February 26, 2020

Supreme Court Hands Credit Card Companies a Big Win

auto ownership expense denied in means testYesterday, the U.S. Supreme Court issued a creditor friendly decision in the case of Ransom v. Fia Card Services.  At issues was the “ownership expense” deduction in the means test.

The means test is a calculation used to determine whether a debtor has enough “disposable income” to afford a Chapter 13 repayment plan.

In the Ransom case, the debtor (Jason Ransom) claimed a means test deduction for both operation of a vehicle ($338 per month) and for ownership ($471 per month).  The problem – Mr. Ransom owned his vehicle free and clear.

In an 8-1 decision written by Obama appointee Elena Kagan (the lone dissent issued by conservative Justice Scalia), the Supreme Court held that a debtor who owns his vehicle free and clear can only claim a deduction for vehicle operation but not a deduction for ownership. [Read more…]

The Problem with 401(k) Loans and Consumer Bankruptcy

Most of the clients who I represent in Chapter 7 or Chapter 13 cases view bankruptcy as their absolute last resort.  Usually, by the time they get to me, these clients have exhausted every other alternative – they have borrowed money from relatives and friends, sold possessions on eBay and cashed out or borrowed against retirement plans.

All of these choices, by the way, create unintended consequences – if you are reaching that point of desperation where you are thinking about selling things, cashing out retirement plans, etc., I would rather that you call me  before taking any action because of the risk that you might unknowingly lose some of the benefit from your bankruptcy filing, or possibly disqualify yourself altogether.

Retirement plan loans such as 401(k) loans create a variety of issues and are almost always a bad idea in a bankruptcy context.   Presumably you borrow against your 401(k) because you need cash now, you expect to repay that loan in the near term, you want to preserve your 401(k) account for the future, and because you do not want the tax consequences associated with cashing out your 401(k).

Bankruptcy trustees, however, look at 401(k) loans in a different light.   They see any allocation to repay a 401(k) loan (and sometimes any ongoing contribution to a 401(k) plan) as an unnecessary reduction of disposable income that would otherwise be available to pay creditors.    401(k) loan payments cannot be counted as allowable deductions in your means test calculations.   And both Chapter 7 and Chapter 13 trustees and/or creditors will often object if you include a 401(k) loan repayment allocation in your Schedule I and J budget in either a Chapter 7 or Chapter 13. [Read more…]

Divorce and Bankruptcy – an Unhealthy Relationship

There are many reasons that bankruptcy filing rates are so high.   Clearly an unexpected job loss or reduction in earnings can lead many honest, hardworking people into a bankruptcy lawyer’s office.  When a job loss is coupled with a divorce, I think that the likelihood of bankruptcy by husband or wife goes up exponentially.

I recently read a column written by attorney John Mayoue, a divorce lawyer here in Atlanta who is known for his representation of celebrities and other high profile clients.   John notes that in the domestic relations legal community, Atlanta is known as the “divorce belt.”  In the bankruptcy lawyer community, Atlanta is known for having one of the highest bankruptcy filing rates per capita.  I do not think that this is a coincidence.

Just as an ethical bankruptcy lawyer will advise you to search for alternatives to Chapter 7 or Chapter 13, a thoughtful family law attorney will advise you to search for alternatives to divorce.  Bankruptcy or divorce may be inevitable, but when you seek legal counsel, look for a lawyer who does not offer “one size fits all” solutions and recommends alternatives – this would be a good sign that you are talking with a lawyer who has your best interests at heart.

John was gracious enough to give me permission to reprint his thoughtful article about why couples struggling in their marriages ought to consider alternatives to divorce.  I recommend that you take his message to heart.

Divorce Lawyer John Mayoue Offers Advice to Couples Contemplating Divorce

The divorce rates in the United States are some of the highest in the world. Increased financial pressure brought on by the current economy is fueling the fire for marriages already in jeopardy, and the rapidly increasing number of homeforeclosures further demonstrates the severe consequences these pressures can produce.

According to Atlanta, Georgia based divorce attorney John C. Mayoue, who has been counseling couples through divorce cases for more than thirty years, the approaching holiday season will cause these numbers to spike further and will also be a busy time for lawyers specializing in divorce cases, as the holiday season often proves to be a breaking point for marriages in crisis.

