The Bankruptcy Means Test

Posted on May 23, 2013 by Staff Writer

Back in 2005, President George W. Bush signed a new bill into law on October 17^th. It was the Bankruptcy Abuse Prevention and Consumer Protection Act and changed the ways that bankruptcies are managed in the United States. One way is by compelling filers to receive certified credit counseling as a step to securing a bankruptcy. Another way that the bankruptcy process has been changed is by creating a “means test” to qualify for bankruptcy.

This “means test” is necessary because of differences between Chapter 7 and Chapter 13 bankruptcy. Chapter 7 is also known as a liquidation bankruptcy because it discharges most debts through the sale of a debtor’s assets. Chapter 13, on the other hand, is a reorganization of debts. It allows you to keep most of your assets but sets up a repayment plan which lasts up to 5 years.

To qualify for a Chapter 7 bankruptcy, one important form that must be filled out is the “means test”. It is one of the ways to qualify for a liquidation bankruptcy. The “means test” reviews your current monthly income to see if you are able to repay your creditors in a Chapter 13 bankruptcy. If you can’t, then you are eligible to file for a Chapter 7 bankruptcy.

Current monthly income is an average of the six months leading up to your filing consisting of complete calendar months. This is all income from work, insurance, unemployment compensation, interest, and other forms of money earned. It is not including payments that were earned from previous months but paid in the six month period.

This will provide an accurate picture of your household income, which will be reviewed in two different ways. If your monthly income is below the median income for the same size household in your state, you qualify for a Chapter 7 bankruptcy. If it does exceed the median income, the rest of the “means test” will see if you have enough “disposable income” to repay your bills. For more information about bankruptcy or to file, contact an experienced bankruptcy attorney in Phoenix today.

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The Bankruptcy which Stops Mortgage Foreclosure

Posted on September 8, 2012 by Staff Writer

If you miss a mortgage payment, you may be starting a scary process. Your lender will start reaching out to you to get you back up to date with your payments, so that you can stay at your house. When there are no reasonable options left to your lender, the foreclosure or trustee sale process may be started. It is a scary but very valid reality for many people across the USA. Just because a lender doesn’t have any other options but to start the foreclosure process doesn’t mean that you don’t have any other options to keep your house.

Your first option is to file for a Chapter 7 bankruptcy, which is the type of bankruptcy when your assets and possessions are used to pay for your debts. When a Chapter 7 bankruptcy is filed, it puts a hold on any action that a trustee may start. Though it is only a temporary means to keep your house, because the bank or mortgage company can file for a Motion To Lift Stay. There are certain cases, such as failure to keep up with mortgage payments, when a court will grant such a motion which can allow the bank or mortgage company to continue their debt collection actions. You will have to try to make arrangements to pay any outstanding balance in order to circumvent this Motion To Lift Stay. This process can last between 30 and 60 days after the bankruptcy is filed.

Your second option is to file for a Chapter 13 bankruptcy, which is when you can make smaller payments to erase your debts with your disposable income. With the filing of this type of bankruptcy, you can make the mortgage company or bank accept smaller payments in order to stay in your house. Only a portion of the debt is paid back for the duration of the Chapter 13 bankruptcy, which is around 3 to 5 years. The mortgage company or bank has no way of stopping the bankruptcy process with a Motion To Lift Stay, as long as the payments are made monthly.

If you have been considering filing for bankruptcy to keep your home, it may be time to seek out help. There are many intricacies to consider when making such a decision so it is important to have the best advice while trying to secure your financial future. Don’t wait too long before contacting an experienced bankruptcy attorney in Tucson, because it is essential to receive support through this difficult time in your life.

Chapter 7 vs. Chapter 13 Bankruptcies in Arizona Filings

Posted on August 26, 2012 by Staff Writer

Bankruptcy is a federal court process designed to help consumers and businesses eliminate their debts or repay them under the protection of the bankruptcy court. Bankruptcies can generally be described as “liquidation” (Chapter 7) or “reorganization” (Chapter 13). Under a Chapter 7 bankruptcy, you ask the bankruptcy court to wipe out (discharge) the debts you owe. Under a Chapter 13 bankruptcy, you file a plan with the bankruptcy court proposing how you will repay your creditors. You must repay some debts in full; others may be repaid only partially or not at all, depending on what you can afford.

