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Chapter 7 Bankruptcy Services

We provide chapter 7 bankruptcy services. Find out if you qualify for a Chapter 7 discharge. The information on this page will help you determine whether filing for a Chapter 7 is your best option. Contact us for a free consultation.

Tip: the sooner we can tackle your current circumstances, the faster we can get you back on track.


  1. What is Chapter 7 Bankruptcy?
  2. If my mortgage debt is discharged in bankruptcy, why do I have to pay on the mortgage after the bankruptcy?
  3. Do you qualify for a Chapter 7 Discharge?
  4. Under the new Bush Bankruptcy Act, you must obtain a Certificate of Credit Counseling.
  5. Bankruptcy Exemptions are Important!
  6. Important points when filing a Chapter 7
  7. Cost of Filing Fees
  8. Chapter 7 Means Test

What is Chapter 7?

Chapter 7 Bankruptcy is called a ‘liquidation’ because assets and debts are ‘liquidated’. But the reality is that you have assets which are taken out of the liquidation process. The planning of your exemptions to be used to ‘exempt’ or ‘save’ your assets is one of the most important ingredients in planning a Chapter 7.

Ideally, you can liquidate or ‘get rid’ of your debts and exempt all your assets. The reason there are exemptions for assets is because the philosophy of Chapter 7 is that you need a ‘fresh start’ and it will do no good to take the shirt off your back.

Enter President Bush who signed into law the BAPCPA (Bankruptcy Abuse Prevention and Consumer Protection Act) and it says that you can use a non-attorney to prepare your bankruptcy petition but it doesn’t clearly state that the non-attorney can’t advise you regarding your exemptions under the Bankruptcy Code.

Exemption planning is one of the most important aspects of filing a bankruptcy petition but Bush and MBNA would have you believe that you don’t need an attorney. My question is this: Does President Bush prepare for his hearing before the SEC a bout insider dealing without attorneys? The Bush Bankruptcy Act would have you prepare your bankruptcy petition without an attorney. Do you think for one moment that if Bush were to file bankruptcy that he would prepare his court documents completely by himself?

A Chapter 7 bankruptcy petition takes 90 days from the date of filing in order to achieve a discharge of your debts. This discharge will cancel most debts like medical bills, personal loans, credit card debt, property judgments as a result of a car accident (but if you were under the influence of alcohol or drugs at the time of the accidents, these debts can not be discharged.) A discharge of debts in bankruptcy can eliminate debts as a result of a repossession of a car, loans in the form of payday loans, garnishments.

Income taxes can be discharged in bankruptcy if they meet requirements as follows:

  1. The tax is for income taxes
  2. The tax is more than 3 years old (determining the dates requires extra steps and you should use an experienced attorney for this process)
  3. Your tax returns have been filed
  4. The tax has been assessed for more than 245 days
  5. There is no fraud or taxpayer protest

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If my mortgage debt is discharged in bankruptcy, why do I have to pay on the mortgage after the bankruptcy?

The answer to this question is as follows: ‘liens pass through bankruptcy unless acted upon’ and there’s nothing in the bankruptcy code which allows you to attack a mortgage in Chapter 7 when it is secured. The personal obligation of the promissory note for the debt is discharged in Chapter 7 but the mortgage remains against the property.

If you don’t pay on the mortgage the bank can and will bring a foreclosure action against your home.

If you think of it for a moment, if anyone could file a Chapter 7 and not continue making their mortgage payment and keep their home, no one could get into the office of a bankruptcy attorney because the lines would go for miles. Further, the banking lobby would be in the emergency section of the hospital having burst a blood vessel to the heart.

Today now under the Bush Bankruptcy Code, there are complicated issues regarding ‘Reaffirming on a Debt’.

Essentially, the personal obligation for the promissory note which you signed at your home closing is discharged in bankruptcy. This liability is called ‘in personam’ or personal liability but the mortgage is considered an ‘in rem’ liability or ‘in the thing’ liability and a Chapter 7 bankruptcy does not affect this liability. ‘Liens pass through bankruptcy’ unless acted upon is the rule and a mortgage against a property is a lien or an ‘in rem’ liability.

