Arizona Bankruptcy Attorney Blog

New means test numbers have been released.

Read about it here!

There are some states where public workers make more money than workers in the private sphere.

Actually, there are 41 such states!

That's got to make the means test harder for public sector folks in those states!

There's only one way that's any fun to pass the Means Test.

Make more babies!

One of my nicest clients qualifies to file a Chapter 7 Bankruptcy.

After the Blessed Event.

And I sure hope she's taking her pre-natal vitamins!

 

I have told you that the reason some people file bankruptcy is that they woke up one morning and said, "If I keep doing what I'm doing, I'll keep getting what I'm getting."

That's called "a moment of clarity"; they realized that they would be making minimum payments on credit card debt, or other debt, until they died, and never get to retire!

Now, working three jobs and keeping none of the dough you get paid isn't the end of the world; you're on the right side of the grass, after all. You get to say hello on a regular basis to those you love. And after your third job, you do get to sleep for a little while!

But that's still not an optimal life. You know?

One way to have your own moment of clarity is simple; you find out how long it'll take you to pay off your credit card debt, or your deficiency judgment, or other debt, using a credit card payoff calculator.

Then figure out how long it will take for you to accumulate enough dough to retire, if you get to stop spending your money on your historic debt.

Why do I suggest that you use calculators?

Because other people (not me, of course) have these things called "emotions".

If you crunch numbers, you won't be working in the part of your brain that processes emotions, and the results jump out at you.

See, your time horizon is a critical thing.

Because at the point that you decide to start saving for retirement, you still have a bit of a road ahead of you.

And knowing how much time it will take you to retire will help you get off your exhausted, overwhelmed backside, and make an actual decision to file a bankruptcy!

So here's a link to one free, online retirement calculator; if you don't like that one, find your own!

And Merry Christmas to you all!

They say you should never watch either sausage or law being made. I believe that. And today I will discuss an example of odd lawmaking. Not terrible lawmaking, just strange. The reason I don't mind this statute is that it cuts a break for a small slice of the American Military, but only a small slice, and only for a short period of time. It gets a few of them out from under the Means Test requirement for filing a Chapter 7 Bankruptcy, but only a few, and only within a fairly narrow time frame.

And instead of this statute I'm going to discuss below, P.L. 110-438, The National Guard and Reservists Debt Relief Act of 2008, I would rather have seen a raise for our servicemen and women.

The guys and gals in our armed forces are paid far too little for my taste. Anybody who is willing to take a bullet for his Country deserves a decent paycheck.

One way to make up for a lousy paycheck would be to make it easier to file bankruptcy if you're in the military.

I would support that wholeheartedly.

But instead, Congress did a little carve-out on the Means Test that applies only to a National Guard Member or Armed Forces Reserves, and only during active duty or 540 days thereafter, and only if you serve at least 90 days.

Is that weird or what?

Let me do it again: there is a sliver of an exception to the means test, which is a temporary exception that applies only if you serve 90 days and only during active duty or 540 days thereafter, and only applies if you are a member of the National Guard or the Armed Forces Reserves.

Here is the relevant language of the statute itself (from Wikipedia), and if the statute applies to you, great! You don't have to take the Means Test to file a Chapter 7 Bankruptcy in Arizona, or elsewhere.

Our kids in uniform deserve a good deal more than this:

AN ACT
A bill to amend title 11, United States Code, to exempt for a limited period, from the application of the means-test presumption of abuse under chapter 7, qualifying members of reserve components of the Armed Forces and members of the National Guard who, after September 11, 2001, are called to active duty or to perform a homeland defense activity for not less than 90 days.
Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

Contents [hide] 1 SECTION 1. SHORT TITLE. 2 SEC. 2. AMENDMENTS. 3 SEC. 3. GAO STUDY. 4 SEC. 4. EFFECTIVE DATE; APPLICATION OF AMENDMENTS.

[edit] SECTION 1. SHORT TITLE.

This Act may be cited as the `National Guard and Reservists Debt Relief Act of 2008'.

[edit] SEC. 2. AMENDMENTS.

Section 707(b)(2)(D) of title 11, United States Code, is amended--

(1) in clauses (i) and (ii)--

(A) by indenting the left margin of such clauses 2 ems to the right, and

(B) by redesignating such clauses as subclauses (I) and (II), respectively,

(2) by striking `testing, if the debtor is a disabled veteran' and inserting the following:

`testing--

`(i) if the debtor is a disabled veteran',

(3) by striking the period at the end and inserting `; or', and

(4) by adding at the end the following:

`(ii) with respect to the debtor, while the debtor is--

`(I) on, and during the 540-day period beginning immediately after the debtor is released from, a period of active duty (as defined in section 101(d)(1) of title 10) of not less than 90 days; or

`(II) performing, and during the 540-day period beginning immediately after the debtor is no longer performing, a homeland defense activity (as defined in section 901(1) of title 32) performed for a period of not less than 90 days; if after September 11, 2001, the debtor while a member of a reserve component of the Armed Forces or a member of the National Guard, was called to such active duty or performed such homeland defense activity.'.