“During the holidays, people’s pent-up thoughts about relationships and careers and where they are with life become intensified,” Mayoue says. “In December, for example, we have the highest number of suicides, divorce filings and bankruptcies of any month. It’s just a very difficult time for people.”

Although our society makes divorce seem to be an easy and acceptable way out for couples who aren’t quite happy in their situation, Mayoue cautions couples not to be too hasty to start the divorce process. Divorces that make it to trial are painful and embarrassing, and the results are often not fair for both parties involved. If you are considering divorce, Mayoue suggest taking the following steps first.

1. Try to work out your differences

Ask yourself why you want a divorce. Are you just responding to life’s pressures? Are you looking for a way out of a stressful situation and not just your marriage? Or do you have legitimate concerns that are truly irreconcilable? [Read more…]

How to Keep Your Costs Down and Get Good Bankruptcy Advice Quickly

Personal bankruptcy is made for “what if” scenarios.  What if I file individually instead of jointly with my wife?   What if I quit my job while I am in the middle of my Chapter 13?   What if I need a replacement vehicle after I file?

I don’t always have the answers but I can usually think through one or two likely scenarios.  I can be more effective helping you if you give me the information I need.   Specifically that means the following:

  • take the time to complete my intake questionnaire in its entirety.  Don’t leave out information that you believe is not relevant.   My intake questionnaire is keyed to my bankruptcy program and I have been developing and updating it for over 15 years.  Everything on my questionnaire is there for a reason – and I can serve you better if I have everything that is requested there
  • get me copies of your credit reports.   AnnualCreditReport.com offers a free service to get current copies of your credit reports.  Current credit reports help us avoid leaving out creditors from our analysis and they can also provide other helpful information such as prior addresses and other names in which you have been extended credit
  • get me copies of all payment advices for the past 7 months.  The Bankruptcy law now requires all debtors to engage in a median income test as well as a means test analysis.  The starting point of this analysis is evidence of income you and other members of your household have received.   Payment advices should be provided for salaries, investment income, one-time checks, some disability payments, dividends, etc.  If you are not sure, ask.

Sometimes I hear from clients who want to submit their information on a spreadsheet or Quicken file.   Feel free to send those files along, but do not send them in lieu of my questionnaire and the other requested information.

Georgia Legislature to Cap Real Estate Tax Assessment Increases?

It appears the Georgia Legislature is seeking to cap real estate tax re-assessment increases at 3% per year.  According to the Atlanta Business Chronicle, Republican lawmakers pre-filed legislation to this effect with Georgia House of Representatives on Monday November 17, 2008.  The measure, if approved would actually amend Georgia’s constitution.  If the proposed constitutional amendment is approved by two-thirds of the legislature then it will be submitted to Georgia voters in the next general election held in an even year.

This could help consumers gain more control of their own annual budgets–especially those who are making Chapter 13 monthly plan payments.  In Chapter 13 plans, the Trustee expects the Debtor to continue to make current and timely payments on secured debts like their homes and automobiles.  Unexpectedly large increases in property taxes could hinder successful completion of these plans.
At a time when large automobile manufacturers, like General Motors, face the real possibility of Chapter 11 bankruptcy, Georgia consumers need all of the assistance they can get.

The Winter Legislative session begins January 12, 2009.  I encourage everyone to contact his/her local representative to support this measure capping the percentage increases to real estate assessments.

Will Your Income Tax Refund Count in a Means Test Calculation?

I am considering chapter 7. I am not sure about the median income info because I am no longer employed and working a temp job and used my retirement to live on. My question has to do with income tax refund check. I don’t think I will be getting a refund this year because of my retirement penalty, but if I did get one would I have give to the bankruptcy courts because I filed bankruptcy?


Jonathan Ginsberg responds:  Sheila, you raise a number of points in your question – let me address one by one:

First you ask how to calculate your median income given your change in employment.  When you file bankruptcy, the law requires us to look at your income over the 6 month period preceding the month you actually file.  For example if you were planning on filing in December, we would look at your median income from June through November.

If your income is lower than it "normally" is because of a job loss, that’s fine.  You would have an easier time passing the "median income" test.  The reverse, unfortunately, is also true – if you currently have no income but had a large income during the six month look back, your median income may exceed the limit and you would have to go into a means test calculation.

