The Bankruptcy Minute

What’s worse for credit score — foreclosure, short sale or deed in lieu?

Lorene Mies — Thu, 07 Mar 2013 14:45:11 +0000

I am often asked this very question. I came across this article published in the Washington Post. One writers opinion but shared by many in the industry….. Lorene

By Michelle Singletary,August 30, 2011

Washington Post – Business

You can’t really say that credit scores don’t matter. They do.

So it’s understandable that the hundreds of thousands of homeowners who finally realize they can no longer hold onto their homes worry about how turning in their keys to the house through various transactions with their lender will affect their credit scores.

People can just let the home go to foreclosure, and this will affect their scores for seven years. Or they can do a deed in lieu of foreclosure. With a deed in lieu, you voluntarily give your home to the lender in exchange for the cancellation of your loan. This, too, can create a negative mark on your credit history.

Homeowners can also get out from under a mortgage by doing a short sale, in which the lender allows the borrower to sell the house for less than what is owed. A short sale is also bad for your credit.

RealtyTrac recently reported that pre-foreclosure transactions, which often include short sales, jumped 19 percent between the first and second quarter of this year. Short sales accounted for 12 percent of all housing sales in the second quarter, up from 10 percent for the same period last year.

But is there a pecking order in which the ubiquitous credit scoring system treats a short sale more favorably than a foreclosure or a deed in lieu of foreclosure?

I get this question quite often these days. Homeowners have been led to believe that because foreclosure is so devastating to their credit scores, almost anything else is better.

This is not true — turns out there’s no significant difference in FICO score impact among foreclosures, short sales or deeds in lieu of foreclosure, said Bradley Graham, senior director of scores product management at FICO, which is the trademark credit scoring model created by Fair Isaac Corp. It’s the most widely used scoring system in the country.

“All of those events represent a loan default and as such are highly predictive of future credit risk,” Graham wrote in an e-mail.

If you apply for a loan in the future, certain lenders may look more favorably at a short sale than at a foreclosure, but the credit scoring system sees all these defaults as equally bad. Graham said that based on the analysis of the information that lenders share with credit bureaus about those forms of mortgage default, they have about the same weight when determining future risk.

There are two caveats in what lenders report to the credit bureaus, Graham said. The negative impact of a foreclosure, short sale or deed in lieu of foreclosure can be slightly less if the lender does not report a deficiency balance. A deficiency balance is the amount one may owe the bank after a property is sold.

Here’s something interesting: The FICO analysis found that the higher your original score, the greater the drop and the longer it will take for your credit to recover to the same level assuming all else held constant. A consumer who started with a 780 score and did a short sale with no deficiency balance could see his score drop to a range of 655 to 675. The FICO scale goes from a low of 300 to a high of 850. A consumer who started with a score of 680 could see a drop to a range of 610 to 630.

For the consumer with the original 780 score, it could take seven years to get back to that level. But at 680, it could take just three years.

So how would a loan modification affect your score?

Credit reports show limited information about mortgages, such as balance, date opened, payment history and current status. The information reported does not show loan terms such as interest rate, monthly payment or number of months remaining on the loan. If a mortgage modification changes only the interest rate, the years remaining on the loan and/or the amount of the borrower’s monthly payment, those changes will not be reflected on the credit report and can’t affect the person’s credit score, Graham said.

At least now you know that if you decide you can’t keep your house, you don’t have to fret that one way to turn in your keys is far worse than the other. So just weigh what’s best for your overall situation and not only the impact to your credit score, Graham said. “The FICO score is only one part of anyone’s credit profile and reputation.”

The Bankruptcy Evening – March 12th & 14th, 2013 at The Temecula Public Library

Lorene Mies — Thu, 07 Mar 2013 14:00:19 +0000

On Tuesday March 12th and Thursday March 14th, 2013 at 7:00 p.m. at the Temecula Public Library on Pauba Road in Temecula. Lorene will be presenting another “Bankruptcy Evening”. As always she will be covering the basics of bankruptcy, focusing on Chapter 7 and Chapter 13. How each chapter works and the advantages of bankruptcy over debt settlement or debt consolidation programs. assist you in keeping your home. If you are facing foreclosure or have a second mortgage that is not supported by $1.00 in equity you don’t want to miss this evening. This free educational seminar is packed with all the information you need to make an informed decision whether or not bankruptcy would be right for you and your family. Bankruptcy may be the best investment you make in 2013.

