Will I pass the means test in bankruptcy but I have a spouse who makes good money but is not filing?

Good news!  That is okay!  Generally a non-filing spouse’s income is included in the bankruptcy means test as household income even if the spouse is not filing bankruptcy unless the spouses live apart.  But if your marriage is a recent marriage of less than six months then not all of the non-filing spouse’s income will be included in the household income calculation anyway.

If it is a marriage longer than six months then there is something called the marital adjustment which will allow you to reduce the amount of your spouse’s income that will appear on the means test.  The marital adjustment appears on line 17 of the means test form 22A.  There are several lines there but you can add an attachment as I did recently in a case.   This marital deduction allows you to deduct from your spouse’s income all of your spouse’s expenses that your spouse pays separately.

The first one is the deductions that come out of the non-filing spouse’s paycheck.  The non-filing spouse will have taxes, insurance, union dues and even a retirement deductions taken out of his or her paycheck.  The income for the spouse goes into the means test in the gross amount but the deductions are taken out here.  The retirement can be included here where it would not be for the filing spouse unless the filing spouse had a mandatory retirement.

Remember that this spouse is not filing bankruptcy and can spend money and take deductions as needed.  The non-filing spouse is not attempting to discharge their debts so the trustee has much less control over what they take on deductions than he or she would over a party that is filing for bankruptcy. But still the Trustee can challenge these marital deductions so it is good to have a bankruptcy attorney to analyze which ones can be justified.

The non-filing spouse can also take his or her credit card payments as marital deductions.  These payments will have to be made after the bankruptcy as they are not being discharged and thus they can be taken here.  If the non-filing spouse has a car of their own then they can take those car expenses there too if they have not already been taken in the car section of the means test.  The same would go for a separate cell phone.

There are other expenses too like separate student loan payments that the non-filing spouse can take.  Also if they have traveling or food expenses for themselves or if they pay child support for a child from a previous marriage then they can take those expenses.  Anything that is truly an expense just for them and was not paid on a regular basis for the household expenses for the debtor or the debtor’s dependants.

This gives you a lot of leeway for expenses to be included here that you or your attorney can come up with that meet this criteria.  Most people do have these expenses that are separate and distinct from the expenses that are contributed to the household.  This is because most people, even if married, these days have separate and distinct lives.  They may have many debts and obligations and expenses left over from before the marriage or just expenses that are truly just for them.

So don’t despair if you don’t pass the means test with your spouse’s income.  The marital deduction sections may make bankruptcy possible.  If it seems too complicated then contact a bankruptcy attorney who will help you decide which expenses can be taken on the marital deduction section of the bankruptcy means test.

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 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.

Do I need an attorney to file for bankruptcy?

The short answer is yes!  Don’t try to file a bankruptcy without one!

Your attorney will know the law first and foremost.  The attorney will know if you have too much property or income for instance as he will do a means test calculation for you as is required by the law.  I recently came in on a bankruptcy case where a bankruptcy filer should never have filed a case because this person had non-exempt income or assets.

The trustee just claimed all of those assets for the creditors as they will do when there are assets available to seize.  If an experienced bankruptcy attorney would have been consulted in the beginning then they could have advised the client not to file for bankruptcy at all in that case.

The client could have saved the filing fee, attorney’s fees, administrative fees and they could have worked out a deal to pay the debts back.  As it turned out the client had to surrender assets necessary to pay all of these costs and he had to pay the debts back in full.  It would have been much cheaper not to file bankruptcy in the first place and to make matters worse the clients assets were tied up for over a year.

Secondly you need an attorney because the attorney will know the bankruptcy procedures.  Filing for bankruptcy requires many procedural steps which are difficult for the novice to comply with.  An attorney will file the case electronically with special bankruptcy software that automatically complies with the procedural requirements of the court.  I have seen many filers in 341 hearings who didn’t know what they were doing so they made serious errors.  These errors usually result in delays and continuances and sometimes in dismissals of the bankruptcy case.

If the case is dismissed then the debts come back into play and the whole reason for filing is negated.  Now you have lost the filing fee and you will suffer other penalties like losing the automatic stay for a year.