Additionally if you pass the means test but now have a high salary going forward, then you might have trouble fitting into Chapter 7 because of your budget.

Secondly, you raise the issue of your tax refund.  Your tax refund does count when looking at your median income.  Don’t be confused – all sources of income or revenue count in a median income calculation.

Third, you raise the question about what to do about your tax refund.  Your tax refund is an asset that would have to be listed on Schedule B of your petition.  Depending on how much you have or will receive, your tax refund may or may not be "exempt."  In Georgia, you can use 1/2 of your unused real estate exemption + your wildcard exemption and shelter up to $5,400 of cash or cash equivalent like a tax refund.  A qualified attorney can help you plan the timing of your filing to preserve as much of your tax refund as possible.

The Date You File Your Bankruptcy Case Can Have Important Consequences

Your decision about when to file your Chapter 7 or Chapter 13 bankruptcy case can have important and far reaching consequences with regard to the bankruptcy relief you obtain.  Here are some considerations about which you should be aware:

Semi-annual Changes in the U.S. Trustee published median income numbers.  Your gross household income impacts whether you can file a Chapter 7, and whether your Chapter 13 must extend three or five years.  Since the October, 2007 enactment of BAPCPA, the U.S. Trustee has published new median income figures approximately every six months.   The last update was effective February 1, 2007 and the next expected update is scheduled for October 1, 2007.   When the median income figures are adjusted on October 1, 2007 the median income numbers will go up.  To give you an idea about how much they might go up, here is how the figures for the median income in Georgia for a family of 4 have adjusted since October, 2007:

  • October 17, 2007 – February 12, 2006 – $58,060
  • February 13, 2006 – September 30, 2006 – $60,028
  • October 1, 2006 – January 31, 2007 – $64,427
  • February 1, 2007 – present – $66,508

Assuming that the figures adjust again in October, 2007, we might be looking at $68,000 to $70,000.  If your household income is close to these limits, it would make sense to wait.

Similarly, the approved expense figures for your county may also adjust.  Since just about every debtor will benefit from applying the expected October, 2007 numbers I am encouraging any client who can wait to do so.

Changes to Your Family Size.  If you are pregnant, you should try to wait until after your child is born.  An Oregon bankruptcy judge recently ruled that an unborn child cannot be counted for purposes of determining family size for your median family income.  The difference in the median income for a family of 3 as opposed to a family of 4 can be significant.  For example, currently in Georgia, the median family income for a family of 4 is $66,508.  The median income for a family of 3 is $55,293.  While you could amend your means test after your baby is born, you will likely incur additional legal fees and a lot of unnecessary stress.

Expected changes in your employment.  The median income/means test looks at the past six months to determine your "ability to pay."  However, if your trailing six month average does not paint a realistic picture of your capacity to pay, your case is still subject to dismissal if your budget shows disposable income.

Bankruptcy assumes stability.  If your income is going up and down, you can expect the trustee and creditors to assume that you have the capacity to earn at the highest level of your past earnings even if that is not realistic.  Whenever possible file your bankruptcy case when your income situation is stable and likely to remain stable.

Do you have any additions for this list.  Send me an email or comment on this blog post.

Can I File Bankruptcy Without Involving My Spouse?

married person can file individual bankruptcyIf you are married, can you file an individual Chapter 7 or Chapter 13 and not include your spouse?

Yes you can.  Regardless of whether you are married or separated, you can file bankruptcy on your own even if  your spouse does not want to cooperate.   Further, you non-filing spouse’s credit will not be damaged by your bankruptcy filing,  unless there are joint debts that end up not getting paid in your case.

If you are married, however, your non-filing spouse’s income and expense information, and possible his/her asset information may be relevant to your case and may have to be revealed.

The bankruptcy law requires us to consider household income, which means that your spouse’s income has to be considered.   The law assumes that two people living together as husband and wife both contribute to the household 1   If, however, you and your spouse have separated out your income and expense obligations, we can make an argument that some or all of your spouse’s income or expenses should not be counted in your case.

