Saturday, December 22, 2012

Do I need to include my social security (retirement) income in the calculation of my plan payment in chapter 13 bankruptcy?



22 December 2012

It depends.  It is a legal question that is playing out in the courts right now.  If you live in the fifth or tenth federal circuit (Massachusetts is in the first circuit), and arguably in the sixth or eighth circuit, then the answer is yes.  Generally anywhere else it depends on the individual judge.  And this will likely change in the future.  A good local bankruptcy attorney in your area might know the status in your area.

This specific question is whether excluding social security benefits when calculating what your plan payment should be is legally considered “bad faith.”   In bankruptcy, there are two important places that your social security income could be included, one is on Form 22C that determines the length of your plan and possibly the amount that should be paid to unsecured creditors (for above-median income debtors), and another is on the Schedule I, which is used to help determine your plan payment.  There is little dispute that social security income is not considered in the former (Form 22C), but there is a dispute whether it should be included in the latter (Schedule I).  (This does not mean the income does not need to appear on the forms, just if the income is counted in the calculations.)  Those that argue it is bad faith to not include social security income in the calculation point to the “totality of the circumstances” and that the debtors could pay more to their creditors.  Those that argue it is excluded point to a portion of the bankruptcy code they say excludes it completely from income calculations in bankruptcy. 

The two definitive federal circuit decisions on the issue that were rendered in the fifth and tenth circuits may be considered persuasive authority for other courts.  The firth circuit decision can be found here.  The tenth circuit decision can be found here.

If you are planning on filing bankruptcy, there are many issues like the one described here that should be addressed.   If you want to discuss your options, feel free to give us a call.

Friday, December 21, 2012

I want to file bankruptcy but was told that the amount of my income is too high and I will not satisfy the mean test, what is the means test and what can I do?



21 December 2012

The means test in bankruptcy was one of the most important changes to the bankruptcy code made in 2005 under Bankruptcy Abuse Prevention and Consumer Protection Act, known as “BAPCPA.”  The means test is trying to make sure that people who have the “means” to repay their debts, in fact due, conceivably through a chapter 13 (repayment plan in bankruptcy), and are not allowed to simply discharge their debts completely in a chapter 7 (liquidation in bankruptcy).  The way it works is that there are certain levels of income that if you make more than, another test is triggered, which if you do not satisfy, you cannot file a chapter 7.

An initial consideration is that if you were told you didn’t satisfy the means test on a phone conference with a bankruptcy attorney, it is best to have a more thorough investigation, probably involving an in-person meeting.  It may require a great deal of number crunching before you have a good idea.  

There may be a way to avoid the means test altogether.  The issue to look at is whether your debt is primarily consumer debt or business debt.  If your debts are primarily business debt, then you will not need to satisfy the means test.  Please understand that these terms “consumer debt” and “business debt” are terms of art.  Do not rely on a common sense definition, at least exclusively.  For instance, contrary to common sense, one item in favor of potential debtors is that income tax debt is generally considered business debt, even if the income tax debt is owed by you in your personal capacity. 

However, even if the means test does not apply, you are not necessarily home free.  There is still the threat someone can accuse your case of still being filed in bad faith under § 707(b)(1) of the bankruptcy code.  To determine this, like all of these questions, a qualified bankruptcy attorney is typically needed.

In the event you are considering filing bankruptcy and want to know whether you can qualify for chapter 7 or chapter 13, feel free to give us a call.

Saturday, December 8, 2012

I am deciding between bankruptcy attorneys, one that costs less and will perform the bare minimum, and another that costs more and provides more, which one should I hire?



8 December 2012

Answer: Probably the one that plans to do more for you.  Here is one example of why hiring the best lawyer you can afford to file a bankruptcy for you, one who is more likely to stay current on the law, may be worth it.  It is In re Belforte, Case No. 10-22742-JNF, (decided Oct. 1, 2012) a recent decision issued by the Massachusetts Bankruptcy Court.