Thirdly you need an attorney because if you hire one you should get an expert who knows the law,and  the procedure but also someone who knows the trustees.  Each bankruptcy trustee is a little different and each has slightly different requirements.  An experienced attorney will know what each one needs and what each one likes to receive in terms of supporting documentation.  This will inevitably help you through the process in the smoothest and quickest fashion.

Lastly with an attorney you get someone to accompany you through the process.  I accompany all of my clients to the 341 meeting of creditors and I am available for any questions that they might have about the process at any time.  This helps people to have fewer fears and worries about something that people naturally are very scared about.

So there are many reasons to hire an experienced bankruptcy attorney to help with your bankruptcy.  Remember too that the attorney is the only one that can represent you in court in the unlikely event that things go badly.  So if you are considering bankruptcy then hire an attorney and don’t do it yourself!

I practice bankruptcy law in San Diego California.  Please visit my website for more information on filing bankruptcy at: www.farquharlaw.com.

Is the economy improving? Will I be “means tested” out of bankruptcy if I get a good paying job?

I don’t know if the economy is improving but if you are going to be starting a new job soon it could mean that it’s a good time to file bankruptcy.  If you have been unemployed and you have a lot of debts that you wish to discharge in bankruptcy then it might be good for you to file before you get a new job.  If the economy is actually improving then so will job prospects.  If you get a new job then this will possibly impact your ability to file.  If you make too much money you may be “means tested” out of bankruptcy.  There are limits to how much income you can make and still file a chapter 7 bankruptcy.

The means test was added in 2005 to force people into a chapter 13 so the creditors could get some sort of payments on their debts.  The law was lobbied for and written by the credit card companies and big banks (same thing).

At the time of this article in San Diego county income limits range from just over $47,000 per year for an individual to $77,596 for a family of four.  (You add $7,500 per year for each family member after 4 people).  If you make more than these amounts that are allowed for your family size then you would go into the means test.  When you are in the means test then all of the deductions for mortgages, cars, healthcare, charity, and taxes are subtracted from your income to see if you pass.  If you do not pass the means test then you must do a chapter 13 bankruptcy as you are “means tested” out of a chapter 7.

It is far better though to not go into the means test at all.  It is better to fall below the means test cut-off line and not take the test at all.  If you file while you are still unemployed or soon after you job starts then you will have a higher chance of coming in below the means test limits.

If your income is going to go up significantly then it is a good time to file sooner rather than later.  The means test looks back six months so if you just started a job then you would still be okay but don’t delay the filing and risk not qualifying for a chapter 7.   A chapter 7 will allow you to eliminate all of your dischargeable debts and then get a fresh start as you move on with your life and your new job.

Remember that most people can keep most of their assets in a bankruptcy and most people can eliminate all of their dischargeable debts.  Some debts are not dischargeable but consult me or another bankruptcy attorney if you are wondering which debts are dischargeable.  Also you can file alone and your spouse does not have to file with you.  Bankruptcy will remain on your credit report for up to ten years but with the proper re-building most people can get their score up significantly after two or three years.

So bankruptcy is not the end but a new beginning!  It is a fresh start that many need!  It might be a good time to file now though if you are going to start a new job so you can start a new life debt free!

I am San Diego bankruptcy attorney.  Please visit my websites at 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!  For a free e-book on “13 things to do to prepare for your bankruptcy filing” please e-mail me at farquharesq@yahoo.com.

Should American states like California and Illinois file for bankruptcy? Turns out it can be done but with a cost!

A number of the states in the USA are completely broke with little chance of paying off their debts.  California is one that reportedly has a $500 billion unfunded pension liability problem.  $500 billion is obviously more than the citizens of the state of California can pay so some have talked about the possibility of a federal bailout.  I am personally against a bailout because it will only continue the problem of overspending and unfunded pension liabilities that California can’t afford.

