Many people do research about bankruptcy prior to seeking out the services of a lawyer. They get on their computer and search for bankruptcy topics such as dischargeable debts, chapter 7 vs. chapter 13, or asset exemptions. Another area that is frequently researched, but is often misunderstood is the Means Test.
The Means Test was developed as part of the bankruptcy overhaul of 2005, and was included in the bankruptcy process to limit those individuals who could technically pay back their debts over time from simply getting the immediate benefit of a chapter 7 discharge. Essentially, the Means Test determines the monthly amount of income an individual can earn each month (as calculated over a 6 month average) and still qualify for a chapter 7 discharge. That monthly average is then expanded into a yearly average. The income limits are based on tables and vary state to state. The Washington Means Test table can be found here.
But even if an individual has a yearly gross income that exceeds the tables provided by the US Department of Justice, that only creates a “presumption of abuse.” Meaning, there could be abuse in the filing, but an abuse that can be rebutted. Some individuals may technically not qualify based on the Means Test income tables, but due to their current, and forward looking, situation, could defeat the presumption of abuse and remain in chapter 7.
This is yet another reason why it helps to consult with a professional when it comes to bankruptcy. Don’t write off the possibility of a simple chapter 7 discharge just because you might make too much money.
Do you have employees whose wages are being garnished? If you do, then you have a Problem. What is your Problem? You have a troubled employee in a financial mess, with no credit, and experiencing a major life crisis! This translates into lower employee productivity.
We have recently seen a trend where employers are being pro-active to help these employees. How do they help them? That is where we come in.
Our firm, DRLNW, helps the employee get their life back in order, financially and otherwise. We stop the garnishment immediately. Those funds then pay the costs to get the employee out from under the financial mess.
With a “fresh start” your employee can start to rebuild his or her life and become a more productive employee. This is good business management. It is a win-win.
If you have any questions in this area, please contact our DRLNW office at (360) 602-0744 or contact us by email.
Seward & Bellum, Attorneys
2299 Bethel Road, Ste 201
Port Orchard, WA 98366
1) You have to be broke to file bankruptcy.
FALSE. This type of thinking about bankruptcy leads people to be broke going into bankruptcy, and broke coming out of bankruptcy. The best way to approach bankruptcy is to file before you get to a point that it is your only option and before liquidating all of your assets, like savings accounts, retirement accounts, or physical assets like your home or car. The state of Washington, and certain federal exemptions, allow you to keep assets up to a certain value. In the case of retirement accounts, there is almost no cap on the amount you can keep and still file bankruptcy.
2) You can modify your home loan in bankruptcy.
FALSE. Many homeowners have been lead to believe (mostly at the guidance of fly-by-night home loan modification companies) that they can seek a modification of their home loan in the bankruptcy court. This cannot be done. In fact, lenders must get relief from the bankruptcy court and remove the home from the bankruptcy estate in order to proceed with any type of permanent modification. If you’re going to pursue a modification, pre-bankruptcy, set your mortgage payment aside in an separate account. If the modification falls through, you’re going to need that money to bring your mortgage current in the bankruptcy setting.
3) Filing bankruptcy harms your credit score.
FALSE. Filing bankruptcy is actually the quickest, most effective way to improve your credit score. Your credit score is calculated based on your debt to income ratio. In bankruptcy, you discharge your debts. As long as your income remains the same, you now have a much better debt to income ratio, which increases your score. You can estimate a 60-100 point increase, if your score is in the high 500’s to low 600’s, within the first 6 months after filing.
Traditionally, debtors have had the opportunity to remove or “strip” a second mortgage from their home or rental property through a chapter 13 bankruptcy petition and plan. Debtors may strip their second mortgages from their home if they can demonstrate that there is no equity beyond the first mortgage that the second mortgage to attach to. If the Debtor can prove that the second mortgage is completely unsecured, it can be removed, provided the Debtor is able to complete their chapter 13 plan obligations – i.e.: make their proposed plan payment for each of the 36 or 60 months required under their chapter 13 plan.
Debtors may also strip a second mortgage from their property by means of a “Chapter 20 Bankruptcy,” which is a chapter 7 and chapter 13 together. A chapter 20 bankruptcy is accomplished when a Debtor files a chapter 7 bankruptcy petition and receives a discharge of their debt, then files a subsequent chapter 13 petition and plan. The chapter 13 plan is often only made up of secured creditor debts (car payments, mortgages, etc.) and any arrearages on secured debts, most of the time a mortgage. The chapter 13 allows the debtor the opportunity to receive protection from the bankruptcy court while bringing their mortgage current. Protection can be needed if the debtor is facing foreclosure or garnishment of their wages or bank account.
The only hurdle to a successful outcome in a chapter 20 bankruptcy is the timing upon which the chapter 13 is filed after the chapter 7. Debtors filing a chapter 13 petition may only receive a discharge of their debt if their chapter 13 petition is filed more than four years after the filing of their chapter 7 petition was filed. Many courts in the past have found that the lien stripping action in the subsequent chapter 13 must be contingent upon the issuance of a discharge in the debtor’s chapter 13. So, by deductive reasoning, it would be safe to conclude that if a Debtor who files a chapter 13 petition within four years of their chapter 7 petition, they could not strip the second mortgage from their home due to the fact that they cannot receive a discharge.