The means test is a limbo bar that permits some people to file Chapter 7 Bankruptcy cases, and forces others to file Chapter 13 Bankruptcy cases (if you're filing a Chapter 13 Bankruptcy because you flunk the means test, plan on five years of bankruptcy purgatory), unless they qualify under the primarily business debt exception to the means test.

The means test is adjusted when the median income goes up (which is good, right? that permits more folks to file Chapter 7 "kinder and gentler" bankruptcy cases) and when the median goes down (which is bad, right? see "bankruptcy purgatory", above).

But right now, we have more people out of work, and more people are underemployed, as well. So the median income has gone down, right?

And since more people are more poor, we should make it more difficult for them to file a bankruptcy, right?

Makes perfect sense to me!

The new less kind and gentle numbers which will be applied to bankruptcy cases filed after November 1, 2010 can be found at the "Means Testing" page of the U.S. Trustee Program website.

I need to run a poll: should I have entitled this post, "Kicking the Poor While the Poor Are Already Down"?

.

Because my consumer and small business bankruptcy practice in Arizona has some days with back to back doctors, lawyers and cpas, I've had to figure out how to address a series of issues relating to the dreaded Means Test and high income, high debt professionals in bankruptcy.

Note: don't panic when you read this. I also represent students, teachers, cops, firemen, waitresses, and the currently unemployed former mortgage brokers.

And I was contemplating writing about bankruptcy for professionals and high earners.

But an attorney in Long Island, Craig Robbins, beat me to it.

So here is his take on high-income consumer bankruptcy debtors, and I'll put in my two cents worth the next Round Tuit I get.

When people do their bankruptcy homework before they come in to visit with me, they know about the sorts of bankruptcy alternatives and non-bankruptcy alternatives that are available in the United States, and in Arizona, specifically.

But this is for those who missed that memo, but who may be browsing for bankruptcy information in Arizona. They would already know, if they'd done their homework, what exempt property in Arizona can be used as exempt property in Bankruptcy Court (unless their facts force them to use either the exemptions in the state that they came from; or the federal exemptions at 11 USC 522, even though Arizona is an opt-out state, and under normal fact patterns, those are not available to someone living in Arizona).

And they would know that The Means Test is the tool used, post-2005 bankruptcy exemptions, to decide whether a potential debtor will be permitted to file a Chapter 7 Bankruptcy in Arizona, or whether that debtor will be trapped in a Chapter 13 for five loooooooooong, brutal years.

And they would begin to understand how The Means Test can be managed, you know? Not at all easy, not simple, not fun, but possible.

Note that the bankruptcy cases for consumers filed in Arizona are running around 82 per cent Chapter 7 cases, with the rest being mostly Chapter 13 cases and a tiny handful being Chapter 11s for individuals.

And if they read the homework, they would also know that somebody who loses a very-high paying job is not going to qualify for a Chapter 7 Bankruptcy immediately after the firing. They have to age a little, like fine wine. And that I hope they didn't repay a relative within a year of filing; and that they haven't used their credit cards within 90 days of filing, which gives rise to a strong presumption that there's a non-dischargeability issue in their future.

They're also going to know that, even though there may be relatively few dollars associated with them, the diamond ring and the Harley-Davidson can constitute a large part of the angst in the filing. And that I prefer it in most cases that a debtor not sell his house, pre-filing, and take advantage of the "homestead as cash" provision in the Arizona Revised Statutes, even though it should be and is as legal as Church on Sunday, because a bankruptcy trustee can resist anything but temptation.

And a potential bankruptcy client who read the homework on my blog would also know about the differences between a Chapter 7, 13, 11, 12, and 9 in Arizona. Now, only some of those are bankruptcy options for individuals, and some can't be used by anything but an individual!

And there are out-of-Bankruptcy-Court options for you, as well as bankruptcy court options for you, and both of them are a pain in the keester. No kidding. There is no such thing as an incredibly easy bankruptcy filing, especially after the 2005 Amendments, but the cases can be managed.

There are a lot of goodies in the homework section of my blog, and in fact, there are so many useful chunks of information there that I think am going to build a separate blog called something like the Arizona Bankruptcy Homework Blog.

Or some such.

And I guess I'll make it streamlined, to make the process of doing the bankruptcy homework easier.