In In re Belforte the debtor filed a chapter 7 bankruptcy.  One of the debtor’s debts was a personal line of credit issued by the local credit union.  The debtor indicated to the credit union on a handwritten note when applying for an extension of the credit line that it was sought to pay for “tuition [and] books” for the debtor’s children’s education.  After the bankruptcy petition was filed, the credit union objected to the line of credit being discharged.  It produced the handwritten note as evidence (likely not provided previously by the debtor to her attorney).  The credit union argued that the debt should be deemed a student loan that is not dischargeable in bankruptcy.  Despite the fact that the loan was not associated with the student loan program the credit union offered and the credit union imposed no control over how the funds were to be spent, the court found it should be deemed a student loan under § 523(a)(8)(A)(ii) of the bankruptcy code.  The practical effect was likely that the debtor thought the debt would be discharged, but it was not.

Now, before thinking the debtor’s attorney in this case was negligent, we must speculate some and add some reality to the mix.  It is assumed the debtor did not indicate the debt could be a student loan to the attorney or provide the hand written note.  And further, even if she did, it is arguably unreasonable to expect an attorney to probe the debtor’s characterization of every single loan they have, such as checking the purpose stated on every loan application (let alone a hand written note).  And for these reasons, this situation is likely to happen again. 
 
However, the more general point is that a lawyer that takes care and stays current on the law is more likely to catch this issue, and the plethora of other possible issues that can complicate and change the benefit of a bankruptcy.  Such a lawyer is more likely to become aware of potential issues and advise his client of matters the client would want to know.  And, such a lawyer typically is not the least expensive one.
 
We hope you consider what this post has to say prior to engaging a bankruptcy or any kind of attorney.  In the event that you are considering filing bankruptcy or taking another type of legal action, feel free to give us a call. 

I was just served with a notice to appear at a hearing concerning a restraining order against me, what should I do?



8 December 2012

The most important task is to immediately obtain counsel.  Typically the hearing is set within 10 days of an initial hearing, a hearing that the defendant typically did not have notice of or appear at.   So there is not much time to prepare to begin with.  This is true for cases under Massachusetts General Laws chapter 209A (restraining orders) and 258E (harassment restraining orders). 
 
The other problem is that people underestimate the time that it takes for a lawyer to adequately assess the matter and prepare a defense.  Let me tell you, preparing for the defense of a restraining order can be involved, it is not simply showing up and seeing what happens.  Do not treat it that way.  The hearings are evidentiary.  This means that at a minimum there is testimony from the plaintiff and the opportunity for cross examination.   There also can be documentary evidence, multiple witnesses, and very fast rulings that can have permanent and drastic effects on people’s lives.
 
There are ramifications that are not just limited to that case or person.  For one, if you lose, you are placed in a database that will be checked at any future restraining order case and held against you.  Chapter 258E requires the clerk’s office to check for the defendant’s name in these databases prior to any hearing.  The results are reported to the judge that will decide the case.   

Another ramification is that the facts that are determined at these hearings could be used against the defendant in other cases in certain legal situations.   This means that a fact found to be true in a restraining order case, even if it isn’t, could be found to already be established in a different case under certain circumstances.  It is best to treat the restraining order case as your one shot at establishing the facts involved.
 
When people wait too long to start to search for a good lawyer, they risk not being able to hire one at all.  This is because the closer the hearing is, the less appealing it is for a lawyer to take the case.  Further, although many lawyers will likely not mention this, many lawyers believe that it says something about the caller when they wait until the last minute to hire a lawyer, especially for a matter as serious as a restraining order.  If you can find a lawyer at the last second that will give you a quote, it is more likely you will pay a premium because the lawyer has to stop servicing their other clients, if they can, and put all their efforts into your case due to the limited time available to adequately prepare.

Lastly, if a restraining order is issued and you violate it, it can result in criminal prosecution and incarceration. 

For these reasons, we reiterate to engage competent counsel immediately after receipt of a notice of hearing in a restraining order case against you.