What will be covered:

The Means Test
Chapter 7 – Advantages and Disadvantages
Chapter 13 – How to get rid of your second mortgage!
Debt management and settlement programs
Your Property – Do you get to keep your stuff!
Credit rating after bankruptcy
Short sale vs. foreclosure
Bankruptcy and your employment
Credit recovery after bankruptcy

What attendees had to say after past Bankruptcy Evenings :

Attendees were given a seminar evaluation sheet and asked to grade the evening on 6 different criteria on a 1 to 5 scale from 1 being disagree to 5 being agree.

“exceeded expectations, KM 5s on all criteria”
“thank you, this meeting has already put me at ease, PM 5s on all criteria”
“the new legislation was good information, KG 5s on all criteria”
“very informative, MJ 5s on all criteria”
“this was well worth the time spent to learn about chapter 7 / 13. Thank you for giving up your evening to educate us tonight, AC 5s on all criteria”

Come see and hear for yourself!

Elder Bankruptcy Filings: Capacity Issues

Lorene Mies — Tue, 26 Feb 2013 21:38:12 +0000

Note: This article was originally published in the June 2012 issue of the Riverside Lawyer Magazine. The authors are Peter C. Anderson, United States Trustee for Central District Court Riverside Division and Abram S. Feuerstein, Asst. United States Trustee. Reprinted with permission of authors and the Riverside County Bar Association.

This article outlines the procedure that can allow a family member or friend to file bankruptcy on behalf of a person suffering from dementia or Alzheimer or other mental incapacity.

Older Americans are filing for bankruptcy at increasing rates.1 And as the age of the average bankruptcy debtor increases, it appears that there is an increase in the number of debtors filing bankruptcy who have chronic and disabling medical conditions. Some of these individuals may lack the physical capacity to undertake those actions necessary to complete a bankruptcy filing successfully and obtain a bankruptcy discharge of their debts. Others may lack the mental capacity or competency to make financial decisions. Inevitably, there has been a rise in situations involving family members seeking to file bankruptcy cases for incapacitated relatives.

Unfortunately, some aspects of the law in this area are unsettled and not well-developed. All too frequently, well- meaning relatives attempt to file bankruptcy cases for incapacitated, financially distressed family members in a hap- hazard, improper fashion. Often, they run to the bankruptcy court armed only with a doctor’s note attesting to the poor physical health or mental condition of their family member. Other individuals run to a local stationery store or look on the internet for a fill-in-the-blanks power of attorney form to support a bankruptcy filing. At times, family members risk committing bankruptcy crimes by forging documents and making false statements as they attempt to commence a bankruptcy case for a disabled or incompetent relative. Even experienced bankruptcy lawyers lack familiarity with the rules.

Incapacitated Debtors

The first question is whether incapacitated individuals can file bankruptcy. The short answer is, “Yes.” The Bankruptcy Code contemplates that incapacitated individu- als may be bankruptcy debtors, and courts agree.2

Under Section 301 of the Bankruptcy Code,3 a voluntary bankruptcy case may be commenced only when an individual who may be a debtor files a bankruptcy petition. In turn, Section 109 states who may be a debtor. And that section contains no restrictions on incapacitated or disabled debtors.4

Filing Through a Representative or Next Friend

Given that disabled and incapacitated debtors may file bankruptcy, the next question that arises is who, if anyone, has the authority to file a bankruptcy petition on behalf of a debtor who lacks capacity. In answering this question, the Bankruptcy Code and the Federal Rules of Bankruptcy Procedure provide only limited guidance.