Today before you can file a Chapter7 bankruptcy petition, you have to check that your income is not above the medium state income or if you are above the state medium income, do you still qualify for a Chapter 7 discharge of your debts.

If you don’t qualify for a Chapter 7 bankruptcy, then you will have to consider either Chapter 13 or Debt Negotiation.

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Do you qualify for a Chapter 7 Discharge?

You need a free consultation in or order to determine whether or not a Chapter 7 would work for you. Call us to schedule a free no commitment appointment. 860-449-1510

Even if you have no income or low income bankruptcy can be an important option. Or let’s say that you have little or no left after paying your ordinary and necessary expenses, or you rent or have little equity in your home, or have only ordinary assets such as household furniture and personal clothing , a Chapter 7 can be a good option.

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Under the new Bush Bankruptcy Act, you must obtain a Certificate of Credit Counseling.

President Bush spent 360 Million Dollars to become president. One of his top 10 contributors to his campaign was MBNA and it was MBNA and other credit card companies who introduced via their Republican cronies to Congress their ‘reform legislation’ to prevent bankruptcy abuse. Therefore, under the new law you must obtain a Certificate of Credit Counseling before you can file your bankruptcy petition.

The purpose of obtaining the Certificate of Counseling is
1) To put an obstacle to obtaining a ‘fresh start’.
2) Increase the cost of filing for bankruptcy by paying the credit counseling industry a fee for the Certificate
3) Try to prevent or divert you away from filing for bankruptcy. There are important considerations that you have to be aware before you obtain a Certificate of Credit Counseling and your attorney can advise and warn you about these considerations.

Remember, only an attorney has an obligation to represent your best interests. The Credit Counseling service has no obligation to represent you or duty to you. Please remember this.
Once you have obtained your Certificate of Credit Counseling, then your attorney can file your Chapter 7 petition. When your case is filed with the Bankruptcy Court, a Trustee is appointed to examine you, your petition and other related documents.

The automatic stay of the bankruptcy court.
Immediately after your petition is filed and today your petition is filed electronically with the Bankruptcy Court, the ‘automatic stay’ goes into effect. The U.S. Bankruptcy Court is a Federal Court and supersedes any state action against you.

All creditors, and garnishments and lawsuits and foreclosures are immediately and instantly ‘frozen’ or ‘stopped’ the nano-second your petition is electronically filed.

You don’t receive a discharge of your debts until 90 days after you have filed your bankruptcy petition and the Court waits an additional 10 days to determine if any creditor takes an appeal in your case. Therefore, after 100 days, the Court mails a Notice of Discharge to you, your attorney and all the creditors you listed in your bankruptcy petition. You have to be careful to follow the rules in order to receive a discharge of your debts.

Before you file your bankruptcy petition, you should not touch or use your credit cards at all for at least 6 months. You shouldn’t make balance transfers on your card or cards before you file for bankruptcy. And you are required to disclose all your assets in your bankruptcy petition. Failure to disclose your assets will expose you to criminal liability, namely, 5 years in Federal jail and fines.

You cannot conceal assets or destroy financial records. You can file for bankruptcy protection once every 8 years. Prior to Bush, you could file once every 6 years.

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Bankruptcy Exemptions are Important!

Your exemptions prevent the Trustee from taking your assets and selling them at a Court approved auction.

Usually, you can exempt your home, your car, furniture, clothing, cash, $18,450 in a personal injury claim, cash surrender value of $9,580 in the cash surrender value of a life insurance policy, potential Worker’s Compensation awards, social security awards. Your exemptions under the Federal Bankruptcy Code or the State’s Exemption Scheme is a tricky and important part of your bankruptcy.

Trustees will cause a liquidation of your property if they believe that taking into consideration your exemptions, they could make a significant payment to your creditors.

