My wife has about $13,000 in debt from a credit card that she held before we were married (no joint use, etc.). She is now disabled and has not paid on this account for over 4 years. Creditors filed a civil suit just yesterday for repayment and legal fees of over 3k. Am I liable for this debt? What can she do to discharge the debt since she is disabled and will not earn an income? She is not a joint account holder on any family accounts (mortgage, other ccs, etc.) Thanks for your insight!
–S
Jonathan Ginsberg responds: S, thank you for your question. You are not responsible for your wife’s debt – period. If she does not work and has no assets titled in her name, I would say that she is "judgment proof." The creditor can get a judgment, but there are no assets or wages to go after.
The potential issue – if she has a judgment against her, that judgment would attach to any property that she might acquire in the future. Similarly, if she ever did go back to work, her wages would be subject to garnishment (although the creditor does not get notified automatically – they would have to find out about any work).
More on Is Husband of a Disabled and Judgment Proof Wife Liable for Her Debts?
Filed under Consumer protection, Means Test issues, Median income test issues by 
Mr. Ginsberg – I am a regular reader of your bankruptcy blog, and appreciate your time and efforts. A recent post on another bankruptcy blog raised an interesting issue on which I am wondering if there is a consensus of legal opinion.
Essentially, the question is whether the revision of 707(b) under the BAPCPA effectively precludes a “double jeopardy” type situation in which a Chapter 7 debtor could be exempt from the “means test” but subsequently face a challenge on the basis of excess disposable income. In the interest of brevity, I’ve copied the posting below:
Attorney Kevin Chern writes…
707(b)(2) May Help Debtors Under the Median Income
Tuesday, September 06, 2005
Under the old bankruptcy law, the trustee could bring a 707(b) motion alleging abuse based on a debtor’s ability to repay debt with expendable income. Under BARF 707(b)(2), the judge, trustee or creditor can all bring a 707(b) motion to dismiss if the debtor’s household has more than the median income for a household of that size. Logic dictates that, under the same provision, neither a creditor, nor the judge, nor the trustee has a right to bring a motion to dismiss no matter how much expendable income the debtor has so long as the debtor’s household has less than the median income for a household of that size.
So, in some situations under BARF, this bright line median income test will help debtors escape 707(b) objections. Of course, the judge or trustee can still bring a motion based on 707(b)(3) alleging that the case was not filed in good faith, but, certainly, no presumption of abuse exists.
What are your thoughts on the issue? Any feedback you could provide would be appreciated.
–Chuck
Jonathan Ginsberg responds: Chuck, I would respectfully disagree with Kevin’s analysis. The median income/means test is a qualification test. It is based on a 6 month look back, not on reality. The Schedule I and J budget that you file with your actual Chapter 7 case reflects actual numbers as of the date of filing.
For example, a debtor physician may satisfy the median income/means test because he was unemployed July-December. If he gets a new job in January earning $200,000 a year, his Form B22 would show zero earnings and he would not trigger the presumption. However, his schedule I & J would likely show significant disposable income. I am not aware of any cases that support Kevin’s logic. Further, whether a case is successfully challenged as an abuse vs. one challenged under the good faith provision ends up at the same place – a dismissed case.
It would be interesting to see if any Court has considered the double jeopardy argument.
Technorati Tags: 707(b), substantial abuse, good faith, Chapter 7, dismissal of Chapter 7, Kevin Churn, means test, median income test
Filed under Bankruptcy budgets, Means Test issues, Median income test issues by
Evidence continues to mount that Chapter 7 will not be a friendly place for debtors who end up in the means test. As you know, you can only qualify for Chapter 7 if (1) their household income falls below the average income for a similarly sized family in your State, or (2) if your household income exceeds the average income, but you pass the "means test."
The means test sets out a budget using expense numbers that the IRS has deemed "reasonable." If your actual expense for a particular category exceeds the IRS number, too bad.
For example, if the IRS budget says that a family of 4 in Fulton County, Georgia may spend $1,529 for housing and utilities. If that family of 4 actually spends $2,000 for housing and utilities, they can only use the $1,529 in the housing/utilities column. For bankruptcy calculation purposes, this family has $471 "left over" and available to pay creditors in a Chapter 13.
Now, we learn that 401(k) loan repayments cannot be included in a means test budget. If you are paying back a 401(k) loan at $200 per month, for example, the Bankruptcy Court says that this $200 is actually "disposable" and available for creditors in a Chapter 13. The Court does not care that if you defaulted on a 401(k) loan you would face tax problems and possibly lose your retirement investment. Thanks to my colleague, attorney Bernd Stittleburg, who forwarded to me an email about the Lenton case from Pennsylvania and the Nockerts case from Wisconsin.
