Qualifying for Chapter 7

One of the changes in the 2005 landmark bankruptcy legislation was the concept of “qualifying” for Chapter 7. Previously, a debtor was eligibile for Chapter 7 relief if doing so was not a substantial abuse. This in turn came to mean, essentially, that if a debtor could pay his creditors in hypothetical Chapter 13, it would be an abuse to allow him to “walk away” via a chapter 7.

The 2005 amendments kept the spirit of the prior practice with the following structure, taking it from a case-by-case view to a more objective, formula-based approach.

Step 1: “Current Monthly Income”

If average income over the six months prior to filing is LESS than the average state income for the debtor’s household size, then it’s not an abuse to file chapter 7.

The determination of “income” and the applicable household size have major consequences and often require attorney interpretation.

Step 2. The Means Test

If current monthly income is greater than the state average, the means test — a formula to determine whether a debtor “should” have leftover income to pay creditors — is applied. Here, average household expenses and actual debt payments (for homes, cars, and other “keeper” debts) are subtracted from Current Monthly Income to see if there is a surplus. If there is a surplus of roughly $150.00 per month or greater, then it is presumed that filing a Chapter 7 case would be an abuse — because the debtor theoretically could pay his creditors SOME money.

Step 3: Special Circumstances

Sometimes, a debtor has unusual income or expenses. What if income is artificially inflated due to a one-time payment? What if a debtor has provable high medical or transportation expenses? Debtors that “flunk” the means test can try to prove these special circumstances as a way to rebut the presumption that their chapter 7 case is abusive.

Gene Sollows is the managing attorney for the Plano office of Bailey & Galyen.  His common sense, down-to-earth approach and empathetic bedside manner make him uniquely qualified to handle the family and financial problems of north Texans.


Yes, you need a lawyer

One of the growing movements over the past twenty years has been the steady increase in “pro se” or “pro per” court filings by people representing themselves without the assistance of a licensed attorney. This trend extends to all areas of law, including bankruptcy. It is often said that a man who is his own lawyer has a fool for a client, and truer words are rarely spoken. While it is easy to dismiss this blog as the ramblings of an attorney trying to protect his turf, there are many reasons why filing a bankruptcy (or any other case, for that matter) on your own is a bad idea.

Of primary concern is that only bankruptcy attorneys actually know the law and can apply it correctly to your situation. There are many nuances and subtleties in bankruptcy, many of which can have a major effect on the outcome of your case. What you don’t know will hurt you. If you make a mistake, you could end up losing property or not receiving a discharge of your debt; and if your mistake is intentional, you could be charged with a federal bankruptcy crime.

On a related note, filing a bankruptcy is more than just filling out the forms. Not only are the forms difficult, but understanding how your situation relates to the forms (and knowing what the trustee and other parties are looking for on the forms) is critical. Listing your assets and debts is only a part of what bankruptcy attorneys do. The particular quirks and proclivities of the trustee and court are of high importance, and an attorney that practices regularly in a given area will know this information; you likely will not.

Most of our clients have busy lives, trying to make ends meet and managing their households. Frankly, you have other things to do with your time than deal with your case. Trying to learn how to file your case semi-properly can literally take you double or triple the time it would take a qualified attorney to do the job. We have the expertise and training.

Lastly, a good attorney is objective, able to assess your situation fairly with an eye towards how the case will flow through the system and be perceived by the trustee, court, creditors, and other players. This big-picture view is something you necessarily cannot have, since, after all, it’s your life. Your own goals, hopes, and fears quite naturally cloud your judgment and views of the situation. This is why attorneys hire other attorneys when they have a legal matter of their own — it’s too personal. This is why, for example, doctors don’t perform surgery on themselves or relatives. Objectivity leads to better results.


Judgments and other Court Orders

In times of financial crisis it is common to be sued as the defendant in a civil collection lawsuit. It is normal during such times to be overwhelmed and terrified by court, attorneys, and the entire legal system. As a result, a large number of collection lawsuits result in default judgments — court orders entered because the defendant debtor did not appear or file a response.

This is somewhat understandable on the surface — after all, if you had several thousand dollars to retain an attorney to defend the lawsuit, you probably wouldn’t owe the debt in the first place — but a judgment is a bad outcome for most people. In Texas, judgment creditors can get a lien against all real property in the county in which the judgment is abstracted. Also, while wages generally cannot be garnished, bank accounts can be garnished with a court order. If you plan on buying or selling real estate, or having a regular banking experience, having an aggressive judgment creditor is a substantial problem.

The larger issue is also, in many cases, a failure to recognize or appreciate the significance of the judgment and other court orders. Judges routinely hold parties in contempt for violation of court orders, and the punishment for disobedience can include fines, attorney’s fees, and even jail time depending on the court and nature of the disobedience. Pretending that the court case does not exist or that the court lacks authority in your case is a guarantee of future headaches and legal expenses.

You need a lawyer in these situations to advise you on the proper course of action to deal with your creditors and avoid judgments and other court orders that can make your life miserable. Don’t bury your head in the sand — hire a professional. Your creditors have attorneys, and you need one too.


You Are Not Alone

In times of financial or legal trouble, it is easy to feel trapped, alone, and isolated. Whether due to embarassment, secrecy, or shared hardship, your friends and family may be unaware or unable to help you. It can feel like you have the weight of the world on your shoulders. Moreover, your anxiety and depression can rob you of joy from the simple pleasures of life — sleep, food, companionship, and other aspects of daily living we all take for granted. Walking through your house or neighborhood can feel like walking through a ghost town, with no one to help or listen to your concerns.

You are not alone. A qualified attorney is not only a legal advisor and guide through the court system but a counselor to help you focus on your problem to get to the next step. Sometimes, we all just need help putting one foot after the other just to keep moving forward. An attorney can provide that clarity and help strip away things that are out of your hands so you can prioritize and concentrate on matters in your control.

It’s also normal to experience short-term emotional instability during times of financial crisis. Consulting with a licensed professional in this area, even on a short-term basis, can help give you the tools to move forward.

Life is too short to endure suffering needlessly alone. Reach out to the professionals that can help you, and take your life back responsibly.

Gene Sollows is the managing attorney for the Plano office of Bailey & Galyen. His common sense, down-to-earth approach and empathetic bedside manner make him uniquely qualified to handle the family and financial problems of north Texans.


The Fresh Start

One of the main benefits of a bankruptcy filing is the concept of a fresh start. In everyday life, we routinely see people in need of a second chance, a do-over, a fresh start to get back on track. These concepts have deep cultural and even religious roots; when discussed, people use terms like “forgiveness,” “rebirth” and other evocative language to describe the lightening, unburdening effect of getting a fresh start.

The bankruptcy discharge is a powerful fresh start. In most cases, it eliminates most or all of a qualifying debtor’s debts. There are exceptions — debts you choose to keep, student loans, child and spousal support, certain taxes, debts incurred by fraud, and others — but by and large, the bankruptcy discharge clears the decks of unpayable debts.

Most people think of credit card debts and medical bills when they think of bankruptcy — but the discharge covers much more than those obligations. Consider the various contracts and legal commitments adults routinely make over the course of their lives. Leases, business transactions, utility contracts … all of these (and the lawsuits they engender!) are washed away by the discharge, subject only to valid liens against property. Assuming you qualify, there is no cleaner way to unburden yourself of these commitments than via bankruptcy.

The removal of the debts in turn creates room for personal growth and change, to hopefully make us both wiser and more cautious in the future. For the honest but unfortunate debtor, bankruptcy’s fresh start is truly a new beginning.

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