Reaffirmation Agreements and Keeping Your Secured Assets
The creditors have added a new wrinkle to obtain a ‘Fresh Start’. Before the Bush Bankruptcy, you had 4 ‘options’ regarding a secured debt. You could ‘Reaffirm, Surrender, Redeem or ‘Pay and Retain’. If you reaffirm on a debt, then you are personally liable for the debt and if the car gets into an accident and it’s ‘underwater’ ,namely, you owe more on the car than it’s worth, then you are liable for the difference.

When you ‘surrender’ a car, you know that it’s simply turning possession of the car to the finance company. You won’t owe any money with this scenario but you also won’t have your car. You can ‘redeem’ your car by paying off its present value but most consumers can’t get financing for this option. The ‘retain and pay’ option was a court created option and Bush and his credit card cronies have tried to eliminate this practical option for the consumer. You would simply pay for the car or you didn’t retain it under this option.

It’s fair and helpful to the consumer and, the finance company is treated fairly because they have to be paid. But President Bush and his corporate backers aren’t interested in fair treatment, they want unfair advantages.

A Certificate of Consumer Education
In order to obtain your Discharge of Debts, you must also complete a course in Consumer Financial Education. This is called your ‘Certificate Out of Bankruptcy’. You must take a course from an approved agency and the certificate of financial education must be filed with the Court before you can receive a discharge of your debts.

‘A Fresh Start’
As much as President Bush and his corporate backers have tried to eliminate ‘America’s Fresh Start’, they really haven’t succeeded to the degree they were striving.

The credit card industry is declaring that their efforts have been successful that fewer people are now filing for bankruptcy but they have taken no responsibility for pushing credit cards the way drug pushers market their drugs with free samples, lower introductory offers, waiving monthly payments, etc.

People are still receiving a ‘fresh start’ through a Chapter 7 bankruptcy and for you to learn more about obtaining a ‘fresh start’, Call 1(860) 449-1510 for a free and confidential consultation or you can use our on-line evaluation.

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Important points when filing a Chapter 7

A Chapter 7 typically takes 3 months in order to obtain a discharge of all you debts. But what are the Court requirements that one must complete in order to obtain this discharge?

You can only file a Chapter 7 once every 8 years but you can file a Chapter 13 Bankruptcy immediately after you have filed a Chapter 7 petition. The difference today is that if you filed for Chapter 7 within the last 8 years, you can’t obtain a discharge of your debts if you file a Chapter 13. You can reorganize your debts if you are trying to save your home but you can’t obtain a discharge of your debts.

If creditors are making your life miserable, you need a free and confidential consultation with an Attorney. Simply click on our Case Evaluation Form or call us: (860) 449-1510.

When you want to stop those harassing phone calls, wage attachments and law suits, relief is just a phone call away or just a click-away. I specialize in consumer bankruptcy law and can discuss with you both bankruptcy options and non-bankruptcy options such as Debt Negotiation or Debt Management.

Most consumers are not thinking about making ‘fraudulent transfers’ or ‘preference payments’ and these terms are really ‘technical’ in nature but can have a devastating effort on the filing of any bankruptcy petition.

For example, let’s say that your mother, father, brother, sister, aunt, grandmother or friend gave you a personal loan of $3,000 to see you over a bad spot. You receive your tax refund and pay them back and then file a Chapter 7 petition. The Bankruptcy Court allows the Trustee to treat this payment as a ‘preference’ or ‘fraudulent transfer’ (The Trustee is the one who examines your petition and yourself).

Upon discovering this information which you would have to reveal prior to filing your petition in your Statement of Financial Affairs (SOFA) which is part of your bankruptcy petition, the Trustee will most likely send a letter to that person to pay over to the Trustee that money.

And if the person doesn’t send the money, then the Trustee will file a Motion for Turnover of the Funds with the Court and under these facts, the motion will be granted. Meanwhile, you and your family are very upset with your attempt to obtain a ‘fresh start’.

Why would this payment to a family member be considered a preference? Because under the Bankruptcy Code all creditors have to be treated equally and you can ‘prefer’ one creditor over the other.