Numerous other states have huge debt problem often related to their unfunded pension liabilities.  Hawaii, Connecticut, and Massachusetts, Oregon and New Jersey are among the small states mentioned.  California, Illinois, and New York are the large states with huge debt problems.  One article says as many as 46 states need bankruptcy.  According to reports I’ve read Utah seems to be the best financially managed state in the union and it has little debt.

For many states it was the housing collapse that resulted in a great reduction in tax revenues that started the slide.  For other like California the unfunded pension problem has been building for years.  For states like New Jersey and Nevada, who relied on gambling taxes, times are really tough as people have slowed down on gambling because of the slow economy. But most states that are in financial trouble seem to have some level of this same unfunded pension liability problem.  A state bankruptcy would allow the bankruptcy courts to throw out these pension contracts just like with a city if the law can be changed to allow states to go bankrupt.

As I wrote in a previous blog, states are sovereign entities and they thus cannot go bankrupt.  But there is a way for California and the other states to make it happen anyway.  Congress can pass a law allowing the individual states to declare bankruptcy but the states would have to petition the Congress for such a right.  Without the petition the law won’t change and states will be stuck with their debts.

Congress passed the law that originally created chapter 9 municipal bankruptcy seventy years ago during the great depression.  Chapter 9 allowed cities and counties to file for bankruptcy protection and 600 such entities have taken advantage of this law since it was passed in the 1930s.  Presumably Congress could now authorize a whole new chapter in the bankruptcy code.  We could call it “chapter 10.”  A chapter 10 would eliminate the barriers to states filing and eliminate the “sovereign entity” problem that still exists today.

Apparently Newt Gingrich is in favor of just such a law.  Ironically it is the republicans, who are not normally bankruptcy friendly, who seem to be more in favor of just such a law.  This appears to be because the republicans do not want any state to receive a federal bailout which would impose a tax on the whole country to pay for the worst fiscally managed states.  If  states like California, Illinois and the others would file bankruptcy then a federal bailout would be unnecessary.

With a bankruptcy these states can eliminate their debts such as the unfunded pension liabilities that have plagued cities.  With a bankruptcy the state can also save its assets.  In a chapter 9 bankruptcy the law is clear that the bankruptcy court cannot interfere with the city’s day-to-day activities and the cities can even borrow money during the bankruptcy.

In a chapter 9 municipal bankruptcy the court also cannot force the city to sell any of its assets like city land or buildings.  Presumably this would apply to states’ bankruptcies too.  A state could therefore keep all of its assets during and after the bankruptcy.  As I reported in a previous blog this is because of constitutional protections like separation of powers that prevent a court from interfering with any day-to-day functioning of a city because a city is a public entity.  A public political entity like a city (or a state) simply cannot be operated or directly interfered with by a bankruptcy court.  This is made clear on the federal courts website under chapter 9 bankruptcies.

A state could presumably enjoy these protections in a chapter 10 bankruptcy just like the cities can protect their assets under chapter 9.  Bankruptcy would mean for these states that they could continue to run their affairs as usual with no interference from the bankruptcy court and they would not have to sell any assets.  They could just cancel the debts of all kinds including these pension contracts that were negotiated with the unions.  They could renegotiate new contracts that the states could afford and that were on par with what people earn in the private sector.  Bankruptcy could indeed save the states from disaster and financial ruin.

But there is a price to pay for all of this.  State bond interest rates will have to  increase to reflect the new threat that a state can go bankrupt.  There is currently no such threat as states cannot now go bankrupt so state bonds are given a very good rating.  Since bond investors will now have to risk that the state can go bankrupt and wipe out their investment, the state will have to pay a higher interest rate to attract investors.  Presumably once the law is passed allowing states to go bankrupt then any state can declare bankruptcy as often as the law allows.

I would argue that if the states don’t get this debt problem under control then the bond rates could increase anyway as they would have a greater risk of defaulting on the bonds.  The bond issue can be dealt with so the effect of a bankruptcy on state bonds will be lessened.  Bonds could be given some kind of special preference for instance.  If the states can protect the bond holders position in the bankruptcy or reaffirm (agree to pay) the bond debts then the harm to the bond market could be minimized.  Then states could still find buyers for bonds in the future when they need a new road or bridge or airport.

