DEBTOR’S DILEMMA

Do You Qualify to File Chapter 7 Bankruptcy?

Not everybody can, do you?

In 2005, the Republican Congress and President Bush passed sweeping new changes in the US. Bankruptcy Laws. Under the old rules, just about anyone who wanted to file Chapter 7 Bankruptcy in New York could do so no matter what their income was.

The new law set income caps on those who qualify. The debtor’s income must be at or below the mean income. The US Bureau of Labor Statistics issues annual schedules of mean income by region and city, and family size.

The mean income for an individual, living alone in New York City is approximately $46,000, whereas the mean income for a family of four (4) living in Long Island is approximately $82,000.

If your income is above the mean income, you could still pass the “Means Test”, and could qualify under Chapter 7 bankruptcy.

The “Means Test” is a 12 page form. You list both your monthly income and “necessary and deductible” monthly expenses over a six (6) months period. If your “qualifying” overall “expenses” exceed the mean “expenses”, then you could and will “pass” the Means Test with an elevated income.

Not all “expenses” are acceptable in the means test calculation. For example, you may not include income support payments for an elderly parent, not living in your household, or non-court order child support, or expenses that are deemed non- essential or luxury items.

However, “high” rent or mortgage payments, student loan payments, child education expense and any medical expenses for members of the household are acceptable.

An experienced bankruptcy lawyer or paralegal will know how to include all acceptable “expense” to ensure that a debtor who “legally” qualifies under the new rules will pass the “Means Test”, even if that individual has a “high” income. Do not be discouraged, you may qualify for Chapter 7 Bankruptcy in New York even with your present income. After all, most people who are considering bankruptcy have expenses that exceed their income.

For any assistance in this regard, please contact Jeffrey Weinstein Bankruptcy Attorney, on 212-693-3737

Five Biggest Fears of Bankruptcy

After interviewing hundreds of individuals contemplating file for bankruptcy in New York, I have collected a list of the biggest fears of filing. The good news is that in a vast majority of cases these fears are unwarranted.

The top five (5) lists include:

  1. Fear of losing one’s job.
  2. Fear of destroying one’s credit for seven (7) years.
  3. Fear of harming the credit of the non – filing spouse.
  4. Fear that bankruptcy will make a debtor ineligible of qualifying for a student loan in the future.
  5. Fear that one will never be able to buy a house if he files for bankruptcy.

I. Clearly, the loss of a job or harming one’s chances of getting a new job is the fear most frequently cited. With few exceptions, one need not be concerned about losing a job due to filing a bankruptcy. Chances are your employers will never know you filed for bankruptcy.

The exception is if you are currently having your wages garnished by your employer. Since filing bankruptcy will stop the garnishment, your employer must be notified to stop the program.

As for a bankruptcy disqualifying a job applicant, most employers do not care if you filed for bankruptcy. The exception is if an applicant is seeking a position in the financial advisory or banking industry. In these industries, the applicant’s credit rating may be a concern, and a bankruptcy may hinder one’s chances.

II. The second most frequently cited concern is how bankruptcy will affect one’s credit in the future. Today bankruptcy will only impact your credit for a short term. twenty years ago if someone filed for bankruptcy, banks would blacklist a borrower for seven (7) years. Today, the primary focus is on one’s credit score. After being discharged from bankruptcy, the debtor can take steps to rehabilitate his/her credit score. By paying all bills on time, avoiding late payments and charge backs, overtime a debtor can significantly improved his/her credit score to an acceptable level. If you take an aggressive approach, the restoration of your credit can be achieved in no more than one to three years, but certainly less than seven years.

III. Many debtors expressed concern that their spouse with good credit could be hurt by the debtor filing bankruptcy. Again, not true. As long as the spouse of debtor filing bankruptcy is not a co – debtor, the filing will not impact on her credit rating. However, if the spouse is a co – debtor, 100% of the obligation of the debt will fall on the shoulders of the non – filing spouse.

IV. How will filing affect the ability of the debtor to obtain student loans in the future? The ability to obtain student loan post – filing bankruptcy will depend upon the financial institution, as there is no set policy.

Student loans are not dischargeable in bankruptcy. Thus many banks are not concerned if a debtor filed bankruptcy. However, even with government issued loans, the student will have to submit a credit report. If the applicant’s credit score is below the acceptable range, the application may be rejected. Due to the uncertainty and varied policies among loan issuing banks, I suggest not filing bankruptcy, if you can avoid it, if you plan to seek a student loan in the near future.

V. The fifth most frequently note of concern is the fear of is not being able to buy a home post filing. A bankruptcy in your credit history is no longer a fear bar for obtaining a mortgage. Today credit scores rule. Anyone with sufficient income and a satisfactory credit score over 680 will likely be approved for a home mortgage. I have seen many people who have filed bankruptcy obtain a bank mortgage within one – two years after their bankruptcy has been discharged.

In conclusion, for those considering filing for bankruptcy, and have fears of the consequences, you should contact your bankruptcy attorney. You may find your fears unfounded. Perhaps bankruptcy is the best solution for you.

For more information email me at j.weinstein@jlwlawoffices.com or call me at 212-693-3737