Residency Requirements:
You must have been a resident of the State for at least 180 days or the better part thereof before you can file a bankruptcy petition.

This has been interpreted to mean that if you lived in the State 91 days, you could file a Chapter 7 petition. Also, if your principal assets are located within the State, you can file a bankruptcy petition in the State where you principal assets are located.

One important trap to be aware is incurring new credit of $500 or more for ‘luxury goods or services’ (gambling is a ‘luxury service’) within 90 days prior to filing your bankruptcy petition, or if you obtain a cash advance in the amount of $750 within 70 days prior to filing, the debt will be presumed to be non-dischargeable.

When does your case start?
Today the U.S.Bankruptcy Court has 24/7/365 filing of bankruptcy petitions via electronic filing using a computer. The moment when your information is received by the Court’s computer is when your bankruptcy petition officially starts. It is at this moment of ‘electronic conception’ that the Court’s Automatic Stay comes into reality.

The ‘Automatic Stay’ prevents any creditor from calling you, writing to you, continuing with a lawsuit or foreclosure, attaching your property or wages, or using any means to collect on a debt.

What happens when the case is filed?
When your case is filed with the Court, a notice is generated. This notice is called the ‘341 Notice’ because under Section 341 of the Bankruptcy Coded it is entitled, ‘Meeting of Creditors and Security Holders’ .

Under this section of the Code, there has to be a public hearing before a Court appointed Trustee, where creditors will have the opportunity to ask you questions about your bankruptcy petition.

What happens at the 341 Meeting of Creditors?
First, the Hearing is held within 30 days of the filing of your petition. Usually, creditors do not appear at this Hearing to ask you any questions. Frankly, it can be a waste of time for the creditor.

However, sometimes a disgruntled landlord will appear or in the case of a photographer who has filed a Chapter 7 petition and has taken wedding photographs, all the wedding customers will be there demanding their photographs.

Usually, just the attorneys and their clients are there at the meeting.

The Trustee represents the creditors and the Trustees are very experienced in bankruptcy and unless there are exceptional circumstances, will do a better job representing the interests of the creditors than the creditors, themselves.

The Trustee will ask you a serious of questions which are standard questions but many Trustees like to throw in a ‘new twist’ of a question to keep everyone on their toes. I tell clients that the simplest most important question the Trustee ask is as follows:

1) Did you read the petition before you signed it?
You have to have taken the time prior to signing the petition to read it, page by page. If you answered, ‘No, I didn’t read it before I signed it’, your entire case would or could be rejected.

2) Did you list all of your assets?
You are required by the Code to list all of your assets. Now many people don’t think of ‘receivables’ as an asset. But they most certainly are assets. If someone has recently died and you could inherit money or other assets, this is a ‘potential receivable’ and must be listed in your petition.

It would be a serious mistake and cause huge problems if you didn’t list this potential asset. Also, you could have a personal injury case and the award from this case is also, a potential asset and must be disclosed in your petition.

If you were a contractor and installed a roof, and all that remained was that your customer owed you money, this is a ‘receivable’ and must be listed in your petition.

3) Did you list all of your debts and obligations?
You could have been in a car accident and not at fault and you should list this in your schedules as a ‘contingent liability’ and that you ‘dispute it’.

The failure to list all your creditors is a serious issue especially post-bankruptcy when the creditor claims that because you didn’t list the creditor, the debt is not discharged.

There are arguments against this creditor which you can use but nothing replaces the ‘slam dunk’ argument that you properly listed the creditor on your petition schedules.

4) Are you familiar with the contents of this document (sometimes the Trustee refers to the bankruptcy petition as an ‘instrument’ and I have had clients confused by this language)?
In your petition you list your income and expenses and you list more information about your financial background in ‘SOFA’ which is officially called, ‘Statement Of Financial Affairs’.

If you have lost money gambling, it is important to note this fact in SOFA because attorneys for the credit card company will jump on this omission as an attempt by yourself to conceal information.

