Archives for June 2015

Avoiding the Means Test in Bankruptcy

When Can You Avoid the Means Test in Bankruptcy?

To qualify to discharge your debts under Chapter 7 today, you must typically submit to the “means test,” a formula designed to determine whether you have the resources to repay your creditors rather than simply ridding yourself of the debt. There are, however, certain conditions where you don’t have to take the means test.

The Business Debt Exemption

Referred to by some as the “business debt loophole,” this provision (set forth in Section 707 (b) of the Bankruptcy Code) states that the means test only applies to debtors with “primarily” consumer debt.

Unfortunately, when Congress enacted the new bankruptcy law in 2005, it did not provide a definition for the term “primarily.” As a practical matter, most courts have simply defined that as a simple majority. Accordingly, if more than 50% of your debts were incurred in a business or for business expenses, you don’t have to qualify under the means test.

Furthermore, the rules are not always crystal clear on what constitutes “consumer debt.” Some obligations, such as your mortgage for a primary home, are almost always considered consumer debt. But other real estate may be for your personal use or it may be considered an investment. Additionally, if a car was used exclusively or even primarily for work, it can be exempted from consumer debt. Credit card debt is customarily viewed as consumer debt, unless you can show that the credit card was used to further a business venture. Many courts hold that taxes are not a consumer debt.

The Disabled Veteran Exemption

You can waive the means test if you are a disabled veteran, under certain conditions. Your disability must be rated at least 30%, you must have suffered the injury in the course of your military duty, and you must have been discharged because of the disability.

The Reserve / National Guard Exemption

If you have been a member of the National Guard, or a reserve soldier in any branch of the U.S. military, and you were called up after September 11, 2001, you may seek an exemption from the means test so long as your debt did not predate the period of your service or arise more than 18 months after it ended.

Needless to say, the Means Test is complex and how it applies to you depends on your circumstances. The above discussion is necessarily general and may not exactly apply to you. Seek qualified legal advice.

Contact Neuner & Ventura, LLP

At Neuner & Ventura, LLP, we provide a free initial consultation to every client. We do, however, reserve the right to charge a fee to review any work done by another attorney. To set up an appointment, call our office at (856) 596-2828 or send us an e-mail. Evening and weekend appointments are available upon request.

Addressing Student Loan Debt with a Chapter 13 Bankruptcy

Restructuring Student Loan Debt in Chapter 13

If you’ve accumulated substantial student loan debt, but don’t have the income to pay it off, you may be considering bankruptcy as a way of managing your obligations. Student loan debt can, in limited circumstances, be discharged in Chapter 7, but the requirements are strict. For more information, see our blog on the hardship discharge of student loans. In most instances, a Chapter 13 bankruptcy can provide partial relief, by holding off collection of student loans in default while these loans get partially paid.

In a Chapter 13 bankruptcy, you have the opportunity to use a court sanctioned repayment plan over 3 to 5 years. In exchange, for the entire 3 to 5 year period, you get the benefit of the automatic stay, which prohibits creditors from calling, writing, filing legal action or taking any other measures outside of the bankruptcy to collect a debt from you. The automatic stay goes into effect immediately upon filing your petition. It is fully applicable to student loans. It continues as long as you are in bankruptcy, and for Chapter 13, as long as you are making payments according to your approved plan.

While any unpaid balance on such loans will still be due at the end of the plan, you will have hopefully paid down the loans based on your actual ability to pay, and not based on what a student loan debt collector or collection attorney demands of you.

With a Chapter 13 filing, you can get immediate relief from attempts to collect on your student loans. In addition, student loans are considered unsecured debts in a Chapter 13 proceeding, similar to medical expenses or credit card bills. Accordingly, they don’t have priority and do not have to be paid off in full as part of the petition. The amount you will be required to pay monthly will be based on how much income you have left after payments to secured creditors.

The specific benefits of a Chapter 13 when you have unmanageable student loan debt include:

  • The ability to stop aggressive student loan debt collectors for a period of time.
  • The ability to pay on your loans based on your income and ability, while you pay off other obligations, so that, once your bankruptcy is complete, you can better afford to make student loan payments

Contact Our Office

At Neuner & Ventura, LLP, we work hard to alleviate the stress, anxiety and confusion that come with a potential bankruptcy filing. We offer a free initial consultation to every client. We do, however, reserve the right to charge a fee to review any work done by another attorney. For an appointment, call us at (856) 596-2828 or send us an e-mail. Evening and weekend appointments are available upon request.

Representing Clients across South Jersey

Discharging Non – Support Debts to an Ex-Spouse

Using Bankruptcy to Discharge “Non-Support” Debts to an Ex-Spouse

In a Chapter 7 bankruptcy, you are allowed to discharge certain debts. “Domestic Support obligations”, e.g. child support, alimony and spousal support cannot be discharged in either a Chapter 7 or Chapter 13 case. But what about “non-support” debts to your ex-spouse, such as your obligation to pay money as part of equitable distribution of property in a marital property agreement or divorce judgment?