And I'll do that the second I get a Round Tuit!

p.s. as of today, there is no form to fill out on my bankruptcy blog; I'll probably build a one page form for potential debtor clients considering bankruptcy, just to make the decision tree easier for them to understand.

p.p.s. NOW THERE'S A FORM! ON THE NEW ARIZONA BANKRUPTCY HOMEWORK BLOG!

Recently I've seen a lot more togetherness in families.

Involuntary togetherness.

It's a fortunate thing that many families have had one person who kinda did okay.

Because now that the stuff has hit the fan, and we're sliding into economic Armageddon, people are all moving into that guy's house!

Recently I talked to some nice folks who just gained custody of their grandchildren. And their daughter and her new daughter are also living in their house! And their grandparents!

Now, the only funny thing about that is...nothing whatsoever.

But if there were, it would be this: it's possible that all those bodies under roof may help out the primary breadwinner with the means test if he needs to file a bankruptcy!

I had intended to write about this for some time.

Look, if you go see a doctor about the little bump on your elbow, and he says, "No problem, we see these a lot; make an appointment and we'll do it in the office", you really ought to make an appointment soon to see the doc and get it taken off.

You wouldn't wait for a year or two to get that funky, suspicious looking thingie chopped off by the doc, right? Because it could change, right?

Right?

So if you see an Arizona bankruptcy attorney and he says, "Looks like you currently make it under the limbo bar that is the Means Test; we can file for you", it's similar to the situation with the doctor and the funky bump.

You wouldn't wait a year to go back to see the doc after your first diagnosis; the darn thing would metastasize!

It's about the same with a bankruptcy means test diagnosis.

If you see an Arizona bankruptcy lawyer and it looks like you can file, you maybe should get your rear in gear.

I understand, and I've talked about, the paralysis of analysis.

But if you go off and try to do a short sale, and then try to negotiate with creditors, and you get a new job, or you're in a car accident with the possibility of a recovery, or God forbid a relative dies and leaves you an inheritance, well, the eazy-peezy Chapter 7 bankruptcy proceeding you were going to have in Arizona just got more expensive, at least, and potentially less possible.

Now, I was going to link to a great blogger in California, whose post on this topic jogged my memory, but my computer is funky today; tomorrow, working on a less funky computer, I'll link over to his post, which is a good one, so you see that everybody in the bankruptcy trenches sees this issue with similar eyes.

Don't wait, after your diagnosis, to file your bankruptcy; and don't make material changes in your situation after you hire your Arizona bankruptcy attorney without making sure that you didn't shoot yourself in the Means Test!

Every now and then a potential client will come in and visit with me and start a sentence that lasts for a half-hour and ends with a question mark.

And the legal issue is one that I have researched in the past, and I know that there are different positions in two other Circuits and that the 9th Circuit hasn't ruled on the matter.

And that depending on the different trustees that might be assigned to their case, the result might be different. Ditto depending on the lawyer that the trustee might hire to work the case.

Ditto depending on the U.S. Bankruptcy Judge in Arizona who might be assigned to the case.

So the answer to the half hour long mixed legal and fact question is often, "That depends."

Except that it doesn't.

Because the potential debtor has overwhelming debt, and inadequate income, and twelve lawsuits cooking (which they're gonna lose, because they owe the dough, and Judges aren't dumb).

So the filing is inevitable, and the result is going to be one thing, or another, or another, but the filing of the bankruptcy case is inevitable.

And the case is going to go one way, or another, but the important issue to the potential client is whether they're likely to get a discharge in their Chapter 7 bankruptcy, and whether there will be an objection from the panel trustee to their list of property claimed as exempt, and whether they will pass the means test, and whether a creditor will file a complaint.

And the rest is interesting, from an academic perspective.

But I'm a lot less hypothetical and a lot more practical in my old age than I was as a baby lawyer practicing bankruptcy law in Arizona.

Fish don't spend a lot of time thinking about water; birds don't think much about air.

So it is with Arizona bankruptcy attorneys. We swim in a sea of means test concerns, and thinking about the means test is a sort of constant background buzz.

Therefore, it always comes as a slight shock to me when a prospective client asks me, "So what's this means test that you keep talking about?"

See, there's this free online means test calculator linked to my blog, in the homework section.

And I direct folks to take a first bite at the apple by running their means test prior to coming in to see me. It helps a good deal, because at least after they try once they figure out that this stuff isn't all that easy!

But when I was searching for a different issue, I ran into a very nice, straightforward discussion of the means test on another lawyer's blog, so I thought I'd give credit where credit was due, and link to it here. Take a look at it for five minutes, and you'll have a pretty good idea what the means test looks like.