You can file a ‘skeleton petition’ without all of your schedules but you will have 15 days to submit all of your schedules. However, there are dangers in rushing your filing because you can miss important points which can come back to haunt you.

After your petition is filed, the Court’s computer system will immediately assign a date for your Meeting with the Trust at the 341 Hearing. The Court will mail you a copy of this notice and I mail a copy to my client with specific instructions.

You have to file with the Court a Statement of Intention regarding your secured debts. As I have indicated before that you have 3 choices, namely, reaffirm the debt, surrender the property or redeem the property.

And before you reaffirm, it’s best to have a thorough discussion of the practical implications of any reaffirmation with an experienced attorney.

Once you have filed your Statement of Intention, you have 45 days to surrender or keep your property as you indicated.

You have to submit to the Trustee all the documents which he requires. These documents have to be submitted to the Trustee 10 days before the 341 Hearing and failure to deliver these documents within 10 days can result in a Motion to Dismiss your case.

The list of documents are as follows:

  1. All pay stubs in the 60 days prior to the filing of the petition.
  2. State and Federal tax returns for the 2 years prior to filing the petition.
  3. copy of recorded deeds- note, you have to supply the copy from the land records with the stamped volume and page and date.
  4. copy of recorded mortgages-from the land records.
  5. appraisal of real estate which is no more than 6 months old.
  6. monthly billing statements from mortgage companies and finance companies and these have to set-forth the monthly payments and the mortgage balance.
  7. divorce judgments.
  8. copies of trust agreements
  9. copies of statements regarding the cash surrender value of life insurance policies.
  10. Monthly billing statements from finance companies for any automobiles which will set-forth the monthly payment and the loan balance.
  11. Whatever documents the Trustee requests such as credit reports, bank statements, cancelled checks, etc.

Under President Bush’s Bankruptcy Code, a creditor can request a copy of your tax return. (So far I haven’t had this happen.)

Due to the fact that bankruptcy filings have been slow or have dropped in number, the 341 Hearings are being scheduled within approximately 20 days of filing the petition.

At the 341 Hearing it is imperative that you have 2 documents:

1) Your social security number- The Document has to have been issued by a government agency. Reproductions are not acceptable. Passports don’t have social security numbers. If you have lost your social security card, it’s a simple process to have it replaced by the social security office.

If you don’t have this document to present to the Trustee, your whole trip to the 341 Hearing is wasted because your case will not be heard.

2) Your Driver’s License- The address on your driver’s license should match the address on you bankruptcy petition. If you have moved, you have to have put the new address on the back of the driver’s license. The Trustee will usually check that your address on your driver’s license will match with your petition.

Consumers who are in the military have used their Military Ids at the 341 Hearing because they contain their social security number and are issued by the government.

The 341 Hearing is considered an informal hearing because you do not appear before a judge and you are not subjected to cross-examination.

The hearing is tape recorded and you will be under oath and you will be reminded that the Federal Bureau of Investigation will investigate bankruptcy crimes such as concealing or hiding assets.

You Hearing before the Trustee usually last 10 minutes and I have told many clients that it takes a full day to prepare a meals and only 15-20 minutes to consume it. Even though your time before the Trustee is relatively short in duration, the time spent in preparing your case is considerable.

Once you have had your 341 Hearing, the Trustee and any creditor has 30 days to object to any of your claim for exemptions.

After your 341 Meeting of Creditors, creditors have 60 days to object to your discharge of any debts.
The typical reason why creditors can object to your discharge are as follows:

  1. The debt was incurred as a result of fraud, embezzlement or larceny.
  2. Willful or malicious injury you have caused others.
  3. Accidents which involve drugs or alcohol.
  4. Concealment or destruction of property or financial records.
  5. False statements.
  6. Withholding information from the Trustee.
  7. Failure to explain losses or respond to questions.

If your Chapter 7 case proves to be an ‘asset case’ meaning that funds will be available to distribute to creditors than the Court will issue a notice that they have 90 days to file a Proof of Claim. A Proof of Claim is just that a written statement along with documentation that money is owed to the creditor.