In a Chapter 7 case, any debt or obligation incurred as part of a divorce or separation judgment or agreement is not dischargeable, so long as the debt is due or payable to a spouse, former spouse or child. A debt owed to the spouse’s attorney for counsel fees also fits into this category. However, money you owe your own attorney can be discharged.

Frequently, marital agreements will provide that one person will pay or satisfy joint credit card or other debts that are the spouse’s obligation. These provisions can convert what otherwise might be a dischargeable credit card debt (as an example) into a non-dischargeable debt. You can discharge your debt to the credit card lender, but you will still have to pay up to the extent your spouse is also liable on that card.

How are Marital Debts other than Domestic Support Obligations treated under the Chapter 13 “Super Discharge”?

Chapter 13 provides a broader range of relief. Here, only “Domestic Support Obligations” [“DSO’s”] are non-dischargeable. Frequently, this generates disputes in court about whether a particular debt is a DSO or not. Bankruptcy and state family court judges can both make this determination. Labels applied are not conclusive. Courts will also look at the function served by the payment obligation, and other factors.

Note also, that in any Chapter 13 case, you must continue to pay all alimony, spousal support other DSO obligations, and if there are arrears, these must be fully paid through the Plan.

In a Chapter 13 proceeding, non-DSO debts owed to an ex-spouse are considered to be non-priority, unsecured debt, similar to medical bills and credit card obligations. Accordingly, these debts would be pooled with all other unsecured, non-priority debt. When you put together your reorganization plan, the amount that will go toward non-support debt will be based on a number of factors, including:

  • How much you owe on debts that must be paid in full under bankruptcy laws
  • The total amount of unsecured, non-priority debt
  • The length of your plan—anywhere from three to five years
  • The amount of administrative expenses for the bankruptcy
  • How much you can actually afford to pay
  • Requirements of the “Means Test” if applicable

The interplay of divorce and bankruptcy is always complex and requires the advice of an experienced counsel knowledgeable in both areas. At Neuner and Ventura LLP we have substantial experience in both areas. It may be wise for you and your divorce attorney to consult with us early in the divorce process to be guided to the best result possible.

Contact Neuner & Ventura, LLP

We understand the stress, anxiety and confusion that can be associated with a potential bankruptcy filing. We offer a free initial consultation to every client. For an appointment, call Neuner & Ventura at (856) 596-2828 or send us an e-mail. We do, however, reserve the right to charge a fee to review any work done by another attorney. Evening and weekend appointments are available upon request.

Representing Clients across South Jersey

Supreme Court rules that Bankruptcy Courts can enter final judgments in Article III controversies where the parties consent by act or deed

Earlier this year, our blog noted that this would be an exciting year for important rulings from the Supreme Court on several bankruptcy related fronts. Rulings have now started coming down.

In Wellness International Network Ltd v Sharif, decided May 26, 2015, the Court resolved what could have been the most serious challenge to the entire bankruptcy system. Both bankruptcy judges and U.S. Magistrates handle a large volume of disputes, such that, as the Court noted, “it is no exaggeration to say that without the distinguished service of these judicial colleagues, the work of the federal court system would grind nearly to a halt.”

The problem is that the Constitution vests the full power of the federal judiciary only in “Article III” judges who have lifetime appointment and salary protection. These judges are confirmed by Congress. Magistrates and bankruptcy judges serve limited terms and are appointed by the District and Circuit Court judges in their district. They serve at the pleasure of those judges and are delegated handling of certain types of matters. Bankruptcy judges have authority to hear and decide all matters coming before them in or arising in a bankruptcy case. That is a lot of decisions to make, folks.

There are certain types of disputes, however, that only Article III District Court judges may issue final rulings on.  Generally, these are claims and disputes that would have had an existence even were there no bankruptcy filing. Examples include common law contract disputes, or whether a transfer of property can be undone as a “fraudulent transfer”. For these types of matters, the Bankruptcy Court can hear the case, but can only issue “proposed findings of fact and conclusions of law” which the District Court must review all over again on the record in a “plenary” manner. This gives the loser in the bankruptcy court a much better chance of getting a “second bite at the apple”.  In Wellness, a creditor sued the debtor to grab the assets of an alleged family trust which the debtor had concealed, claiming the trust was a fiction and that the assets really belonged to the debtor and should be turned over to the trustee to be sold to pay creditors.

The Supreme Court held that the Bankruptcy Court had the authority to make a final ruling on this issue because Sharif had knowingly and voluntarily consented to its doing so. Here, it was argued, Sharif did not expressly consent by statements to the court below even though he had not objected and in fact had applied to the Bankruptcy Court for a ruling in his favor. But the Court ruled that consent may be implied, and pointed to a long history of that being allowed.

The decision was split, with 5 justices ruling with the majority, one justice agreeing in the result but not in the ruling on implied consent, and the remaining 3 dissenting.

Wellness makes clear that gamesmanship on this issue will not be allowed. If a party objects to the Bankruptcy Court making a final ruling in disputes that could have been litigated without any bankruptcy filing, it must say so and take affirmative action, or the objection is waived.

The opinion is well-reasoned and provides much needed guidance to the Bankruptcy Courts and those who practice there.

Recognized Quality & Experience