And its significance is simple: if you pass the means test, or will pass the means test in a while, or if there's an exception to the means test, or special circumstances, then we can file a Chapter 7 Bankruptcy for you. If not, well, you're stuck in Bankruptcy Purgatory, the dreaded Chapter 13, or Bankruptcy Hell, the more dreaded Chapter 11, or some non-bankruptcy alternative (and sometimes those work just fine, so don't throw yourself off the top of the Cathedral if you don't THINK you pass the means test. And you won't know that for sure until somebody who has done it a lot tells you how you did; the calculation is about as complex as the Federal Income Tax Code).

I'm all for efficiency, and ease of use.

So when you're trying to mess up your ability to file a Chapter 7 Bankruptcy, because you flunk the means test, I don't want you to have to work too hard.

Some people have zero income from work, and should be ezee-peezie to file in a Chapter 7.

But because they sucked too much dough out of a 401(k), they now flunk the means test, and now CANNOT file a Chapter 7 for six months after the month in which they pulled out the big chunk of dough from their 401(k)!

But wait! There's more! Not only is it impossible for them to file a Chapter 7, they can't even file for a horrifying five-year payment plan under Chapter 13, because they have no regular income!

Pretty cute, huh? And best of all, messing up their ability to file EITHER a Chapter 7 or a Chapter 13 took very little work!

And I'm all for efficiency, and ease of use!

So when you're doing your first cut at the ball to determine whether you pass the means test, which is one of the ways to get into the doors of Paradise (labeled "Chapter 7", right above the pearly gates and just to the left of Saint Peter), consider a couple of items.

And by the way, I'll come back to this post and beat it up a lot more; it's just that contemplating the means test depresses me, because all of you paid for the drafting of it with your tax dollars, and it doesn't help you at all.

It doesn't even help the banks, which lobbied for about a decade to get it; according to a report published by the government, the 2005 Amendments don't make for more filing of Chapter 13 cases, and higher payments to creditors. They just make the bankruptcy process more expensive and difficult and time-consuming.

Who would have thunk it?

But back to today's topic: when you're first taking paper, pencil, and pocket calculator to the six month rolling lookback which is the means test, ask yourself, Do you feel lucky?

Just kidding.

Ask yourself, do I get paid twice a month, or every two weeks? Makes a difference.

 

Gentle reader, you may wonder why I care whether you do your homework before you come in to visit with me for the first time.

As it happens, it's because I like productive time, and your time is going to be spent more productively if the homework assignments have been done prior to our visit.

Then there's the second reason. At my point in life, I find that surprises are less attractive to me than they were previously in my life and career. And it has been my experience that my clients like surprises, if anything, less than I do!

So being advised, beforehand, on issues including how long the bankruptcy process will take, what you get to keep, what you DON'T get to keep, whether you get to keep using your credit cards, whether you should max out your credit cards (uh, no.), and what you might do (like modifying your mortgage) instead of a filing bankruptcy is good for you to know.

Because all of you are DIFFERENT!

Some of you know a lot about real estate law, because you used to own a mortgage company, or you used to sell real estate.

Some of you know a lot about contracts because you managed those for a publicly traded corporation.

Some of you are acquainted with the criminal justice system because you're Irish, and you know how to celebrate St. Patrick's Day the right way! And isn't it a shame what the bloody British are doing to us all? (note: at this point, I appear to have ancestors on both sides of most of the big conflicts of the last several thousand years, and what my Cherokee ancestors did to my English ancestors, and what my English ancestors did to my Scottish ancestors, and what my Viking ancestors did to my Irish ancestors at Lindisfarne on June 8, 793 Anno Domini Nostri Iesu Christi all gives me a certain odd perspective on history).

Some of you have lost a relative, and have some idea how the assets of decedents is distributed; or you've lost a marriage, and know about the family law system in Arizona or elsewhere.

Some of you know nothing at all about the law in any respect, because it's never knocked on your door and said howdy before, at least until the notice of trustee's sale. Or being served with that $432,743 lawsuit!

And we have limited time together!

Because we have limited time to talk, the world being what it is, it's important that you know what you need to know.

And that you know what you don't know. Did you understand that sentence? I didn't!

For instance, you may really, really need to know what happens if you repay a debt to your 401(k) prior to filing.

Well, if I'm still trying to figure out whether your car will pass the exemption limit in Arizona, we may not have time to get to that question! And if you didn't do your homework before you came in to see me, we may still be struggling with the value of the car and the amount of the lien on the car!

Spare me! Spare you! Spare ribs!

Or if you paid a $200,000 preference to dad eleven months ago, and I'm trying to tease the amount of your unsecured debt out of you instead of being able to focus on the important stuff, because YOU DIDN'T DO YOUR HOMEWORK, that's...gosh, that's sub-optimal!

And you guys don't want to be up to your necks in sub-optimal, do you?

Isn't that the reason you decided to come in and visit in the first place?