Under Rule 1004.1, “[i]f an infant or incompetent per- son has a representative, including a general guardian, committee, conservator, or similar fiduciary, the representative may file a bankruptcy petition on behalf of the infant or incompetent person.”

Rule 1004.1 also provides that if an infant or incompetent person does not have a duly appointed representative, the person “may file a voluntary petition by next friend or guardian ad litem. The court shall appoint a guardian ad litem for an infant or incompetent person who is a debtor and is not otherwise represented or shall make any other order to protect the infant or incompetent debtor.”

Hence, to the extent that a bankruptcy petition is filed by a representative on behalf of an infant or an incompetent person, sound practice dictates that counsel should ensure that appropriate documentation is filed with the petition establishing the representative’s authority to file the petition. However, if no representative exists, the parties should follow Rule 1004.1 and seek an immediate court order appointing a guardian or a next friend.

Powers of Attorney

Other than the procedures outlined in Rule

1004.1 pertaining to “infants” and “incompetent persons,” the Bankruptcy Code is silent as to whether someone can file a bankruptcy case on behalf of another person. Thus, at least one court has taken a very restrictive view and held that, except as allowed by Rule 1004.1, a person may never file a voluntary case on behalf of another individual.6

By contrast, there are a range of bankruptcy decisions that authorize bankruptcy filings through the use of powers of attorney. Some of these decisions permit a petition to be filed pursuant to a broad, generic grant of authority contained in a power of attorney.7 Other cases prohibit a bankruptcy filing absent a specific, express provision that enumerates a bankruptcy filing as part of the authority conveyed under the power of attorney.8 A third group of cases takes a middle approach as to the necessary language in the power of attorney.9

Regardless of how a specific court will rule, practitioners must understand that bankruptcy courts are reluctant to permit a party other than the debtor to sign and file a petition under a power of attorney. As one court noted, “[t]he filing of a bankruptcy petition is a serious act which necessarily involves exposing the financial and legal affairs of the petitioner to all interested parties in a public forum.”10 Given its profound legal consequences, another court has observed, filing bankruptcy “should not be undertaken without careful deliberation.”11

Moreover, the bankruptcy process contemplates complete and accurate disclosure about a debtor’s financial condition – both in written bankruptcy schedules and statements, and in oral testimony at a meeting of creditors.12 Typically, this information is available only from the debtor personally. And absent extraordinary circumstances, creditors have the right to demand the personal participation of the debtor in bankruptcy proceedings as a condition of the debtor obtaining a discharge.

In sum, filing a bankruptcy case is among the most important finan- cial decisions a person will make during his or her lifetime. In light of the lack of clarity concerning the use of powers of attorney, the heightened importance of financial disclosure in bankruptcy cases, and the legal con- sequences of filing bankruptcy, attorneys should proceed very cautiously before advising clients to sign a bankruptcy petition for another person using a power of attorney. And in those extremely rare cases when a power of attorney is used, attorneys should check the language of the instrument to ensure that it authorizes a bankruptcy filing.

1 See generally, J. Golmant and J. Woods, “Aging and Bankruptcy Revisited,” American Bankruptcy Institute Journal (Sept. 2010); J. Pottow, The Rise in Elder Bankruptcy Filings and Failure of U.S. Bankruptcy Law, 19 Elder L.J. 119 (2011).

2 In re Myers, 350 B.R. 760, 762-3 (Bankr. N.D. Ohio 2006)

(collecting cases).

3 Unless otherwise noted, all statutory references are to the Bankruptcy Code, Title 11, United States Code, and rule references are to the Federal Rules of Bankruptcy Procedure.

4 In fact, Section 109 supports the ﬁling of bankruptcy by incapacitated and/or disabled persons. Most non-bankruptcy lawyers are generally aware that in 2005, Congress enacted substantial measures to reform the nation’s bankruptcy laws.

As part of these wide-ranging amendments, Congress enacted educational requirements for bankruptcy debtors. These mandate that debtors take a pre-bankruptcy credit counseling class, and, as a condition of receiving a bankruptcy discharge, debtors are required to take a ﬁnancial management course after they ﬁle bankruptcy.