When you file either kind of bankruptcy, a court order called an “automatic stay” goes into effect. The automatic stay prohibits most creditors from taking any action to collect the debts you owe them unless the bankruptcy court lifts the stay and lets the creditor proceed with collections.

Certain debts cannot be discharged in bankruptcy; you will continue to owe them just as if you had never filed for bankruptcy. These debts include back child support, alimony, and certain kinds of tax debts. Student loans will not be discharged unless you can show that repaying the debt would be an undue burden, which is a very tough standard to meet. And other types of debts might not be discharged if a creditor convinces the court that the debt should survive your bankruptcy.

If you are thinking of either Chapter 7 or Chapter 13 bankruptcy, there is no substitute for real legal advice from an experienced Arizona bankruptcy attorney. When filing for bankruptcy in Arizona, it is critical to seek guidance from an experienced and caring Arizona bankruptcy attorney who can guide you through the process and give personalized advice on your Arizona bankruptcy case.

Can my Vehicle Loan be Reduced in Bankruptcy?

Posted on August 10, 2012 by Staff Writer

Bankruptcy provides many options relating to vehicle loans. But to back up a bit, please remember that you should have little to no problem retaining a vehicle in your bankruptcy, as this is a commonly asked question too; bankruptcy laws do not force debtors to surrender their vehicle(s). There may be situations where surrendering a vehicle will be a positive option, but it is never required.

If a debtor chooses to file a chapter 7 liquidation bankruptcy, then the debtor can choose to either reaffirm or redeem his or her vehicle loan. Bankruptcy laws are specific that a debtor’s vehicle loan must be either reaffirmed or redeemed in order for the debtor to be able to retain the vehicle after the bankruptcy. A reaffirmation is a written agreement, with the lender, thereby pledging to continue paying the note even though and after the bankruptcy is concluded. Vehicle lender’s may or may not agree to modify the terms of the loan through the reaffirmation process. Generally, lenders will not agree to change the terms if the vehicle is fairly new with relatively low mileage. However, if the car is older with high miles, then the lender will be receptive to lowering the principal and/or the interest rate through a reaffirmation agreement.

The second option a debtor has is to redeem the vehicle. The redemption process is a little bit more complicated than reaffirmations. By redeeming a vehicle, the debtor is able to purchase the vehicle for the actual value of the vehicle, rather than what is still owed on the vehicle loan. For example, if you own a vehicle with a $10,000 balance left on the loan, but the car is only worth $5,000, you would have the opportunity of buying it directly for $5,000. Now, most debtors do not have the ability of paying for the car outright, but there are several companies that will refinance the redemption amount (but please keep in mind that these companies generally charge a very high interest rate (up to 25%)). So you will need to make sure that the redemption, if financed, is worthwhile for you as compared to simply just reaffirming the vehicle loan.

The last option available to reducing a vehicle loan in a bankruptcy, involves what is commonly called a “cram down” in a ch. 13 filing. As opposed to a ch. 7, a ch. 13 involves making monthly payments to your creditors from 3 to 5 years. But one of the benefits of filing a ch. 13, is the ability to cram down certain secured debts to the actual value of the collateral (very similar to a redemption in a ch. 7.) However, the debtor must have owned/financed the vehicle for at least 910 days prior to the filing of the bankruptcy in order to be eligible to cram down the vehicle loan. The benefit of the cram down vs. the redemption is that the interest rate is significantly better through the cram down (generally around 5.25%, as opposed to the 25% in a redemption). Further, the debtor has the ability to refinance the vehicle directly through his or her chapter 13 bankruptcy plan, rather than refinancing it with another finance company.

Chapter 7 vs. Chapter 13 Bankruptcies and What They Do For You

Posted on June 6, 2012 by Staff Writer

If you are considering either Chapter 7 or Chapter 13 bankruptcy, there is no substitute for real legal advice from an experienced Arizona bankruptcy attorney. When filing for bankruptcy in Arizona, it is critical to seek guidance from an experienced and caring Arizona bankruptcy attorney who can guide you through the process and give personalized advice on your Arizona bankruptcy case.