Panorama Magazine Articles

January, 2011 Issue

"Many people come to me saying "I want to file a Chapter 11 bankruptcy". While that may seem reasonable since Chrysler and GM filed for Chapter 11, most individuals do not file the same type of bankruptcy. Chapter 11 individual bankruptcies are possible, but they tend to be for high net worth individuals. Most individual consumers generally file for either Chapter 7 or Chapter 13 bankruptcy.

A Chapter 7 bankruptcy is commonly called a "liquidation" bankruptcy. Although called a "liquidation", a person does not lose all their property in a Chapter 7. There are various exemptions which allow a person to keep a certain amount of their property. In a Chapter 7bankruptcy, the debtor normally does not repay any of their unsecured creditors, such as credit cards or medical bills.

A Chapter 13 bankruptcy is called a "reorganization". Here, a debtor repays their unsecured creditors at least part of the amount owed. The amount that a person repays depends upon a) the amount of their disposable income and b) amount of non-exempt property.

To determine what type of bankruptcy a person qualifies for, a "Means Test" calculation must be done. The Means Test is a document that determines the amount of disposable income a person has each month. If a person's disposable income is negative or low, a person should qualify for a Chapter 7 proceeding. If the disposable income is high, that figure is generally the amount of money that a debtor will be paying towards their unsecured creditors each month.

Next month, we'll discuss a Chapter 7 bankruptcy is greater detail."

February, 2011 Issue

"As mentioned last month, a Chapter 7 bankruptcy is commonly called a "liquidation". That does not necessarily mean that the Court is going to sell your couch, your clothes, your car or even your house. Because of various exemptions, a person can often keep all of their property.

In a Chapter 7, the person filing for bankruptcy (called a debtor) normally does not repay any of their unsecured creditors, such as credit cards or medical bills. A debtor has the right to elect to keep paying their secured debts. Secured debts are often those for a person's house or car. Provided that the equity in the items securing the debt is equal to or less than certain exemptions, and the person is current on payments to the secured creditor, a person can often keep their secured property.

There are two main factors that determine if a person qualifies for a Chapter 7. The first is relatively easy: the debtor cannot have a great deal of non-exempt property. Many people do not have property that is valued above the exemption amount; however, it does sometimes happen.

The other factor is whether or not a person passes the "Means Test". The Means Test is a government developed form that tells us whether or not you should have money to pay creditors. This form is similar to a tax return, where certain figures are dictated by government guidelines, but others are actual numbers. If you "pass" the Means Test, you qualify for a Chapter 7.

Next month, we'll discuss what the Means Test is in greater detail."

March, 2011 Issue

"In order to determine whether a person qualifies for a Chapter 7 bankruptcy, a form commonly called the "Means Test" must be completed. It is a government developed form that determines whether or not you have "disposable income," which is the amount of money you should have available to pay creditors. The form is not always realistic as certain numbers are dictated by government guidelines. Other numbers however, are "actual" figures so the form is a "hybrid" of reality.

The government has set forth certain income guidelines for people, which vary according to state and your household size. If your yearly income is less than these guidelines, you normally will qualify for a Chapter 7. In Pennsylvania, the "Means Test" guidelines are as follows: a) single person = $44,172; b) household of two = $52,839; c) household of three = $66,030; d) household of four = $78,626. If your household has more than four people, the figure increases by $7,500 for each person.

Just because you make more money than the figures outlined above, does not mean that you do not qualify for a Chapter 7. It just means that the remainder of the form needs to be completed. If at the end of the form your disposable income is less than $117 per month you qualify for a Chapter 7. This is called "passing" the Means Test. If your disposable income is more than $117, you may still qualify but the outcome is not certain.

Next month, we'll discuss what happens if you "fail" the Means Test."

April, 2011 Issue

"As discussed in detail last month, if a person "passes" the Means Test, they will likely qualify for a Chapter 7 bankruptcy. The question this month is what happens if a person "fails" the Means Test, meaning that they appear to have disposable income?

Simply, if your Chapter 7 Means Test shows that you have disposable income, you generally must then file for a Chapter 13 bankruptcy. In a Chapter 13, a person repays their unsecured creditors at least a portion of the amount owed. In this type of bankruptcy, commonly called a reorganization, a person files a "Plan" that sets forth how much money he or she will pay to the trustee on a monthly basis for the benefit of their creditors.

The amount that is repaid is determined by two different factors. First, a person must repay creditors the amount of their non-exempt property. Many people though do not have non-exempt property. The amount that they repay their creditors is based upon the Chapter 13 version of the "Means Test".

Although the Chapter 7 and Chapter 13 Means Tests are very similar, there are some important differences. The first is that the initial part of the Chapter 13 form tells a person how long their plan to the trustee will be. The "plan" will be three years if the person makes under the median income and will be five years if they make over that amount. The second important difference is that retirement contributions and the repayment of loans to retirement accounts is taken into consideration for a Chapter 13 case, but not a Chapter 7. This sometimes means that a person has disposable income under a Chapter 7 Means Test, but either much less or even no disposable income under a Chapter 13 calculation. Because of this quirk in the process, it's important to have an experienced attorney prepare and analyze your Means Test to determine your best course of action.

Next month, we'll discuss some other important details of a Chapter 13 bankruptcy."

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