While filing jointly with your spouse is not required, it can sometimes make a lot of sense.  I often run “what if” scenarios with potential clients and their skeptical spouses to reveal the benefits and the downsides to a joint filing. [Read more…]

  1. By the way, Georgia is not a community property State.  For those of you who live in community property States, the analysis I am describing may not apply.   My Bankruptcy Law Network colleague Cathy Moran writes often about community property issues and bankruptcy on the BLN blog.

Budgets in Bankruptcy Cases Must be Based on Real Numbers

One of the trends I have noticed over the year and a half since the bankruptcy law changed is that we can no longer rely on guesses or estimates when it comes to creating a budget.  My experience in a recently filed case illustrates this point.

My case involves a man in his mid-40’s who lost his sales job and went through a divorce within the last two years.  Although he is well educated and has an extensive background in sales, he currently works as a cashier at a grocery store.   The income he earns at the grocery store does not cover his expenses, which includes rent, a car payment and child support.  As a result, his parents have been helping him with his monthly cash flow needs.

When I prepared the median income test, I only included his employment income as well as some residual commission income.   The median income test result with these numbers showed his six month average to be well below the median for a single individual in Georgia.

I then turned to the actual budget at Schedules I & J.  Here, too, my client’s income was far less than his expenses.  We discussed the situation and my client acknowledged that he was receiving financial support from his parents as needed.  I added "support from parents" as a source of income and prepared a budget that showed $1 left over at the end of the month.

Earlier this week I received an email from an analyst at the U.S. Trustee’s office asking me to modify my means test to show include "support from family" as an income category.  This extra "income" may throw my client into a means test situation.

I don’t foresee this extra "income" to be a problem in this case, but I can easily see how it would be a problem in other cases.  Specifically, if you need to reaffirm a car loan or furniture debt, you cannot show a negative budget – the court will deny the reaffirmation on the grounds that you do not have sufficient money to afford keeping the secured collateral.  On the other hand, if you show "support from family" as a way to bring your budget to zero, that support will need to count as income for median income/means test purposes as well.

The big picture here is that you have to look at your finanical data as a whole.  Your tax returns figures need to correspond to the yearly totals shown on the statement of financial affairs.  Your Schedule I & J budget needs to agree with your means test numbers.  This is why I tell all of my clients that every figure on their peititon – and on the budget in particular – may require backup evidence.  If you rely on estimates or hunches, your case may end up being a lot more complicated than you expected.

[tags] means test, median income test, budgets, Schedule I & J, income and bankruptcy [/tags]

CCCS vs. Bankruptcy – What Makes the Most Sense?

I am sitting here wondering two things…am I qualify to file bankruptcy and should I file bankruptcy.
I have unsecured debts…c/Cards and student loans avg. 50,000.  I have a mortgage of 1.000 monthly.  I AM ENROLLED IN CCCS AND IS PAYING ABOUT 900.00 monthly.  I have high medical bills and child support payments avg. 600 monthly…after working many many hours of overtime my income last year was 54,000.  I am single/seperated…what should I do and how should I do it….HELP.

Jonathan Ginsberg responds:  Jeff, thanks for your question.  Here is how I would analyze your situation:

  1. Bankruptcy is always a last resort.  Whatever positive information you hear about bankruptcy (and there are some positives), you always run a risk when you file for bankruptcy.  Why?  Your financial future will be in the hands of others (trustees, judges).  Creditors can put you in the position of having to litigate (expensive) or give up bankruptcy protection.  While most bankruptcy cases process through the system without hassles, there is always the chance that your case could blow up.  Additionally, you will see your credit score destroyed (at least in the short term) if you file for bankruptcy.
  2. Given your income, I would think that you would be limited to filing Chapter 13.   Although the median income limit for a single individual changes once or twice a year, the current median income for an individual filing in Georgia will be in the $40,000 range.  Your income is significantly higher – therefore I suspect that you will be looking at a Chapter 13.
  3. Currently, you are paying $900 per month + your mortgage + high on-going medical expenses.  Chapter 13 might make sense if it could reduce that $900 payment to $600 or  $500.   The only way to know that would be to submit all of your financial information to a bankruptcy lawyer for a personalized review.  If you want me to review, I would direct you to a special download page of my Atlanta bankruptcy web site, where I identify exactly what I need to analyze your specific case for a possible bankruptcy.


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