IT’S GOOD TO BE POOR

As of October 2005, the bankruptcy laws changed dramatically. More specifically this change affected the ability to file a Chapter 7 Bankruptcy case. Prior to the Bankruptcy Reform Act, filing a Chapter 7 bankruptcy case was not as stringent as it is now. However, with the new law change, the filing of a Chapter 7 bankruptcy has put some people who may have been able to file a Chapter 7 case in a position where the relief they are seeking may come at a heavy price.When the bankruptcy laws changed it forced individuals who wanted to file a Chapter 7 bankruptcy case to have to provide income information for the last 6 months in order to determine if they qualified. “Income” as defined under the Bankruptcy Reform Act, includes everything but any monies received from the Social Security Administration or monies received that would fall under the Social Security Act. Therefore, any money received from employment, operation of a business, interests, dividends, royalties, rents received, alimony, spousal maintenance, child support, child subsidy, unemployment, stock options, pension, retirement distributions, long-term disability from a private provider, proceeds from the sale of property, and even support provided by family members would have to be reported. This income is then average out to determine what an individual’s “Current Monthly Income” would be. This averaged number is then multiplied by 12 to get an average annual income. This number is then compared to the Median Income in the particular state that you reside. Read more about chapter 7 bankruptcy here: http://www.bankruptcyhome.com/chapter7.htmOnce you have untangled the mess of what income has to be reported and how much you are supposedly making each month before any taxes or other deductions are taken, you then must compare your income to the Median Income of the state you live in based on your household size. In Texas, if you are living alone, the Medina Income is $34,418.00. Therefore, if your gross monthly income before deductions multiplied by 12 exceeds that dollar amount, then on its face you cannot file a Chapter 7 Bankruptcy case. However, that is not an indication that you still would not qualify. Congress in an attempt to be “fair”, allows individuals to take certain deductions to reduce their monthly income specified under the National and Local Standards as well as the IRS, because we all know the IRS has our best interests in mind.In short, unless you are poor, literally, you will find it difficult to file a Chapter 7 Bankruptcy case. A prime example of this is a client that I have been dealing with over the last few months. This particular client, we will call her Jane, use to work for a major airline. Unfortunately, Jane had been diagnosed with diabetes, high blood pressure, and a myriad of other symptoms that has confined her to a wheel chair. She had to take leave from her employment and was only receiving a small amount of income from her pension as well as some stock that she had with her employer. Jane had applied for Social Security/Disability but was denied because it was determined that her condition was not dire enough to afford her government assistance. Therefore, with no income coming in, Jane sold her stock and received roughly $6,000.00 which she used to make her modest mortgage payment, pay utilities, and pay for the prescriptions that she has to take which exceeded $500.00 per month. Jane came in to discuss her options to file bankruptcy, specifically a Chapter 7 case. She provided us her income information for the last 6 months including the stock that was sold. After calculating her “Current Monthly Income” and taking into account the extensive medical costs she incurs, Jane could not qualify to file a Chapter 7 bankruptcy. Her monthly income exceeded the amount allowed because of the stock she sold in December 2006 in order to survive. Jane is unable to receive any relief from her creditors because the other option, filing a Chapter 13 Bankruptcy, would not be viable without any income. After having to break the disappointing news to her, she stated that she would have to be homeless and under a bridge to get some relief from a Chapter 7 case. Read more about chapter 7 bankruptcy here: http://www.bankruptcyhome.com/chapter13.htmThis is just one example of the problems with the Bankruptcy Reform Act. In order to determine if you qualify for a Chapter 7 bankruptcy case, Congress determined that you have to look back at the last 6 months income. However, when you read the Bankruptcy Code, it states that you look at the “Current Monthly Income.” One of many contradictions found in the new reform laws, which has caused many people great grief.Therefore, if contemplating a Chapter 7 Bankruptcy case, make sure that the income you have received in the last 6 months is slim to nil. In addition, hold onto your stock, don’t retire, and think twice before having a garage sale.

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