Typically, the government will have 180 days to file a Proof of Claim if funds are available.

If creditors are driving you crazy, you need a free consultation on bankruptcy or alternatives to bankruptcy. I specialize in bankruptcy and non-bankruptcy solutions.

You can Call our Office at 860-449-1510. At our free consultation, I will put in writing what I would charge for your case and you can make monthly payments as low as $50 per month.

Many times people will put ‘their heads in the sand’ and just hope the problem goes away. It won’t Or they ‘Rob Peter to Pay Paul’ and even though that seems to work, I tell clients that the balloon can only expand so far and then it goes pop.

And then people work all the overtime they can get, or work a second job and simply ‘plow themselves into the ground’ trying to pay-off their debt.

If you have gone through the 3 of the 5 options to handling debt, then you are more than ready for a free confidential consultation.

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Cost of Filing Fees

The costs or fees which the bankruptcy charges have varied over the years. Since the fees are constantly changing you can click here and visit the U.S. Bankruptcy Court’s website. But here is a present summary:

Chapter 7 Filing Fee: $299

Chapter 13: Filing Fee: $274

Amendment Fee: $26 per amendment (when you omit a creditor and want to make certain that the creditor is added to your list of debts to be discharged.)

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Chapter 7 Means Test

First, what is the ‘means test’? Why is the ‘means test’ important? If you don’t pass the ‘means test’, then you will be diverted into a Chapter 13 bankruptcy which means that you will have to repay on your debts for 5 years before you can obtain a ‘fresh start’. Who dreamed or created this test?

The answer is political. Under the Clinton Administration, the ‘means test’ was constantly vetoed. However, under the Bush Administration which is seen as a corporate presidency versus a citizen’s presidency, it was signed into law. And when you look at the political record, it cost Bush over 360 Million Dollars to become president and one of the top 10 contributors to the Bush Presidency was MBNA, world’s largest credit card company.

MBNA has been lobbying Congress that consumers are abusing bankruptcy and that many consumers who could repay their debts, were getting away with ‘murder’ in the bankruptcy court.

So MNBA had its attorneys and accountants and lobbyists create legislation to stop this abuse and they christened the legislation, “Bankruptcy Abuse Prevention and Consumer Protection Act” of 2005 or BAPCPA.

I picture the scene from the Music Man where the good Congressman are told that they have ‘sin’ and the ‘sin’ is found in Bankruptcy and we’ve got to cure it because people have been abusing bankruptcy and the credit card industry is not making enough money.

They painted a picture of abuse and Congress like all centers for the production of fantasy (Disney Land, Hollywood, Ballywood, etc) was shocked and horrified to discover this supposed abuse.

Professor Elizabeth Warren of Harvard Law has done excellent surveys to prove that over 50% of all bankruptcies were caused by catastrophic health bills and this is with people who had health insurance. But under Bush Corporate Presidency, this was swept under the carpet.

For those of us who remember, there was at one time a ‘missile gap’ between the United States and the Soviet Union and because certain politicians were ‘soft’ on Communism, the security of the United States was threatened. And this supposed gap was very important in the Kennedy/Nixon debates.

But the truth was that at the time the U.S. had 20 missiles for every missile of the Soviet Union and the cynical politicians who frightened the nation knew of this gap but still they argued that we under-prepared and we could expect another Pearl Harbor.

People were frantic with this false news.

I submit, the same tactic has happened with the cynical title of our new bankruptcy code which indicates that there has been abuse in the bankruptcy court which must be prevented.

When the previous filings of bankruptcy are examined, you’ll be hard pressed to find abuse in the hundreds of thousands of filings under the old code bankruptcy code.

Most people are just thinking of President Bush and the war in Iraq and it’s not until they have to file for bankruptcy do they realize how corporate has been his presidency.

I have met ‘rock-ribbed’ Republicans and they were also bankruptcy attorneys who represent creditors and have said to me that President Bush has taken an incredibly ‘hard turn to the right’ that is just hurting the average working person. And they were and are totally shocked by what he has done with the Bankruptcy Code.

