Chapter 7 bankruptcy cases “discharge” or release a debtor from many - but not all - types of debt.

A discharged debt, as I have explained in other posts on the NY Bankruptcy Blog (check out “Bankruptcy Basics: What Is a Chapter 7 Bankruptcy And How Does It Work?”), is a debt that the debtor does not have to pay, and creditors can no longer attempt to collect. If you have been struggling with debt collection services, you can imagine what a relief a Chapter 7 discharge can be.

What exactly are ‘dischargeable’ debts?

All debts of any type or amount, including out-of-state debts, are dischargeable in a Chapter 7 case EXCEPT for certain types of debts determined by law to be nondischargeable in a Chapter 7 case.

The following 10 types of debt are the MOST COMMON debts that are NOT DISCHARGEABLE in a Chapter 7 case:

1. Most tax debts and debts that were incurred to pay nondischargeable federal tax debts.
2. Debts for obtaining money, property, services, or credit by means of false pretenses, fraud, or a false financial statement, if the creditor files a complaint in the bankruptcy case.
3. Debts not listed on the debtor’s Chapter 7 forms, unless the creditor knew of the bankruptcy case in time to file a claim.
4. Debts for fraud, embezzlement, or larceny, if the creditor files a complaint in the bankruptcy case.
5. Debts for domestic support obligations, which include debts for alimony, maintenance, or support, and certain other divorce-related debts, including property settlement debts.
6. Debts for intentional or malicious injury to the person or property of another, if the creditor files a complaint in the bankruptcy case.
7. Debts for certain fines or penalties.
8. Debts for most educational benefits and student loans, unless a court finds that not discharging the debt would impose an undue hardship on the debtor and his or her dependents.
   
9. Debts for personal injury or death caused by the debtor’s operation of a motor vehicle, vessel or aircraft while intoxicated.
10. Debts that were or could have been listed in a previous bankruptcy case of the debtor in which the debtor did not receive a discharge.

It is important to me to clarify the process of filing a Chapter 7 case for my blog readers. As you can see, however, the regulations are lengthy and complicated!

I am more than willing to explain the finer points of Chapter 7 FAQs. Just contact me for more particulars - I am happy to answer your questions.

Thanks for reading,

Matt
___________________________________
Matt Hughson

New York Bankruptcy Lawyer

Ziff Law Firm, LLP
303 William St., Elmira, NY 14901
Tel: (607) 733-8866
Fax: (607) 732-6062
Toll Free: 1-800-943-3529
Email: mhughson@zifflaw.com
Web: http://www.zifflaw.com

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In a previous blog post, “Bankruptcy Basics: What is Chapter 7 Bankruptcy and How Does It Work?” I began to explain the details of filing bankruptcy according to Chapter 7 of the federal Bankruptcy Code. This type of filing, Chapter 7, has compelling advantages to offer debtors, including a resolution to ongoing debt claims if certain criteria are met. “Means testing” is part of the process of establishing eligibility, and I am going to explain what it is.

Do you have the ‘means’ to pay off debt?

Means testing is a method of determining a person’s eligibility to maintain a Chapter 7 case.

A person whose annualized current monthly income from all sources exceeds the median annual income, as reported by the U.S. Census Bureau, for the person’s state and family size, must show that he or she is not able to pay a minimum of $100 per month for 60 months to his or her unsecured creditors from his or her disposable monthly income.

Let me restate that in overly simplistic terms: In order to be eligible to maintain a Chapter 7 case, you must show that you cannot spare $100 a month to pay off debt.

Of course the specifics are very important. As I mentioned, your income level, family circumstances, place of residence are all analyzed and play a part in determining eligibility.

Disposable monthly income is a person’s current monthly income from all sources, minus PERMITTED current monthly expenses.

What happens if you don’t meet the benchmark? The Chapter 7 case of a person whose disposable monthly income is such that he or she is deemed to be able to pay $100 per month or more to unsecured creditors for 60 months will be dismissed or converted to Chapter 13 (unless special circumstances exist, a state of affairs I will explain in other FAQ posts).

How is means testing conducted?

Every person who files a Chapter 7 case must file a document called the Statement of Current Monthly Income and Means Test Calculation.

This document, when completed and filed, is a record of a person’s current monthly income and the current monthly expenses that he or she is allowed to claim. A person may also be questioned about income and expenses at a meeting with creditors.

From these sources, a debtor’s current monthly disposable income is calculated. This figure is then used to determine the amount of the monthly payment that the person can afford to make to his or her unsecured creditors. If the amount of this monthly payment is above a certain figure (usually $100), the person will almost always be disqualified from maintaining a Chapter 7 case.

What happens if means testing finds that you are ineligible to file for Chapter 7? If you file, but do not meet the criteria, you are said to have “abused” the Chapter 7 laws. In my next blog post, I will explain the term presumption of abuse and what it means for those who file for Chapter 7 but do not meet the conditions.

