Call Today for a FREE Consultation
210-342-3400
Recent Blog Posts
The Option of Severing Your Chapter 13 Case from Your Spouse
When deciding to file a Chapter 13 jointly with your spouse, realize that you can split that case later into two cases if you get divorced.
A Chapter 13 “adjustment of debts” case usually lasts three to five years, and a lot can happen in that time. It is not likely worth filing jointly with your spouse if you already believe your marriage won’t last that long. Chapter 13 provides much relief. It can even help your marriage because of the financial pressure it can relieve. But the two of you still very much need to be on the same page to make it work.
You can believe in the stability of your marriage but you’d still be wise to want to know what happens to your Chapter 13 case if things don’t work out between the two of you.
Dismissal and Converting to Chapter 7
In the last two blog posts we’ve covered voluntarily dismissing your case, and converting it into a Chapter 7 one. Those two ways to end a Chapter 13 case may be appropriate if your marriage is ending.
Your Voluntary Dismissal of a Chapter 13 Case
The Bankruptcy Code explicitly says that, at the request of the person in a Chapter 13 case, the bankruptcy “court shall dismiss” the case.
The last three blog posts have been about amending, or “modifying,” your Chapter 13 payment plan. But what if you don’t want to be in the Chapter 13 case at all? Can you just end it altogether?
Yes, almost always you can end a Chapter 13 case, by getting it “dismissed.”.
A Clearly Stated, Special Right
You can dismiss a Chapter 13 case easily because the Bankruptcy Code says you can, and says so very clearly:
On request of the debtor at any time... the [bankruptcy] court shall dismiss a case under this chapter [13].
(Section 1307(b) of the Bankruptcy Code.)
Two parts of this deserve to be highlighted:
- You can ask for a dismissal “at any time”—at any point in the life of a Chapter 13 case. So you can dismiss it soon after filing, if you realize you’ve made a mistake and change your mind. And you can dismiss your case after your payment plan has been approved by the court, for example, if your circumstances change and you don’t want to be in it any more.
Using the Co-Debtor Stay of Chapter 13
If protecting your co-debtor from having to pay your debt is a high priority, Chapter 13 has a remarkable tool for doing that.
Chapter 7 Doesn’t Always Help
Our last blog post was about helping your co-signer through a Chapter 7 “straight bankruptcy” case. You discharge (legally write off) most or all your other debts. Then you may be able to afford to make payments on your co-signed debt.
But that doesn’t always work. What if:
- discharging your other debts still does not leave you enough money to make the monthly payments on the co-signed debt?
- you have other debts that you would continue to owe after a Chapter 7 bankruptcy—recent taxes, child support arrearage, non-support divorce debt, student loans—leaving you unable to pay your co-signed debt?
- you are behind on the co-signed debt and can’t afford to catch up on the missed payments right away?
Surrendering Your Vehicle in a Chapter 7 Case
If you’re buying a vehicle, sometimes getting out of the contract is your best option. Chapter 7 lets you do that, owing nothing.
“Reaffirming” Your Vehicle Loan
Our last blog post was about keeping your vehicle in a Chapter 7 “straight bankruptcy” by reaffirming the vehicle loan. If you are current on the loan/lease and can afford the payments after bankruptcy, reaffirming may make sense.
But sometimes it isn’t your best option. Bankruptcy also gives you an extraordinary opportunity to get out of your vehicle contract and its debt.
Even if you think you should keep your vehicle, consider the advantages of surrendering your vehicle during a Chapter 7 case.
Your Opportunity to Escape the Debt on the Vehicle Loan
Consider 3 scenarios:
- You may regret having made the purchase. You might have been talked into it by a pushy salesperson. You may have been surprised when you qualified for the credit and figured that you should grab the opportunity. But you’ve known for a while that it was a mistake. Bankruptcy is your chance to undo the mistake.
A Simple Example of Passing the Means Test
We show by example how the means test works, when a person qualifies for a Chapter 7 case simply by income.
An Example is Worth a Thousand Words
You have to pass the means test to qualify for a Chapter 7 “straight bankruptcy. In a recent blog post we said that the easiest way to pass the means test is by your income. If your income is low enough you pass without having to look at your allowed expenses or special circumstances. Let’s see how this works by way of an example.
Our Example—The Facts
Jeremy and Allison need bankruptcy relief. Their bankruptcy lawyer has recommended that they file a Chapter 7 case based on their circumstances. They have decided to do so.