Under Section 109(h)(4), incapacitated or disabled debtors are speciﬁcally exempted from meeting the pre-bankruptcy educational requirement. Similarly, the discharge provisions of the Bankruptcy Code exempt incapacitated debtors from the requirement of completing a post-ﬁling course. These provisions manifest a Congressional awareness that incapacitated persons could indeed be bankruptcy debtors, and Congress went the extra step of excluding such debtors from the newly enacted educational requirements.

5 The representative and/or would-be representative faces another hurdle involving the educational requirements added to the Bankruptcy Code in 2005. The code’s educational requirements may be a nondelegable duty. See, e.g., In re Hammer, 2008 WL 6177312 (Bankr. N.D. Ohio 2008). Instead of taking the class on behalf of a debtor or, worse, pretending that the incompetent debtor took the class and is capable of certifying

that the requirement has been completed, the representative may want to consider ﬁling a motion excusing compliance with the pre- and post-bankruptcy ﬁling educational requirements.

6 In re Vitagliano, 303 B.R. 292, 293 (Bankr.

W.D.N.Y. 2003); see also In re Smith, 115 B.R. 84 (Bankr. E.D.Va. 1990) (authorizing ﬁling through a court-appointed guardian having speciﬁc authorization to ﬁle bankruptcy, but not a power of attorney).

7 See, e.g., In re Hurt, 234 B.R. 1, 3-4 (Bankr.

D.N.H. 1999).

8 See, e.g., In re Eicholz, 310 B.R. 203, 207 (Bankr.

W.D.Wash. 2004).

9 See, e.g., In re Curtis, 262 B.R. 619, 622 (Bankr.

D.Vt. 2001).

10 In re Brown, 163 B.R. 596, 597 (Bankr. N.D.Fla.

1993).

11 Curtis, supra, 262 B.R. at 624.

12 Section 343 requires a bankruptcy debtor to appear and submit to an examination under oath at a meeting of creditors

Local Attorney Going to Washington to Sound Alarm on Emerging Student Load Debt Crisis, Other Key Issues – PR.com

admin — Sun, 13 Jan 2013 21:01:36 +0000

Local Attorney Going to Washington to Sound Alarm on Emerging Student Load Debt Crisis, Other Key Issues – PR.com.

Procrastination? Or Are You Just Afraid of The Word Bankruptcy?

Lorene Mies — Fri, 11 Jan 2013 22:58:16 +0000

Every week I meet with clients who first met with me long ago and suddenly month’s later are in a panic to file bankruptcy because they have been hit with a lawsuit, repossession or a wage garnishment. I can’t tell you how many times I get the call that the sale date on their home is just days away and they are begging to save the house. Or first time callers who just keep hoping it will all get better and back to normal any day now. Procrastination is your worst enemy in bankruptcy. Pre-planning is everything in bankruptcy and can save hours of frustration and lots of money.

You can file an emergency bankruptcy petition fairly quickly but all the supporting documents are due to the court within 2 weeks. The emergency petition many times is a Band-Aid that just falls off in a couple of days leaving you with the same problems as before. It may just be too late. The hole has been dug so deep there is no way to fix it again. Again an emergency filing costs more money and does not guarantee that you will get the result you are seeking. Especially when you have just received notice from your employer that a wage garnishment is pending and 25% of your gross salary will be taken out of your next pay check. I can’t always get the money back.

I have said this many times; “Bankruptcy is not a dirty word”. Bankruptcy is biblically based (Deuteronomy 15:2) and constitutionally protected (Article 1 Section 8 Clause 4 of the United States Constitution). Many famous and well respected people have declared bankruptcy, Abraham Lincoln, Ulysses S Grant, James Monroe… and many others including myself. “Bankruptcy is for the honest but unfortunate debtor facing unforeseen circumstances deserving a fresh start”. Is that you?