My advice to the states with the most debt is to strongly consider the bankruptcy option.

I am a San Diego bankruptcy attorney.  Please visit my websites at www.farquharlaw.com or www.freshstartsandiego.com.  Or call me for free with any bankruptcy or debt related question you might have at (619) 702-5015.  Call now for a free credit report and analysis!

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.

Shadow inventory of foreclosed homes- could it mean we have shadow depression?

(See my currnet blog for an updateon foreclosures: http://bit.ly/JGU1dZ ).

There appears to be a definite “shadow market” of foreclosed homes that the banks are holding off the market.  They sometimes call this the “shadow inventory”

The banks are holding these homes off the market presumably to prevent a real estate crisis.  As I wrote before about this issue there is this huge reservoir of homes that the banks have foreclosed on and taken full possession of.  These homes are “shadow inventory” because the banks have kept them in the shadows and they have not listed these homes on the MLS for realtors to sell.

The Wall Street Journal recently did a story on this shadow inventory.  In that story they cite a study done by real estate consulting firm in Irvine California.  They estimate that there are 4.7 million homes in this unreported market which amounts to a 10 month supply of homes but the number could rise to as many as 5.6 million homes.  Some of the worst cities have a 20 month shadow supply of unlisted and unsold homes.

Analysts at Standard & Poor’s report that the largest backlog of shadow inventory exists in New York city followed by Miami.  Standard & Poor’s estimates that the time it will take to clear this inventory is up 18% over the first 6 months of 2010.

There is certainly a lot of homes in the “shadows” and this is a serious problem.  This is why some realtors are predicting that this foreclosure/housing crisis will be with us for 5 to 10 years.   The Irvine report also estimates that this shadow inventory will stay at elevated levels until 2016!

The report says that sales of distressed homes will rise to 40% of all home sales through 2012 and that real estate prices will continue to fall by 8% to 11% through 2012!  They also predict that if the economy worsens or if interest rates rise then housing prices will decline further and for longer.  According to the report distressed home sales will peak at 2.3 million homes next year.  So we haven’t reached the peak yet and it will get worse.

Worse than that a friend of mine was at a real estate conference recently attended by a president of a big bank.  The bank president denied the existence of a shadow inventory.  If the banks don’t want to admit that there is a shadow inventory and it is well-known enough for consulting firms and the Wall Street Journal to write about then what are they trying to hide and why?

Can we not take the truth?  It seems to me as I have written about many times that we are currently in a depression.  I don’t expect that anyone in government or the banks (who are now very closely tied to the government) will admit it.  They obviously have no problem lying about the shadow inventory of homes so it seems unlikely that we would ge the truth about how deep this economic crisis is.

I’m sure they will tell us when it’s all over.

I am a bankruptcy attorney in San Diego.  For further help please visit my website at www.farquharlaw.com.

How much does a bankruptcy cost? Can I make payments?

Most bankruptcy cases can be handled for less than $2000 and some for far less than that.  There are some factors that increase the cost of the bankruptcy.  There is a base charge but if you have multiple cars or a lot of other personal property then the bankruptcy can cost more.

Houses are extra and some people have several.  Houses require valuations, payoff balances and insurance and we have to make sure any equity is protected.  All of these documents have to be sent to the trustee.  This takes extra time so it increases the cost.

Businesses are extra too.  With a business we have to look at your business inventory to list in the bankruptcy and we have to get profit/loss statements to show what income is received from the business.  This takes extra time and effort and thus it costs a little more if you have a business.

If you are filing with your spouse (and you don’t have to) then there is a small charge for the extra person because their income and assets must be included in the bankruptcy along with their debts.  An extra credit report must be pulled for the spouse too.

If you are filing a simple individual case with little of no assets and you have a job or are unemployed with no house then the case can be done very cheaply.

Yes!  You can make payments until the full balance is paid.  The case cannot be filed until its paid for but in the mean time we can stop the creditors from calling you.