But a case in the United States Bankruptcy Court for the Ninth Circuit could ultimately rule that the stripping of the lien from the debtors property is only contingent upon successful completion of the debtor’s chapter 13 plan, and not upon the issuance of a discharge. The case is Litton Loan Servicing v. Robert Blendheim, Ninth Circuit No. 13-35354. For additional information on this case, and other similar cases in other circuits, you can go to http://www.ncbrc.org/
This a potentially ground-breaking ruling, with beneficial consequences for those debtors that have received a chapter 7 discharge within the last four years. If you have a second mortgage that has no equity beyond the first mortgage, you may be able to strip that lien in a chapter 13 bankruptcy. If this is you, it’s time to talk with a bankruptcy attorney right away.
Jared Bellum is a contributing author to this blog and has been admitted to practice law in the state of Washington. He practices in the fields of bankruptcy, real estate law, business law and estate planning.
We are pleased to announce the grand opening of our new satellite office and Debt Relief Information Center under the name of Seward Bellum Attorneys, located at 2299 Bethel Rd, Suite 201 in Port Orchard. Link to Google Map.
Senior Associate Attorney, Jared Bellum, is managing this office and is available for consultation. Call us at (360) 602-0744 or email us at firstname.lastname@example.org any time for a free debt relief consultation to discuss how the bankruptcy rules can work in your favor. We also are taking on new clients in our traditional practice areas which include Business Transactions, Real Estate, Estate Planning and Probate.
Robert Reich is a prominent economic analyst who was recently touted as one of the 10 most respected public servants in the last 30 years. He served at the request of three presidents including an appointment by President Clinton as his Secretary of Labor. Time Magazine called him one of the best Secretaries of the 20th century. He has written 13 books including his latest “Beyond Outrage – what is going wrong with our economy and our democracy and how to fix it”. He also produced a documentary film entitled “Inequality For All”.
The Video – In the following short video clip, from an interview with Bill Moyer Mr. Reich explains, in his own words, why he is “Beyond Outrage” with the current state of our economy and political climate.
To watch the entire interview see billmoyers.com/episode/full-show-inequality-for-all/.
Economy is Based on Rules that Determine Economic Outcomes – Mr. Reich explains that the economy is based on a set of rules that determine economic outcomes and that for the most part these rules are stacked against the average wage-earner.
Why not Take Advantage of Favorable Rules? – So, the question becomes, why would anyone not take advantage of rules that work in their favor? Bankruptcy rules are intended to favor individuals and small businesses that have taken risks and failed. The theory is that with these protective rules investments in risky small business ventures are encouraged and jobs are created. If the business fails, the owner can generally receive protection from his creditors and in most cases, either save the business or obtain a discharge of his debts and a “fresh start”.
What the Big Banks Say – For decades the “Big Banks” have successfully convinced many individuals that you should be “ashamed” to take advantage of these favorable rules. Suffice it to say that we strongly disagree!
The Law Offices of Richard D. Seward and Jared Bellum wish all of you a Happy Holidays and a Prosperous New Year! And, in the holiday spirit, every year we allocate a certain number of $50 Anthony’s gift certificates as client gifts. This year we have decided to allocate a good portion of those gift certificates for referrals, so anyone that refers a client to us during the holiday season will receive a $50 Anthony’s Restaurants gift certificate. This offer is good through the end of the year 2013.
We are also pleased to announce our new Debt Relief Lawyers NW bankruptcy website designed to be a resource of helpful information for those seeking debt relief. Please visit our new website.
So what if there is dysfunction in Washington – Good Times Continue. You can still complete family gifting with favorable exemptions and THERE IS STILL TIME for high income earners to cash in. Yes, tax rates are slightly higher, but you can offset that by taking advantage of the generous deductions that are still allowed for purchases completed by year end. See our tax tip below for more details!
So we all now know, Congress did not disappoint us last December. It did act. We did not go over the “fiscal cliff”. On January 2, 2013 Pres. Obama signed the American Taxpayer Relief Act of 2012, (“ATRA”) which had been approved by both houses of Congress one day earlier. ATRA is notable for averting the tax side of the so-called “fiscal cliff” by extending or making permanent favorable tax legislation passed in 2001, 2003, 2009 and 2010.
Indeed ATRA is perhaps the most significant tax legislation in nearly 12 years. Its primary focus was preserving income tax breaks only for those in the lower tax brackets. So, for married couples earning more than $450,000 annually, the marginal tax rate rose from 35% to 39.6% and the capital gains rates increased from 15% to 23.8% including the 3.8% Obama surtax, but there is one last loophole left. See below:
TAX TIP – BUY TANGIBLE PERSONAL PROPERTY FOR BUSINESS USE!
You only have several weeks to take advantage of the ATRA’s one year extension of the higher expensing limits and 50% bonus depreciation by buying depreciable tangible personal property for use in your trade or business. For example, on an $800,000 purchase, you would get a $500,000 IRS Section 179 deduction and another $180,000 in depreciation deductions. This very generous deduction goes away on December 31st.
So buy that bulldozer, copier, truck, van, or whatever personal property assets your business might need and do it before year end. You can even finance it. Preserve your cash flow and get a huge tax reduction in April.
There are signs that the housing industry might be picking up. The stock market is at an all-time high. Yet, there are a lot of small businesses that are experiencing tough times. Sales are down or almost nonexistent.
This Newsletter is dedicated to those that are fortunate enough to take advantage of the bankruptcy laws to save their businesses and get a fresh start. There is something worse than bankruptcy – not being able to afford it. This newsletter is especially dedicated those that are in that very difficult situation.
Richard Seward is a contributing author to this blog and has been admitted to practice law in the state of Washington. He practices in the fields of bankruptcy, business start-ups, and estate planning.