Read my blog post titled “Considering Bankruptcy… consider this”. Are you just putting off the inevitable? What are your alternatives? Debt settlement is not a viable alternative. Most debt settlement companies charge more than a bankruptcy attorney and take years trying to resolved your debt. The creditors that are not being paid eventually file lawsuits against you and once again you are in a deep hole. Debt settlement does not provide a fresh start. You will not get credit easily after debt settlement since you still hold the “bankruptcy card” that you can play at any time. When you file bankruptcy you can’t file again in most instances for 8 years.

Bottom line… don’t wait till it is too late to learn whether or not bankruptcy is the right alternative for you and your family. If you have another alternative I will let you know in my free one hour consultation. Or better yet, you can attend one of my educational seminars I present of “Basics of Bankruptcy” at the Temecula Library on Pauba Rd. Click here for the events page to see when my next schedule seminar is taking place and register online or pick up the phone right now and schedule an appointment. 951-894-4791

Who Let The Dogs Out? Or where am I going to live after bankruptcy?

Lorene Mies — Tue, 08 Jan 2013 17:44:46 +0000

Another bankruptcy myth: You won’t be able to find a home to rent, much less ever be able buy another house if you file bankruptcy. Wrong!

Many clients decide to surrender their homes in bankruptcy because the house is so underwater that they will never see equity in it again for many years. They have tried unsuccessfully to get a loan modification and the mortgage payments are just too high or they have lost the home in a foreclosure. Making that decision is very difficult because they have heard horror stories about not being able to rent a place for their family to live and think they will end up living under a bridge eating roots! Wrong again… things aren’t that bad. You just need to know where to look.

I recommend renting houses from private landlords versus big apartment or condominium complexes, because these corporate landlords generally reject most applicants with a record of a recent bankruptcy. Individual landlords however are generally more agreeable since they haven’t been able to sell the subject property and are in need of rental income to make the mortgage payments. They are more interested in you taking care of their property and are aware that you won’t have any other debts to pay that will prevent you from making the monthly rental payment.

However, the best plan would be to find a home to “lease with option to buy”. A lease option gives you the right to buy the house is future (2 to 4 years ) at a price you negotiate based on today’s market place and a portion of your rent payment goes to the down payment on the home. This will also allow you to start saving for the down payment preventing from having to move twice.

Another myth is that bankruptcy is worse on your credit that a foreclosure. Wrong again! You will qualify for a federally backed home (FHA) loan 2 years after your bankruptcy discharge in a Chapter 7 when you will have to wait 3 to 7 years after a foreclosure. Many people buy homes again during the 3 to 5 year period they are in Chapter 13 with the court’s permission. It is so common the court has provided a form just to get the permission.

Lease option is still your best bet! I had one client whose rent was the exact amount of the landlord’s house payment. The client wrote the check of their own bank account directly to the bank and when it came time for loan approval the client could show ability to pay by 24 months of cancelled checks.

Many of my clients find homes to rent in their former neighborhood. They do not have to disrupt where their children go to school and have been able to negotiate a purchase price for nicer homes that they are surrendering in the bankruptcy for far less money.

I have a list of property managers that rent to post bankruptcy tenants. Call and make an appointment for your free consultation today and we can discuss all housing options. 951-894-4791

Yes, Virginia, you can DISCHARGE INCOME TAXES in bankruptcy – follow the 5 basics rules

Lorene Mies — Tue, 08 Jan 2013 17:29:26 +0000

Contrary to popular belief, certain back due taxes owing to the Internal Revenue Service (IRS) or the State of California Franchise Tax Board can be wiped out in bankruptcy. In order to be eligible to wipe out a tax debt, there are five criteria that must be satisfied.

You can discharge Federal income or State income taxes in Chapter 7 or Chapter 13 bankruptcy only if all of the following conditions are true:

1. The taxes are for income taxes only. The taxes must be strictly for taxes on income. Taxes such as payroll taxes, trust fund taxes, sales tax or fraud taxes cannot be eliminated in bankruptcy.