Thanks for reading and let me know if you have any questions,
Matt
___________________________________

Matt Hughson

New York Bankruptcy Lawyer

Ziff Law Firm, LLP
303 William St., Elmira, NY 14901
Tel: (607) 733-8866
Fax: (607) 732-6062
Toll Free: 1-800-943-3529
Email: mhughson@zifflaw.com
Web: http://www.zifflaw.com

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As an experienced bankruptcy attorney in New York and Pennsylvania, I have helped many clients settle insolvency. The rules and conditions for filing bankruptcy are not simple to grasp, especially if you are already suffering stress from financial worries.

The first step on the path to a satisfying resolution is to understand some of the options available. In this NY Bankruptcy Blog, I hope to demystify some of the complicated concepts in this branch of law. This post is the first in a series explaining Chapter 7 bankruptcy. I hope it will help you understand your options.

What is Chapter 7?

The Bankruptcy Code is a federal law that deals with bankruptcy. Chapter 7 is that part (or chapter) of the Bankruptcy Code that deals with liquidation of assets to relieve debt.

A person who files a Chapter 7 case is called a “debtor.” In a Chapter 7 case, the debtor must turn his or her non-exempt property, if any exists, over to a trustee, who then converts the property to cash and pays the debtor’s creditors. In return, the debtor may - if conditions are met - receive a Chapter 7 discharge. The conditions include payment of a filing fee, eligibility for the discharge, and obedience to the orders and rules of the bankruptcy court.

More about how to get a Chapter 7 discharge

The discharge is very important. It is a court order releasing a debtor from all of his or her dischargeable debts and ordering that the creditors not to  attempt to collect them. A debt that is “discharged” is a debt that the debtor is released from and does not have to pay.

You must file, maintain and be eligible for a Chapter 7 bankruptcy to obtain a Chapter 7 discharge.

NOT ALL debts are discharged by a Chapter 7 discharge. By law, some particular types of debts are not dischargeable under Chapter 7 - EVEN IF the debtor receives a Chapter 7 discharge.

Who is permitted to file and  maintain a Chapter 7 case?

Any person who resides in, does business in, or has property in the United States is permitted to file a Chapter 7 bankruptcy case. The exception would be a person who has intentionally dismissed a prior bankruptcy case within the last 180 days.

To be permitted to maintain a Chapter 7 bankruptcy case, a person must qualify for Chapter 7 relief, under a process called “means testing.” I will explain means testing in my next post here on the NY Bankruptcy Blog.

Thanks for reading and let me know if you have any questions,

Matt
__________________________________

Matt Hughson

New York Bankruptcy Lawyer

Ziff Law Firm, LLP
303 William St., Elmira, NY 14901
Tel: (607) 733-8866
Fax: (607) 732-6062
Toll Free: 1-800-943-3529
Email: mhughson@zifflaw.com
Web: http://www.zifflaw.com

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I recently read an article in Consumer Bankruptcy News that reported that the ‘New’ bankruptcy law enacted by Congress in 2005 had increased the number of foreclosures.  The increase in foreclosures is almost entirely responsible for the economic mess that the country is in today.

Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.  After carefully reviewing the new law, I concluded that there was nothing resembling ‘consumer protection’ at all in the law, but rather that the Act was drafted for the sole purpose of making it more difficult and expensive for working individuals to file bankruptcy.  In my opinion, the new law appeared not to have been drafted by Congress, but by attorneys for the credit industry.  I expected this new law to be nothing but trouble.  According to this recent study, my fears were well founded.

The study asked whether changes in the bankruptcy laws contributed to the current foreclosure crisis.  U.S. Treasury economist David Bernstein and others believe the answer is YES.  The study, conducted independently of the government, suggests that there are two ways that the new bankruptcy law may have increased foreclosures:

1.  The increased costs and complexities of the new laws may have encouraged some homeowners to walk away from their houses and mortgages, rather than trying to save them in a Chapter 13 bankruptcy. With this, I certainly agree.  In my opinion, the only thing that the new law accomplished is to make it much more difficult and expensive for ordinary Americans to seek bankruptcy relief.

2.  The more stringent payment terms under Chapter 13 may have increased the number of homeowners with large payment obligations that they could not meet. Again I agree.  Increased payments to the credit card companies, less money to pay your mortgage.

So, it looks like the government did a poor job a trying to fix a perceived problem, creating a bigger mess.  I for one will be encouraging the new Administration and Congress to make consumer friendly amendments to the bankruptcy code, such as allowing homeowners to modify their mortgages in a Chapter 13 in order to save their homes.  More on that in blogs to follow.

Matt Hughson, Zifflaw Bankruptcy Attorney

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