Yes, You Can Still File Chapter 7
Posted By Steven J. Richardson on July 6, 2006
During the months leading up to the October 17, 2005, changes to the Bankruptcy Code, there was a lot of talk about how much more difficult it would be to get a fresh start under the new law, creating a sense of urgency to file “before it was too late.” Now, after the changes, many think that they can no longer file a chapter 7. However, despite this worry, and although there are many more disclosure requirements and paperwork in the filing process, the “fresh start” that many consumers are looking for is still available and should be sought out by those who need it.
The “bogeyman” of the new Code that has people thinking that relief is no longer available is the “Means Testing” that is now a required part of consumer bankruptcies. Under the old law, absent a specific need to file a chapter 13, a person could file a chapter 7 and get a fresh start. “Means testing” was designed to force some people into a chapter 13 repayment plan that might previously have been able to discharge their debt outright. However, this only applies if your household income exceeds the median for New Jersey (based on 2000 census data adjusted yearly for inflation). If your income falls below that, you can still file a chapter 7.
Luckily, we all live in South Jersey, and the median income is elevated by averaging in the higher income of North Jerseyans. Thus the median incomes that apply are most often far above what a potentially bankrupt debtor earns. For example, a simple family of two (e.g. a childless couple or single parent and child) would have to have a total household income in excess of $60,532 for means testing to apply. Add two children, making a family of four, and it goes up to $91,398. Even a single person living alone would have to make more than $54,273 to be concerned. National statistics have put those subject to means testing at roughly 15% of chapter 7 filers. In southern New Jersey, with the lower incomes as compared to the average, this percentage is much lower.
Even if the household income is above that, all is not lost, as the Means Test may well still not force you into a chapter 13. In this test, standardized living expenses based on IRS figures are then deducted from your monthly income to see how much money is available to pay creditors every month (called “disposable income’). If that figure is less than $100, then you can file a chapter 7. If it is more than $166.66, then you must file a chapter 13 plan of repayment for five years. If it is somewhere in between, then you have to file a chapter 13 plan if, by paying over your disposable income for five years, you are able to repay at least 25% of your debt or $6,000, whichever is higher.
Another change is that, before the new law, if you wanted to file bankruptcy, you did so. Now, no more than 180 days before you file, you must receive an individual or group “briefing” from one of many approved, nonprofit budget and credit counseling agencies. Although this sounds onerous, it can often be done by telephone or online and can often be completed in a couple hours. Then after you file, and before a discharge of debt can be obtained, you must now complete “an instructional course concerning personal financial management.” Again, many institutions offer this service, and it can be accomplished fairly easily.
One unfortunate truth about the new Code is that, although most people can still get a “fresh start,” some of the freshness has been lost. For example, those with student loans, even if they are not guaranteed by, or paid to, a government agency (i.e. a Guaranteed Student Loan), can no longer wipe them out. Obligations under property settlement agreements or divorce decrees (other than alimony and support, now called “Domestic Support Obligations,” which have always been non-dischargeable no matter what) can now no longer be wiped out in a chapter 7.
The bottom line here is that if your financial situation has you inundated in credit card debt and/or medical bills, as most consumer debtors are, you should seriously consider the filing of bankruptcy, and should consult with an attorney for a detailed analysis of your situation. There still may be a very good chance that you will be able to get back on your financial feet again, and move on with your life.
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