Chapter 7

Got Debts?
Get Ringler!

Chapter 7: The Quick Way to Get Out of Debt.

A Chapter 7 bankruptcy case sometimes goes by the official name liquidation or sometimes straight bankruptcy. The United States Trustee (UST) (a division of the Department of Justice) picks a panel trustee to administer your case. The trustee is a lawyer, usually with considerable bankruptcy experience, but is not a government or court employee. In theory, you are supposed to turn over any non-exempt assets (if you have any) to the trustee. Then the trustee is supposed to sell your assets to a willing buyer, and divide the proceeds among your creditors in proportion to the claims that they file, as far as the money will go.

In order to get into Chapter 7, you also have to pass the means test. The means test is basically a math problem or formula that is supposed to measure your ability to repay your creditors. The means test is complicated, and frankly does not make a whole lot of sense. There have been hundreds of cases around the country where the judges have had to decide what Congress meant by the wording of the Bankruptcy Code, especially the means test. To way oversimplify the matter, the means test, as laid out in Official Form B22, is divided into two main parts:

· Current Monthly Income (CMI): In the first part of the means test (Parts II-IV of the official form), you compute the average of your income from all sources, except Social Security benefits, for the six calendar months immediately preceding the filing of your case. This calculation is called your Current Monthly Income. Well, that's a lie to start with, because it is not current (it covers the preceding 6 months), it is not monthly (it is an average), and it is probably not really your income (because it includes some things that would not be taxed as income and excludes others). Anyway, you compare that number with the median income for households of the same size as yours in your state. (Half of households earn more than the median, and half earn less.) The U.S. Census Bureau compiles median income numbers periodically. The latest figures can be found at http://www.usdoj.gov/ust/eo/bapcpa/meanstesting.htm. If it happens that you are below median income, Bingo! You pass the means test! Congratulations! You get a green light. Go directly to Chapter 7.

· Expense Allowances: You only need to complete the second part of the means test if your CMI is above median. Lucky you! In the second part (Parts V-VIII of the official form), you subtract your allowable expenses from your CMI. The bottom line is called monthly disposable income. If the bottom line is less than about $125 monthly, Voila! You passed the means test, even though you are an above-median-income debtor, and can also go directly to Chapter 7. If the bottom line is above about $208 monthly, however, there is a presumption of abuse of chapter 7, i.e., you get a red light, and likely will be forced to file a five-year Chapter 13 plan UNLESS, you can show, in detail, and document special circumstances. Unfortunately, there is no definition of special circumstances, just two examples, i.e., serious medical condition or call to active military duty. Other than that, special circumstances pretty much means whatever the bankruptcy judge thinks it means, except obviously there should be something special (unusual) about your case, to justify you not having to pay at least part of your unsecured creditors back in a five-year Chapter 13 plan. By the way, on the means test, you do NOT get to use your real expenses for most expense categories on the test. Instead, you use tables of allowances or standards mostly borrowed from the IRS collection manual used to collect back taxes from tax cheats. You can find the current tables by pressing the button at http://www.usdoj.gov/ust/eo/bapcpa/meanstesting.htm.

If you are an above-median-income debtor, you have to complete both parts of the means test (about 7 pages) and I would be very surprised if you do it correctly (or at least the way the UST says it should be completed). Furthermore, the UST has historically made it very difficult for above-median debtors to file under Chapter 7 even when they pass the means test. For these reasons, I strongly advise you not to file pro se, especially if your income is above median.


Informational Links:

American Bankruptcy Institute
www.abiworld.org

National Association of Consumer Bankruptcy
www.nacba.org

USC Title 11 -Bankruptcy
www.doney.net

Personal Bankruptcy Information
www.bankruptcyinformation.com

Bankruptcy Law Network
www.bankruptcylawnetwork.com

Start Fresh Today, Inc
www.startfreshtoday.com

Life After Bankruptcy
www.lifeafterbankruptcy.com