of.  According to the  movie the credit card companies  in fact seem to want these people to get into debt, get behind, and stay behind so they can continue to make these ridiculously high profits off of them.   These people ,who are suffering with this very great debt, are the credit card companies favorite customers.

Credit card companies appear to want lifetime debt slaves.  In the movie they go into detail about how many people tragically commit suicide after running up these hug debts they cannot pay.  Don’t be one of these people!  Don’t feel bad for these huge corporations and don’t be a debt slave.  Bankruptcy itself was created to prevent people from falling into this trap.  We no longer have debtors prisons.  You will not be jailed for owing this debt so free yourself and file bankruptcy if you have debts that you cannot pay back.  Also certainly don’t waste any time feeling bad for these corporations who, in my opinion, are out to enslave you!

Check back for more blogs on the movie “Maxed Out” and more blogs on the history and creation of Bankruptcy as a means of escaping debt slavery.  Remember that forgiving indebtedness has been around since at least Old Testament biblical times.

I am a San Diego bankruptcy attorney.  For more information please visit my websites at www.farquharlaw.com or www.freshstartsandiego.com.  Or call my office for a free consultation at (619) 702-5015.  For a free e-book: “13 THINGS YOU SHOULD DO TO PREPARE FOR YOUR BANKRUPTCY FILING” please send a request by e-mail to: farquharesq@yahoo.com.

Community Property- Remember to list it in your Bankruptcy Schedules

Remember to list your community property in your Bankruptcy.  Community property is a little complicated and I’ll blog about it more at a later date.   I was at a 341 hearing once where the Debtor forgot to list her husband’s car.  Husband and wife bought the car during their marriage so community funds were used to purchase it and community funds were used to maintain it so it’s probably community property.  That means that you should list it in the Bankruptcy schedules and exempt it because even if your spouse is not filing, that car belongs in part to the Debtor.

I always list these autos in the schedules if there is room to do so in the exemptions.  It’s just good policy I believe and it will avoid questions from the Trustee.   The same goes for any other property that the filing spouse may own in part even if the filing spouse believes it belongs to the non-filing spouse.  Tomorrow I’ll talk about separate property as it differs from community property.

Cars- Do I keep them or give them up after Bankruptcy

The good news is that you have the choice to keep your car or not.  If you own it outright then you can exempt it and keep it with no problems.  If the car is financed then you have a choice to return the car and owe no money or keep it.

If you decide to keep a financed car then you can continue and pay the payments after the Bankruptcy and the finance company probably won’t pick it up.  According to a 2009 court case from the 9th circuit the finance company can pick up the car if you don’t sign a reaffirmation agreement.  The reality is that they usually don’t pick up cars even without a Reaff. if you are on time with the payments but my clients don’t like the possibility being out there that they can  lose their car.

 A reaffirmation agreement is a new contract you sign where you agree to once again become liable for the car debt that was just discharged in your bankruptcy.   You can easily end up in bankruptcy court to explain to a judge why you want one of these.  Judges don’t like them but my clients often insist on them.   Discuss the decision of whether to sign one of these carefully with your Bankruptcy attorney.  I’ll discuss Reaffirmation agreements in more depth in a later blog.

But the happy news is that you decide whether to keep your car after a bankruptcy and the creditors must accept your decision.

Cash for keys after Bankruptcy and Foreclosure

If you have been in foreclosure before the bankruptcy then after you file and get the bankruptcy discharge your house could be sold at a foreclosure sale.  (Sometimes it happens before the discharge if the lender gets the bankruptcy stay lifted).  When the house is finally sold you will be contacted by the new owner who is usually the mortgage holder.  They will then ask you when you will leave.

At this point you need to enter into negotiations with them.  Be sure to tell them that you need rent money to rent a new place and you need moving money.  Remember, it is expensive to evict you.  They cannot throw you on the street.  They would have to give you a 3 day notice and then hire an attorney and file an eviction.  They would then have to go to Unlawful Detainer court and get a judgment and then a Sheriff to remove you.  All of that takes money and time.  You might not be out for another 2 months by that formula and then they would be out filing and attorney fees.

It is better for them and you if they negotiate a “cash for keys” where you leave in a reasonable time and they give you cash for it.  Get as much as you reasonable can.  I have heard stories of around $3000 sometimes for some lenders.  Negotiate with them and get the money and then move out.  After all it was your home and you should get something as you leave out the door!

Check out my websites for more info:  www.farquharlaw.com or www.freshstartsandiego.com.  Or call my office for a free consultation at (619) 702-5015.  Call now for free credit report and analysis!  I am a bankruptcy attorney in San Diego.

For a free e-book: “13 THINGS YOU SHOULD DO TO PREPARE FOR YOUR BANBKRUPTCY FILING” please send a request by e-mail to: farquharesq@yahoo.com.

Will I get kicked out of my house after I file bankruptcy?