Bernd Stittleburg and I have both noticed that every Chapter 7 case that involves a means test inevitably results in an objection from the U.S. Trustee. I am therefore much less inclined to pursue Chapter 7 relief for a debtor whose income exceeds the means test numbers, and if I do take a "means test" case, I have no choice but to charge a substantially higher fee.
Congress created this means test to limit access to Chapter 7, and that goal is certainly being met. Unfortunately, honest but unfortunate debtors now have very little place to turn since bankruptcy relief is become less and less available.
Technorati Tags: means test, 401(k) loan repayment in bankruptcy, median income test, Bernd Stittleburg
Filed under Chapter 7 issues, Georgia Bankruptcy, Means Test issues, Median income test issues by
NACBA (National Association of Consumer Bankruptcy Attorneys) recently distributed a letter from Senators Chuck Grassley and Jeff Sessions to Justice John Roberts, the Chief Justice of the United States. The Chief Justice is the head of the Committee on Practice and Procedure of the Judicial Conference. This Committee is the organization that drafts and revises the official bankruptcy forms that must be used in the nation’s bankruptcy courts.
In this letter, Senators Grassley and Sessions express dismay that the forms created after the enactment of the new law do not require low income debtors to complete extensive financial disclosures.
Currently, debtors whose incomes fall below the average income for their State of residence do not need to fill out around 10 pages of forms – presumably if their income is below the State average, they are not abusing the process.
As a practicing lawyer who sees struggling debtors on a regular basis, I find this mean spirited letter by Senators Grassley and Sessions disturbing. In my view, the only impact that these proposed rule changes would have would be to drive up the cost of bankruptcy. We have already seen the filing fee jump from $194 to $299 in Chapter 7. Attorneys fees charged by most debtor’s lawyers have gone up dramatically because the new law imposes significant and burdensome filing requirements. And the credit counseling requirements of the new law require cash strapped debtors to spend at least an extra $100 to get their two certificates.
Fifteen years ago, I was charging $600 total for a Chapter 7, including the filing fee. Now, if you want a decent lawyer, you are looking at close to $2,000 for the same service.
I wonder if Senators Grassley or Sessions have ever spent a day with a debtor’s lawyer talking to the distraught families who have made the difficult decision to file for bankruptcy. Or have they spent a day in the 341 hearing room listening to debtor after debtor testify about financial hardship brought about by job loss, divorce or illness. Or have they watched a Motion for Relief calendar where bankruptcy judges have had to tell mothers and fathers that they will be losing their homes.
Every responsible lawyer and citizen should want honesty and integrity in the bankruptcy process. Study after study has shown that most bankruptcy debtors are not abusing the system. It strikes me as the epitome of hypocrisy that a Congress who squanders billions of our tax dollars would take such an interest in solving a problem that does not exist when its own house is not clean.
Interestingly, the Citizens Against Government Waste awarded Senator Grassley its Porker of the Month in May, 2005 for adding $11 billion to a transportation bill.
Filed under Consumer protection, Median income test issues by
Recently I appeared with a client at a 341 hearing and the trustee raised an interesting point about family size calculations for purposes of the median income/means test calculation.
As you may know, when you first come to my office, you have to provide me income data for the past 6 months so I can run a median income test. If your average monthly income during that 6 month period is less than the average monthly income for a similarly sized family in Georgia, we are free to file Chapter 7 or a less than 5 year Chapter 13.
As you might expect, the average income for a family of 3 is higher than the average income for a family of 2. So it is easier for a 3 person family to fall below the median income limit (meaning you have more choices).
In my case, my client filed individually. He is married and has one teenage child from a prior marriage. He pays child support.
When I prepared this case, I showed that he had a family size of 3 (debtor, spouse and teenage child). The trustee objected saying that because the child does not live with him, the actual family size is 2.
This raises a number of interesting questions. What if a debtor and his ex-wife share custody equally? What if the child lives at college? What if the child is spending her junior year of high school abroad? What if the ex-spouse has legal custody but the child actually lives some or all of the time with the debtor.
There are no answers yet for these questions but it is easy to see how these types of issues will spawn a lot of appellate litigation.
Filed under Chapter 13 issues, Georgia Bankruptcy, Median income test issues by