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 at (619) 702-5015.   For a free e-book on “13 things to do to prepare for your bankruptcy filing” please e-mail me at farquharesq@yahoo.com.

Why are seniors are filing more and more bankruptcies?

As reported on Fox Business, according to something called “Consumer Bankruptcy Projects”, senior citizens (55 to 64 years old) are filing more bankruptcies now than they did in 1991.  In 1991 they filed only 6.1% of all bankruptcies.  By 2007 that number had risen to 15.3% and by 2009 it was up to 16.9%.

The numbers for the 45-54 year olds increased from 15.8% to 23.5% during the same period.  The numbers declined for the 35 to 44 year olds and for the 18 to 24 year olds the percentages declined even further.  The younger people seem to be filing a smaller and smaller percentage of the bankruptcies and the older folks are taking up the slack.  My question is- are the younger getting more responsible and the older folks less responsible?

According to the study the reason for this is mainly credit cards.  The older people are getting more credit card offers and they are using them.  Older folks are apparently more likely to have 5 or more cards which is a dramatic increase over the last 16 years.  Apparently seniors are less likely to negotiate with their credit cards for lower interest rates or payoff amounts.  They seem to accept and thus get stuck with whatever the credit card company gives them.

The other factor that the study points out is that seniors (55 to 64 years old) are also likely to be paying for their children and their parents simultaneously.  People are living longer and this age group often has living parents who need care.  Their medical care can be expensive and seniors often turn to their credit cards and lines of credit to pay the medical debts of their parents.

Seniors may also have adult children who need help with their families so they turn to their parents who turn to credit cards and lines of credit.  Sometimes these children get their parents to sign onto business loans to start businesses which ultimately fail.   The parents then become responsible for the debt.

I have noticed a just such a change with my clients.  I am seeing more and more seniors with credit card debt who are in need of a bankruptcy.  They often have significant credit card and personal loan debt.  They are often very ashamed that they have such debt but according to this study it is indeed very common.

The study predicts that as the baby boomers age the numbers of seniors who file bankruptcy will increase.  Having the financial responsibility of care for both parents and children can really be expensive for this age group.  It is not surprising then why they get into debt and need a bankruptcy.

I am hoping that people can at last not be ashamed that they must file for bankruptcy.  I am convinced that it is a financial decision that should carry no shame.

I am a bankruptcy attorney practicing bankruptcy law in San Diego.  Please visit my website for further help at www.farquharlaw.com.

Why are all those baby boomers filing bankruptcy? Isn’t it just for the very young and old?

According to the American Bankruptcy Institute (ABI) 42% of bankruptcy filers were between the ages of 45 and 64 in 2007.  Apparently the baby boomers are filing faster than any other age group and the number of  boomer filers rose 65% from 2002 to 2007.

If you thought that bankruptcy was just for the irresponsible young or for older people who are retired and without an income then you would be wrong.  In fact bankruptcies for younger filers has dropped by 60%.

Many different types of people of all ages are filing for bankruptcy.  Many of my clients are in the baby boomer age group as I am.  Often they have been living off of credit for a long time and they may have suffered a job loss or they may have started a business that has failed.  Many people start these businesses on credit and when the business fails there is nowhere to go but into bankruptcy.

Also baby boomers are likely to have a house and children both of which can cost a lot of money (don’t I know it).  The housing prices have collapsed so there is no more equity to borrow out and many cannot afford the house payment they currently have along with the other credit payments.  Many have unpaid student loans and some have aging parents who need care and money too.  Often boomers’ aging parents have issues related to their health that they can’t handle alone.

In other words baby boomers are like everyone else only more so.  More likely to have kids, a job loss, a house, dependant parents and of course more debt.  It is not surprising to me then that they have to go bankrupt in large numbers.

So it’s not just the young and old that file anymore.  It’s the boomers who have been hit by recession, housing crisis, and unemployment and its the boomers that are shouldering the burden of their kids and their parents.  Its their turn but they sometimes can’t do it all without help.

Any questions about bankruptcy please visit my website at:

www.farquharlaw.com

I am a bankruptcy lawyer practicing bankruptcy law in San Diego.