No! Not necessarily.  You will not automatically get kicked out of your house after a bankruptcy so don’t worry.  Even is chapter 7 there is a stay that covers all of your property including your house and it is created when the bankruptcy case is filed.  A bankruptcy stay prevents any action being taken against you including evictions or foreclosures.  You will therefore not be kicked out of your house after filing bankruptcy.

The problem is that a stay in a chapter 7 only lasts for the three months of the bankruptcy.  After the three months is up the bank or landlord can proceed with a foreclosure or an eviction against you.

Once the house is sold in a foreclosure you will be contacted by the new owner who will want you to move out.  You can then ask for cash for keys.  Ask for $2000 to $3000 to move out because you will have moving expenses and new rent and deposits to pay.  Negotiate with the new owner and get what you can.  They can evict you if you do not move but they would usually rather negotiate.

A Chapter 13 bankruptcy will allow you to stay in your home if you have disposable income (income above and beyond your bills) and if you can afford the payments on the home.  A chapter 13 is a debt repayment plan where you pay back some of your creditors over a three to five-year period.  A chapter 13 will allow you to make up all of your unpaid back payments (arrearages) on your house but most people realistically can’t afford to make these payments.  Also most people prefer the speed and finality of a chapter 7.

A chapter 7 bankruptcy allows you to discharge all of your unsecured medical, credit card, and personal loan debt in 90 days and then you are done with the bankruptcy and you can move on with your life debt free.  With a 13 you have to make payments for up to 5 years.  The chapter 7 will delay the sale of your home in a foreclosure for 2 months or possibly far longer as there is no way to currently predict how quickly a lender will proceed with a foreclosure.

I am a San Diego bankruptcy attorney.  For further questions please visit my websites at www.farquharlaw.com or www.freshstartsandiego.com.  Or call my office for a free consultation about a chapter 11 bankruptcy or for any other advice about bankruptcy or debt at (619) 702-5015.  Call now for free credit report and analysis!  For a free e-book on “13 things to do to prepare for your bankruptcy filing” please e-mail me at farquharesq@yahoo.com.

Re-building your credit score after bankruptcy

See my update on re-building you credit score here: http://bit.ly/K9czCD .

Good news!  You can re-build your credit after your bankruptcy filing.  Bankruptcy will lower your score and in general your score will probably lose around 1/3 of its value before the filing.  Some clients already have a low score though b/c they are behind in their payments so they could see their score rise after bankruptcy b/c their debts are discharged.

You will usually get credit card solicitations after you get your discharge and I recommend clients use these new post-bankruptcy credit cards to improve their credit score.  I recommend they use one card for groceries and one for their gas card.  You buy these consumer items anyway so why not charge them on the new cards and then send a check to the credit card company.  You can pay off your full balance each month and not pay any interest.  You will then get a positive credit on your credit report each month as you pay off your full balance.  In addition if you finance an auto after bankruptcy and you make your payments on time then you will get a positive report on your credit report for that too.  Remember that you must have credit and use credit to benefit your credit score.

I usually tell my clients that if  (for example) they can get the credit reporting agencies raise their score by 5 points a month b/c they pay their full credit balances each month, on time, and b/c they don’t carry high balances on the cards then the effect is cumulative.   A  5 point increase per month (for example) would result in 70 points a year and 200 points in 3 years.

So manage your credit score after bankruptcy, do take on new debt, pay it on time and in full and you will in all probability watch your score rise!

For more info. check out my websites at:   www.farquharlaw.com or www.freshstartsandiego.com.

I am a bankruptcy lawyer in San Diego.

For a free e-book: “13 THINGS YOU SHOULD DO TO PREPARE FOR YOUR BANKRUPTCY FILING” please send a request by e-mail to: farquharesq@yahoo.com.

Lawsuits by consumers against collectors on rise

Lawsuits against collectors rose 46% to 11,750 estimated by the end of 2010 according to Tampa Bay online. The main complaints in the suits were abusive language, threats of violence or sending consumers to jail, and third party disclosures. Other complaints were attempts to collect time barred debts, or debts discharged in bankruptcy, or debts not owed by the consumer at all. All of these actions are illegal according to the Fair Debt Collection Practices Act. All of these violations if proven can result in a judgment for the consumer. However this does not appear to deter these collectors as the suits (and presumably the violations) are on the rise.

Bankruptcy and taxes

Most fines, fees and governmanet penalties are not dischargeable in Bankruptcy with the exception of 3 year old federal income taxes. They can be discharged if they were filed but not paid. Call our office for analysis of your taxes.

Foreclosures and Bankruptcy

People are often undergoing a foreclosure while considering a Bankruptcy.  A Chapter 13 can allow you to keep the house and even strip off a totally unsecured second mortgage but you need disposable income to do it meaning that you can afford to pay the mortgage(s) and all of your other bills and have some left over for the 3 to 5 year payout to the unsecured creditors.

A chapter 7 is more common where we can stall the foreclosure with the Bankruptcy filing so you can stay in the house longer and we still discharge your unsecured credit card, medical, personal loans, and auto deficiency debts.  Its usually all over in 90 days.