The economy might be improving. It therefore might be a good time to file bankruptcy.

The economy appears as if it might be improving.  If this is true the in a better economy it is more likely that you will obtain a better paying job.  Therefore it might e a good time to file for bankruptcy before you get this job and you become “means tested”out of a chapter 7 bankruptcy.

Believe it or not many people wait too long to file and then they cannot file because they earn too much income or they receive too much property.  If you might get a job with a moderate to high income in the near future they it would be advisable to file for bankruptcy now when you have an underpaid job or if you are altogether unemployed.  You should only file of course if you have large debts you cannot currently pay.   (See here for my website article on why you should file for bankruptcy).

There is a  problem with waiting to file for bankruptcy though.  When you get a good job you may get enough income to survive and pay your bills.  his is a good thing but your income may be too much for you to easily file for bankruptcy.  There is a thing called the means test which will force you to pay back your debts in a chapter 13 if you make too much money.  The artificiality of the means test may create a situation where on paper you have enough money to pay back our debts but in reality you do not.

The means test may show extra income in your household when you look in your account and see none.  That is when you will wish you had filed for bankruptcy and rid yourself of your debts when you could have with no problem.  Don’t let those debts follow you into your new life.  Those old credit card debts are usually attributable to your borrowing money to survive when things were very bad.  They usually do not reflect a wasteful or luxurious lifestyle but mere borrowing to survive.

Also remember that if you are going to receive some property by will, trust, winnings, or gift then that too may make it harder to file for bankruptcy.  This is also true if your home or other asset will increase in value.  Better to file now before these things happen.

Why then let these old debts impact your future life after you come out of the bad times.  You will need the money you will earn from you job to pay for your family’s expenses.  Don’t wait until you get too much income or assets that will push you out of bankruptcy.  Excercise your federal right to file for bankruptcy and rid yourself of these old debts.  Get a fresh start but do it now while you can and your income is low and your assests are few.  You do not know what the future holds.

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.

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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.

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.

Do I need a chapter 7 bankruptcy attorney to do my bankruptcy or can I do it alone?

I believe that you do need a chapter 7 bankruptcy attorney to file your bankruptcy for you.  Bankruptcy filing is a difficult process and it impacts many areas of your life.  Filing a bankruptcy is far too complicated to do alone and I believe that you would be much better off with an attorney to assist you for the following reasons:

1) Property– A chapter 7 bankruptcy attorney can help you list, exempt, and save your personal property and your real estate.  He or she can determine if you transferred any property recently out of your estate or if any property was transferred to you recently.  This makes a big difference for your case.  You want to be aware of the fraudulent transfer laws and avoid losing any property in the bankruptcy.  In California the trustees can look back four years to determine if they are going to reverse any property transfers (and possibly take your property from you).  A chapter 7 bankruptcy attorney can help you to protect your property so it is not taken by the bankruptcy trustee.

2) 341 hearing– A chapter 7 bankruptcy attorney will accompany you to the 341 meeting of the creditors.  The creditors rarely show up but the trustee always does.  The attorney can prepare you in advance for the hearing and then deal with any issues that arise with the trustee.  Also a chapter 7 bankruptcy attorney will invariably have attended many such hearings (if he or she has experience doing bankruptcies) and he or she will know what to expect there.

3) Software and electronic filing- Bankruptcy attorneys that do chapter 7s probably file the cases electronically which is a much easier way to file than the old “over the counter” way.  The software that is used by a chapter 7 bankruptcy attorney to do this is far too expensive for you to buy just for you to do your bankruptcy.  With the software a chapter 7 bankruptcy attorney can efficiently and correctly complete your case and file it with the court.

4) Deciding which set of exemptions to use- Deciding which set of exemptions to use in a chapter 7 case may require a bankruptcy attorney to analyze your situation.  There are many issues relating to whether you should choose the “703” set of exemption with the “wild card” or the “704” set if you have a house with equity in it that you need to homestead.  You must choose between the two and a chapter 7 bankruptcy attorney can advise you of the issues you face as you choose.

5) Download credit reports-Most bankruptcy filing software programs have the ability to download your credit reports into the bankruptcy case.  It is a tremendous advantage to have credit reports from all three major credit reporting agencies directly put into your case so there are no mistakes.  These credit reports will accurately reflect what these agencies say you owe and the reports will come complete with the dates that you made the various charges to your credit cards.  These dates will tell the trustee when you were incurred your debts so there will be no mystery as to how old they are.

You can get these reports yourself and enter the information manually but it is a great advantage to have this direct and efficient system to do it for you.  The chapter 7 bankruptcy attorney can then compare that information with your creditor’s bills to make sure that your creditor information is listed in your bankruptcy as accurately and completely as possible.

6) Assistance with the means test– The means test is very difficult to fill out by yourself.  It was added to chapter 7 bankruptcies in 2005 to force debtors who earned too much income into a chapter 13.  The rational behind the test was that if they had enough extra income then they had the “means” to pay their debts back.

A chapter 7 bankruptcy attorney will use the same bankruptcy filing software to help him or her complete your means test and an experienced bankruptcy attorney will undoubtably have worked on many means tests for a number of clients.  After examining your situation the attorney can determine if you pass the test and he or she can look to see if there is anything you can do to pass in the future.  Also the attorney can make sure that you get the full use of all of your deductions to the means test so you can pass.

6) Representation in court– If something goes wrong with your bankruptcy case or if you need to defend against a challenge to the dischargeability of a debt then you will need a chapter 7 bankruptcy attorney to represent you in court.  Only an attorney can represent you in court and a chapter 7 bankruptcy attorney should be familiar enough with the issues to do so.   Having an attorney on the case already is a big advantage if things do go wrong and you wind up before a judge.

7) Reaffirmation agreements– You may need to reaffirm your car debt in the bankruptcy if you want assurance that the creditor will not repossess it.  In California, according to the Dumont case (decided in the 9th circuit), an auto finance company can repossess you car after a bankruptcy even if you are current on the payments. Many of my clients don’t like this uncertainty and they demand a reaffirmation agreement even if I advise against it.

I have often ended up before a judge in bankruptcy court with these cases and the judges seem to not like these reaffirmation agreements.  If you have a chapter 7 bankruptcy attorney then you will have someone who can argue for your reaffirmation agreement in court and this gives you a better chance of getting it approved.

There are other reasons but these are some of the main reasons why you should use a chapter 7 bankruptcy attorney to file your bankruptcy case.  They will facilitate and expedite the process and be by your side when you need them.  If he or she is experienced then a chapter 7 bankruptcy attorney can be invaluable to you for filing your bankruptcy.

I have seen debtors with no chapter 7 bankruptcy attorney show up at 341 hearings.  The often get continuances for not filling out their schedules and means test correctly.  Some draw a representative from the U.S. Trustee’s office who also looks over their case and some even get their cases dismissed.

Don’t let this happen to you.

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.

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.