Since the Bankruptcy Code was not ‘broken’, then an excuse was needed to change the Code. And that excuse was that ‘people are abusing the code’ and we have to end abuse.

Essentially, the ‘means test’ is used to determine how much you should be able to re-pay on your debts. The test adopted by the Bankruptcy Code is very similar to the test which the IRS uses to determine how much per month you can afford to pay on your taxes.

That’s the origin of the test and details of how to determine what you can supposedly pay on your tax debt can be found by spending hours reading the IRS website.

Now this sounds more imposing than it really is. I explain to clients that the ‘means test’ is not a test to determine if you are a ‘mean person’ and kick dogs and infants.

Rather, if someone said that ‘Mr Smith is a man of ‘means’ indicates a person who has a certain standard of living. And that’s where you start to understand the ‘means test’.

The U.S. Trustee will first ask what your income has been in the last 180 days and then will double that income to determine your annualized income.

Then the U.S. Trustee will look at chart of the medium income on an annualized basis in your state. This chart is published and updated periodically on the U.S. Trustee’s website.

Visit the website at www.usdoj.gov/ust/.

You’ll come to ‘Census Bureau, IRS Data and Administrative Expenses Multipliers’.
Then click on ‘Go’. You will come to ‘Median Family Income in 2005 Inflation Adjusted Dollars Based on State/Territory and Family Size (CPI Adjusted in January, 2007)’

Click on this and you’ll finally arrive at a Chart showing the medium income.

But here’s a word of caution, just because you are above the State’s Medium Income, DOES NOT MEAN THAT YOU WILL BE UNABLE TO FILE A CHAPTER 7 BECAUSE YOU HAVE TO FIRST COMPLETE THE ‘LONG FORM’ OF THE ‘MEANS TEST’ to determine if you can rebut the presumption of abuse. I have had many cases where we have rebutted this presumption.

Now here’s something that is very important. I give clients this simple example: Let’s say that within the first 180 days of filing your petition, you earned $20,000 and then the next 180 days you earn $10,000. How much according to the ‘Means Test’ have you earned on an annualized basis?

Well, the answer depends on when you file your bankruptcy petition. If you filed your bankruptcy petition on 7/1, then according to the ‘Means Test’, your annual income will be $40,000 but if you file your bankruptcy petition on 1/01, then your annualized income will be $20,000. (Note: you take the last 180 days and double the income for the ‘means test’ purposes.)

So let’s review. If you file your bankruptcy petition on 7/1, your annualized income would have been $40,000 and if you filed on 1/1, your annualized income would been $20,000 and in reality, what you really grossed for the year was $30,000.

Most people receive a steady fixed income for the year and, therefore, this example wouldn’t apply to them but it would apply to a salesperson whose income can greatly fluctuate or someone who works at a power plant and experiences spikes in overtime income.

Or a police officer, who works considerable overtime during one part of the year as opposed to another. Actually, it could apply to almost anyone. And you have to remember that the ‘means test’ is not truly a ‘test of reality’ but rather an artificial test which has been ultimately developed by the IRS and borrowed by the Bankruptcy Code.

Next, in order to do the calculations for the ‘means test’, it’s of critical importance to determine how many people are in your family. You may think should be easy to determine. But it isn’t. Let me give you some examples. Husband and wife are divorced and have 3 children. In the even numbered years the husband deducts from his tax return 2 dependents and wife deducts 1 dependent.

Than in the odd numbered years, wife takes 2 dependents as a deduction and husband take 1 dependent as a deduction. So purposes of the ‘means test’, how many dependents does the husband or wife have? Since there are no cases to which to refer at present, the answer is really unknown. Plan.

The rules as who is a dependent for the IRS purposes is constantly changing because the traditional view of the family is changing in our society. Presently, I am arguing that a person who is not a blood relative and has no traditional basis for being a dependent, will be claimed as a dependent for the ‘means tests’ purposes and on their tax return when it is filed.