2. You have not committed fraud or willful tax evasion. You cannot wipe out tax debt if you filed a false or fraudulent tax return or willfully attempted to evade paying taxes. For example, if you under-reported income falsely, you cannot wipe out the debt after getting caught.

3. The debt must be at least three years old from the date it is due. In order to wipe out the tax debt, the bankruptcy cannot be filed until three years after the original due date of the tax. For example, if a tax was due from a 2009 tax return, the due date of that tax liability would be April 15, 2010. In this example you would have to wait until April 15, 2013 to file the bankruptcy in order to be eligible to discharge the IRS tax debt. Many times, you must be careful to wait the appropriate time period in order to ensure that the tax debt will be wiped out.

4. You had to file a tax return for that particular year two years before the filing of your bankruptcy petition. To be eligible to wipe out the debt, you must have filed a tax return for the IRS or State debt you wish to discharge at least two years before filing for bankruptcy. Thus, even if the debt is over three years old, if you filed the return late and two years has not yet passed, then you cannot wipe out the Internal Revenue Service or State tax debt.

5. You must satisfy the 240-day rule. The IRS must have assessed the income tax debt at least 240 days before you file your bankruptcy petition, or must not have been assessed yet. The IRS can extend this time period due to suspended collection activity because of an offer in compromise or a previous bankruptcy filing.
There are a variety of factors that can “toll” each of the time periods you need to have a qualified and experienced bankruptcy attorney to review the specific tax transcript and other documents obtained from the IRS. I am trained and experienced in reviewing all relevant IRS documents.

Give my office a call and make an appointment for your free consultation. 951-894-4791

Proctologists do your brain surgery? Or do you really need to hire a bankruptcy attorney?

Lorene Mies — Tue, 08 Jan 2013 16:54:47 +0000

We all have heard the phrase “you get what you pay for”. Well, that applies to bankruptcy attorneys and their fees. First we all agree that you wouldn’t have a proctologist do your brain surgery, so why would you prepare your own bankruptcy petition? Would you hire an attorney who wasn’t a bankruptcy attorney? Today’s fees are very reasonable and you want to make sure that you get the full benefit of bankruptcy… discharging all your debt. The point of bankruptcy is to get a fresh start and not have to ever worry again about be hounded by bill collectors.
I have had way too many clients contact me after they filed their own bankruptcy or went to an attorney whose main practice was not bankruptcy that they failed to list a creditor or didn’t realize that there was a lien on their property and now they can sell it. This results in fees that sometimes can exceed what a client would have paid a professional in the first place.
The success rate of an individual correctly filing and get a Chapter 13 case confirmed in Central District Court California Riverside Division in about 1%.
Potential clients ask me why my fees are different than what another attorney charged their friends… especially when the filings fees with the court remain the same? The current filing fee for a Chapter 7 is $306.00 and a Chapter 13 is $281.00. There are additional costs involved obtaining credit reports, credit counseling, real estate appraisals, etc.
Chapter 7 case fees are less than Chapter 13 cases. Chapter 13 cases are far more involved and can last 3 to 5 years. Most reputable attorney will agree to have half of their Chapter 13 fees paid through the Chapter 13 plan.
Attorney fees which are extremely low are generally a good indication that a client will receive minimum services and/or less than competent representation. Surprisingly and ironically, generally excessive fees also are an indicator of the same, unless your case is complex. Again you get what you pay for!

The last few years have resulted in record number of bankruptcy filings and many attorneys who practice in other areas of law jumped into filing bankruptcies’ resulting in an increase dismissal rate and very disappointed clients. Make sure you research any attorney that you are considering using. Check the attorney’s record at www.calbar.org. See if any disciplinary actions have been filed against that attorney. Conduct an Internet search by the attorney’s name and look for reviews. Beware of attorneys will multiple negative reviews however the reverse is also true. Only great reviews may indicate that those reviews are not from real clients.
I will be more than happy to discuss my qualifications and experience with you. Make an appointment for a free consultation today and let’s start talking. 951-894-4791

Considering Bankruptcy? Well consider this…..

