Law Offices of David P. Leibowitz LLC
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If you are filing for bankruptcy, either under chapter 7 or chapter 13, your income matters. Why? People who make more than the median income – the income more than 1/2 of the people make – are presumed to be abusing the system if they file a bankruptcy under chapter 7. For an individual, that’s around $40,000 and for a family of 4 that’s around $80,000. It’s better for most people to file chapter 7 than chapter 13 because in chapter 7, you are done with your bankruptcy in 4 months. In chapter 13, you pay more fees and you make monthly payments to a chapter 13 trustee toward payment of your debts for 5 years. This can be a good deal if you are trying to save property or catch up with mortgage arrears. It’s not such a good deal if you have a very little non-exempt property which you might lose in a chapter 7.
When you make more than the median income, we have to figure out if you overcome the presumption of abuse. We do that by analyzing your income and expenses under the government’s Means Test as adopted by the Bankruptcy Code.
Many of our clients are married. Frequently, one person in a marriage has debt and needs to file for bankruptcy but the other does not. Then what happens?
It’s not all that simple.
We have to figure out your projected disposable income. To figure this out, we need to know not only what you make and what your expenses are, we also need to know what your spouse makes and what your spouse’s expenses are. That’s because anything your spouse makes beyond your spouse’s own separate expenses are deemed to be available to you as disposable income to allow you to pay some of your debts. This additional disposable income might make a difference in determining (a) whether you are eligible to file a case under chapter 7 or (b) how much you’ll have to pay as a monthly payment if you have to file a case under chapter 13.
It might seem unfair that your spouse’s income must be considered if you are filing a bankruptcy case and your spouse is not. But Congress has spoken and we must help you obey the rules.
The good news is that if you file a bankruptcy case and your spouse does not, your bankruptcy case has no adverse impact on your spouse’s personal credit.
It’s complicated when one spouse files for bankruptcy and the other does not. Lakelaw’s board certified bankruptcy attorneys have great experience with complex cases like yours. Count on us to help you when you have tricky bankruptcy questions. Call Lakelaw in Chicago or Waukegan at 847 249 9100 or in Milwaukee or Kenosha at 262 694 7300.
The Supreme Court has finally told us how to figure out how much you need to pay in a chapter 13 plan..
The first question we hear after mentioning the basics of how a Chapter 13 works is “how much will I have to pay?” We need to know your “projected disposable income.” Until now, we really didn’t know how to figure this out. The Supreme Court has cleared up a lot of uncertainty about this, particularly when your income over the past few months includes large payments which you won’t be getting in the future. Until now, large one-time payments, like severance pay, could distort your income for “means test” purposes and therefore for purposes of figuring out how much you need to pay under a chapter 13 plan. Unfortunately, without sitting down, completing a full “means test”, a budget, and checking for equity in property, we couldn’t say for sure. We can try to give a good estimate. It’s completely unfair to expect someone to pay money based on income from the last six months if there was an unusually high amount of money, something that won’t be repeated going forward.
Now the Supreme Court has given us guidance we can rely upon in advising you in Chapter 13 cases. Here’s what happened. Ms. Lanning filed a bankruptcy after she lost her job and started a new job. During the six months before her filing, she received a severance over two months. That severance made her look like she was a wealthy woman and put her above the median income level for a single woman in Kansas. Although her budget showed she had about $144 per month to pay to a Chapter 13 plan, her “means test” told the courts she should really be paying much more – $756 per month – over $600 more than she could afford!
Ms. Lanning proved that a one-time event that is certain not to happen again was the cause of this inflated amount. The Supreme Court sided with her and said that her “projected disposable income” – the amount she needed to pay every month into her bankruptcy plan – was more accurately reflected by her budget.
This case can cut both for or against people who may file chapter 13. But at least we can tell you what to expect with a high degree of certainty. The most important thing you can do to determine what you should be paying to a Chapter 13 plan is to speak with a qualified attorney to review your case completely and let them fight for you.
Lakelaw files Chapter 13 Bankruptcies in Wisconsin and Illinois and can help you understand how plan payments work in Chapter 13 in compliance with the Supreme Court’s Lanning decision. Call 262-694-7300 in Wisconsin or 1-866-LAKELAW in Illinois today so that we can help you get out of debt for good.