We have consulted with an experienced CPA on this issue. And when you look at the U.S. Trustee’s Chart, you will see how important dependents are in calculating your income for the ‘means test’.

If you are under the medium income for a family of your size in your state, then you don’t have to complete the ‘long form’ of the ‘Means Test’. However, even if you are over the medium income for a family of your size, YOU CAN STILL PASS THE ‘MEANS TEST’.

You will have to complete ‘the long form’ of the ‘means test’ but if you have expenses which can used in your case, then it’s possible that you will still pass the ‘means test’.

Essentially, you need someone who is experienced in completing this form in order to determine whether or not the ‘means test’ is a barrier to your ‘fresh start’.

I can state that I have had many clients who were above the state’s medium income and I still was able to put their Chapter 7 through the bankruptcy court without being diverted into a 5 year repayment in a Chapter 13.

The ‘Means Test’ in a nutshell:

1) If your annualized income is below your state’s medium income taking into account the number of people in your family, then you pass the ‘means test’.

However, like everything in the law there’s a ‘however’ because the U.S. Trustee can still use a theory called ‘the totality of circumstances’ which would hold that even if you passed the ‘means test’ that under the ‘totality of your circumstances’, the U.S. Trustee could still object to your use of a Chapter 7 and try to convert you to a 5 year debt repayment plan in Chapter 13.

‘The Totality of the Circumstances’ is really a second bite at the apple because it uses the old standard as to whether or not the line item expenses in Schedule J of your bankruptcy are ‘ordinary and necessary’.

There are many websites which will inform you that once you pass the ‘means test’, it’s a slam dunk with your bankruptcy petition. I submit that it’s not that simple. And yes, there have been excellent law review articles on the ‘totality of the circumstances test, but it’s there like a huge shark quietly patrolling the shore.

2) Once you have completed the long-form of the ‘means test’, if your disposable income over a 5 year period is below $6,000, the presumption of abuse using the ‘means test’ does not exist.

To arrive at the conclusion that your disposable income over a 5 year period is below $6,000 you have to complete a detailed document called, Official Form 22A, and you have to list every expense you have to live and justify that expense against the IRS standards for collection.

3) If you complete the long-form of the ‘Means Test’ (Official Form 22A), and you discover that your disposable income is above $10,000 per year or ($166.66 per month for 60 months or 5 years), the presumption of abuse arises and can only be rebutted by showing ‘special circumstances’.

Therefore, you have to use a Chapter 13 bankruptcy petition which will mean that for 60 months you will be paying at least $166.66 per month on your credit card debt. (Really, you’d be paying $166.66 per month on all general unsecured claims which can include back rent, medical bills, personal loans, car repossession debts, etc.)

(Politics aside – You cannot go to jail for owing a debt. Debtors’ Prison with iron bars has been abolished. But a Corporate Presidency can bring you the ‘plastic bars’ of Chapter 13. Otherwise, you are open game for the creditors.)

4) And finally, if your disposable income under the ‘means test’ is between $6,000-$10,000 and when you multiple 25% times the total of your general non-priority unsecured debt and your monthly disposable income could pay 25% of your unsecured debt then the presumption of abuse arises and you have to file a Chapter 13.

For example, let’s say that under the ‘means test’, you had $90.00 per month in excess income and you had $15,000 in general unsecured debt. What would be the results. (Assuming general unsecured debt of $15,000 x .25= $3,750.00) Now take $90 x 60 months=$5,400 and $5,400 is greater than 25% of your unsecured debt) Therefore, without special circumstances (no one really knows what this is yet), you can’t file a Chapter 7 petition.

If you have to file a Chapter 13 and are not trying to save your home from foreclosure, then it is imperative that you have a Free and confidential consultation.

Call our Office at  860-449-1510 to determine what are your best options to obtaining a ‘fresh start’.

There are alternative options to a Chapter 13 credit card repayment plan and that would involve an analysis and discussion of Debt Management and Debt Settlement options. There are pro’s and con’s for these options which an experienced and professional consumer bankruptcy attorney like myself can explain to you in everyday language.

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