Lorene Mies — Tue, 01 Jan 2013 16:06:43 +0000

When someone calls my office one of the first things they ask me is; “How do you know when is the right time to consider filing bankruptcy?” My response is almost always the same. “The time is ripe when you are so consumed thinking about your financial problems you are thinking of very little else, and is creating stress in your marriage and entire family”. Is financial stress killing you? Well, let’s look at some other common factors that indicate this may be time to consider filing bankruptcy:

Loss of income due to unemployment, decrease in hours, lack of overtime pay that you have come to depend on, furloughs or cut in pay.
Prolonged illness or disability.
Facing foreclosure on your home, behind on making first or second mortgage payments and all attempts at getting a loan modification have failed.
Wage garnishments, lawsuits, judgments, bank levies and threatening phone calls from creditors.
Making only minimum payments on credit cards or taking cash advances from one credit card to make a payment on another credit card. Maxing out your credit cards.
Borrowing from your 401K to make “ends meet” or worse yet getting pay day loans.
You are delinquent on paying income taxes, both state and federal.
Unable to save for a rainy day, much less a vacation.
Your car is in need of major repair, new tires, or just plain needs to be replaced because you are not sure that it will make it to work one more day.

These are just a few of many reasons indicating that it may be time to consider filing bankruptcy, but the number one reason is the mental and physical stress caused by your financial problems. Unfortunately, financial problems are a major cause of divorce in this country.

Bankruptcy may be the answer for you, but exploring your options with a good bankruptcy attorney will help you decide whether the time is right. I have counseled many clients that bankruptcy was not right for them and the time and offered them alternative solutions to their financial woes. Fear of the unknown causes future stress and most people just don’t have enough information on bankruptcy, the process and ramifications. Consider attending one of my regular seminars on the “basics of bankruptcy” as a starting point. I cover all aspects of consumer bankruptcy under both Chapter 7 and Chapter 13. Or call my office and set an appointment for your free consultation. I can guide you through the process and reduce that fear. Bankruptcy attorneys must inform clients that they are a “federally designated debt relief agency helping people file bankruptcy through the United States bankruptcy code”. I prefer to call myself a “federally designated STRESS relief agency”.

Call today for your free consultation 951-894-4791 and let’s discuss your options or check out the events page for my next scheduled seminar.

The Means Test is Step One in Bankruptcy

Lorene Mies — Mon, 31 Dec 2012 16:14:28 +0000

The first step an attorney must take to determine whether you qualify to file a Chapter 7 or a Chapter 13 bankruptcy petition is the “means test”. A Chapter 7 is the total liquidation of all unsecured debt in a relevantly short period of time. Here in Central District California Riverside the average time is 4 to 5 months from the filing of the bankruptcy petition to the discharge of all debt. A Chapter 13 is a 3 to 5 year payment plan of all or part of your debt depending on your disposal monthly income. The means test is the first step in determining what your disposable monthly income amount will be.

This is a two part test. First to determine whether or not you are under the “median income” based on your family size and area in which you live. If you are under then you qualify for the Chapter 7. If you are over then the “means test” becomes a bit more complicated. Your income is determine by calculating all income received from all sources the 6 months prior to filing the Chapter 13 petition less your normal reasonable and necessary expenses. This appears to be a simple process but it is not.

This test is required in every bankruptcy petition and much easier in a Chapter 7. In a Chapter 7, the means test is a snapshot of your financial condition on the day you file for bankruptcy. This will include all expenses even those for house payments or cars that you intend to surrender in the bankruptcy.

The means test can be as simple as comparing your annual gross adjusted income for the prior year and the “median income” allowable in California. As of November 1, 2012 the median family income for a California family are: (1 person) $47,433 (2 persons) $61,752 (3) $66,034 (4) $74,122 (5) $81,622 (6) $89,122 and add $7500 for each additional person over 6.

Bankruptcy can be complex and many cases are routine but it takes a competent bankruptcy attorney to guide you through the process. A fresh start is just a phone call away. Call me Lorene Mies at 951-894-4791 and make an appointment today to discuss your options