They are both employed and get paychecks twice a month, on the 1st and 15th of the month. Jeremy has a gross income of $2,750 per month and Allison $3,250 per month.
Household Size Really Matters for Passing the Means Test
You can have more income for the purpose of passing the means test as your household size increases. But what IS your household’s size?
Household Size in the Means Test
When introducing the means test a week ago we showed how passing that test often depends on your income. You start by comparing your income to the median income amount for your family size in your state. As your family size increases you can have more income and still pass the means test.
For many people the size of their household is obvious. But not for everybody. Today’s blog post gets into how to figure out the size of your household when it isn’t obvious.
Where to Find the Definition of Household
The federal Bankruptcy Code does not provide a definition of household or how to determine its size.
The U.S. Trustee points us in the right direction. (That’s part of the U.S. Department of Justice which Congress tasked with enforcing the means test.) The U.S. Trustee has put out a “Statement of the U.S. Trustee’s Position on Legal Issues Arising under the Chapter 7 Means Test.” This Statement states:
No Means Test If You Fit within a Military Exemption
There are two military-related exemptions from the Chapter 7 means test. They are narrow but if you qualify that can be a major advantage.
The Benefit of Avoiding the Means Test
We introduced the “means test” two blog posts ago. This test determines whether you qualify for a Chapter 7 “straight bankruptcy” or instead must do a Chapter 13 “adjustment of debts” case. It’s based on your income, or if your income is not low enough your expenses play a part as well.
Although most people who want to file under Chapter 7 could pass the means test, not everybody could. For them being able to skip the means test can be a very big deal. A Chapter 13 case requires you to pay your debts to the extent your budget allows for a period of 3 to 5 years. In great contrast, a Chapter 7 case usually “discharges” (legally writes off) most debts without you paying anything. And the cases usually only last about 4 months.
Example of a Simple Chapter 7 "Asset Case"
Chapter 7 "asset" cases may sound scary. They needn’t be. We walk you through a very straightforward example to demystify this.
Asset and No-Asset Chapter 7 Cases
Our last blog post discussed the difference between a no-asset and asset Chapter 7 case. Simply put, in a no-asset case everything you own is covered and protected by available property exemptions. So your trustee takes nothing from you. In contrast, in an asset case, something you own is not covered by a property exemption. So the trustee takes it, sells ("liquidates") it, and distributes the proceeds to your creditors.
We ended our last blog post with a short example of what happens in an asset case if you happen to owe certain kinds of debt that you’d still have to pay after bankruptcy, such as accrued child support or recent income taxes. The Chapter 7 trustee pays such special "priority" debts in full before paying anything on ordinary debts. That way most of your asset proceeds go to a debt that you have to pay anyway.
When a Chapter 7 Trustee Doesn't Liquidate Non-Exempt Property
Just because you own something that isn’t exempt does not necessarily mean that your Chapter 7 trustee will liquidate it. Maybe not.
Our last blog post was about the most straightforward kind of no asset” Chapter 7 case. That’s when it’s clear that everything you own is “exempt”—fully protected. The property and exemption schedules that you and your bankruptcy lawyer prepare and file at court show this. Your trustee asks a few confirming questions at the “meeting of creditors” and announces that your case is a “no asset” one. That means that there’s nothing you own that the trustee wants to liquidate and pay its proceeds to your creditors.
But if you do own something that isn’t exempt. What happens then?
"Property of the Estate" May Include Life Insurance Proceeds
The 180-day rule applies to life insurance proceeds in a Chapter 7 case. But life insurance proceeds are often exempt, or protected.
Last time, we explained the 180-day rule about inheritances. If within 180 days after you file bankruptcy you “acquire or become entitled to acquire” an inheritance, then the property being inherited is “property of your bankruptcy estate.” It’s counted as if it was your property at the time you filed, even though it wasn’t. (See Section 541(a)(5)(A) of the Bankruptcy Code.)
That means to whatever extent the inherited property isn’t covered by a property exemption, or protected some other way, the Chapter 7 trustee can take and liquidate it to pay your creditors.
That 180-day rule also applies to life insurance proceeds, our topic today. (See Section 541(a)(5)(C) of the Bankruptcy Code.)
Contact Our Firm
The use of the Internet or this form for communication with the firm or any individual member of the firm does not establish an attorney-client relationship. Confidential or time-sensitive information should not be sent through this form.
I have read and understand the Disclaimer and Privacy Policy.
Call Today for a FREE Consultation
210-342-3400
