Dear Bankruptcy Adviser,
I filed Chapter 7 and then I received a presumption of abuse letter from the U.S. Trustee’s office. I have not been told whether my case will be dismissed or converted to a Chapter 13 repayment plan bankruptcy. If my case is dismissed under a presumption of abuse, when will I be able to refile Chapter 7 bankruptcy?
– Lisa

Dear Lisa,
For those unfamiliar with the bankruptcy process, a presumption of abuse typically arises when a debtor’s income exceeds the median income of all individuals in the debtor’s state. Or the debtor lists expenses that exceed permissible expenses. The United States Bankruptcy Trustee presumes that the debtor is trying to abuse the bankruptcy system and notifies the debtor by sending a presumption of abuse letter.

When you have income above the median income for the state you live in, you must pass the “means test.” In general, this test is used to see if your income available for debt repayment over that five-year period is $10,000 or more, then Chapter 13 will be required. In other words, anyone earning above the state median, and with at least $166.67 per month of available income, will automatically be denied Chapter 7. So, for example, if the court determines that you have $200 per month income above living expenses, $200 times 60 is $12,000. Because $12,000 is above $10,000, you’re stuck with Chapter 13.

Additionally, a debtor is only allowed to list expenses that are “reasonable and necessary.” Who determines the amount of “reasonable and necessary” expenses? The Internal Revenue Service determines it, with statistics gathered over the years to determine what the “average” American should be paying for goods and services. In reality, most people spend well above those amounts.

For example, the debtor may truthfully list monthly expenses of $500 for food and $300 for recreation and entertainment. However, according to the Bankruptcy Code, it is “reasonable and necessary” (code words for “only permissible”) for a single individual, with no kids and no dietary issues, to spend only $250 per month on food and $75 per month on entertainment and recreation. In the eyes of the bankruptcy trustee, that remaining $475 can be used to pay off creditors, which is why a debtor in that situation would not qualify for complete relief from her debts under Chapter 7, but would instead qualify under Chapter 13 with a repayment plan.

However, a presumption of abuse does not always mean the bankruptcy petition will be dismissed. If a debtor has special dietary needs, or works in a profession that requires special purchases, such as an actress who has to buy clothing for auditions, then it may be possible to show the trustee that certain higher expenses are necessary for that particular debtor. Detailed documentation will be required.

Lisa, in your case, the bankruptcy trustee has notified you that, according to your income or listed expenses, it appears you can afford to pay something to your creditors. Chapter 7 relief is only granted when you have no assets that can be used to repay your creditors, which is why you may have to oppose the trustee’s motion to dismiss your Chapter 7 case, either by convincing him or her that your particular expenses should be allowed, or instead converting your case to Chapter 13.

You asked when you will be able to file for bankruptcy protection under Chapter 7 again. If your financial circumstances take a turn for the worse that could make it possible for you to legitimately qualify for a Chapter 7 bankruptcy, and there is no waiting period once a case has been dismissed. The question you should be asking, however, is: Why did you not know the rules before you filed? I assume you did not hire a bankruptcy attorney, because a competent attorney would have told you that you did not qualify for Chapter 7 bankruptcy relief. At this point, your situation has become a bit more complicated, and your best bet would be to find a bankruptcy attorney who can advise you on your best course of action.

Dewayne Gooch, has over fifteen years as Bankruptcy Attorney in Colorado Springs. Call today for a free initial consultation if you are considering looking for legal advice regarding Chapter 7 or 13 bankruptcy, bankruptcy exemptions, debt consolidation or elimination, or need foreclosure help in Colorado Springs CO.

Dewayne Gooch, P.C.
(719) 636-0001 (Tel)
(719) 636-1529 (Fax)
Email
2532 West Colorado Ave.
Colorado Springs, CO 80904

Here are some debts that can’t be discharged in bankruptcy. You are able to file bankruptcy without an attorney; however, if your desire to file is only to eliminate one of the debt types below, you could end up filing an unnecessary bankruptcy.

Here are the most common debts that cannot be eliminated in bankruptcy.

• Student loans.
• Secured debts.
• Child support and alimony.
• Ex-spouse legal fees and credit card debt.
• Restitution.
• Car accident due to intoxication or willful and malicious intent.
• Income tax liability.

Student loans: Loans taken out for schooling may not be eliminated in the vast majority of cases. All types of education loans qualify as student loans and are exempt from elimination in bankruptcy: federal student loans, private lender student loans, loans directly from the school and tuition assistance loans directly from a school.

Exception: If the borrower can prove he or she will never be able to work again because of a total and permanent disability, he or she may be able to include the student loan in the filing. However, the standard to eliminate student loans is very high and generally not possible.

Secured debt: If you buy a vehicle, valuable jewelry or merchandise and then file bankruptcy, you will either have to surrender the item or continue to pay the lender. The lender has a security interest in the item you purchased. This means you made an agreement with the lender to pay for the item in exchange for the current use of the item. Failure to pay results in a forfeiture of your right to continue using the item.

Exception: You are allowed to surrender the vehicle, jewelry or merchandise back to the lender and wipe out your obligation to pay. You are not obligated to keep an item just because the lender has a security interest. You just cannot keep it and not pay for it.

Child support and alimony: Fortunately, you may not eliminate a legal obligation to pay child support or alimony. Any outstanding balance owed at the time of filing will still remain after the case is over.

Ex-spouse legal fees and credit card debt: In many divorce decrees, one spouse agrees to pay for legal fees or some outstanding debts owed by the other spouse. These debts will survive your bankruptcy. For example, if you agree to pay the credit card balances in your name and the name of your ex-spouse, you could not then turn around and file bankruptcy to wipe out those debts or the agreement to pay. Your ex-spouse could still force you to pay those bills.

Restitution: Court-ordered restitution is not dischargeable in bankruptcy. Restitution is a court-ordered sum of money you must pay for causing financial loss or personal injury to another.

Vehicle accident resulting from intoxication or willful and malicious conduct: Any injury you cause to another resulting from driving under the influence cannot be wiped out in bankruptcy.

Income tax liability: You can wipe out some income tax liability, but there is a very specific and extensive test required to do so.

Dewayne Gooch, has over fifteen years as Bankruptcy Attorney in Colorado Springs. Call today for a free initial consultation if you are considering looking for legal advice regarding Chapter 7 or 13 bankruptcy, bankruptcy exemptions, debt consolidation or elimination, or need foreclosure help in Colorado Springs CO.

Dewayne Gooch, P.C.
(719) 636-0001 (Tel)
(719) 636-1529 (Fax)
Email
2532 West Colorado Ave.
Colorado Springs, CO 80904

If you’re looking to make a new start, be sure you do it the right way. These moves could cause trouble.

Many people find themselves in financial turmoil and finally decide that enough is enough; it’s time to file for bankruptcy. The goal is for a fresh start from the monthly burden of trying to pay bills when there is not enough income to do so.

Bankruptcy happens. When it happens to you, try to avoid the following 12 common mistakes:

1. Lying
The vast majority of people who file for bankruptcy protection do qualify. Those who don’t will generally have other options available to them. Deciding to file anyway — despite not qualifying — by leaving out assets or income could result in the case being dismissed and the filer being barred from filing on those particular debts ever again.

2. Leaving out income
People think that a second, part-time job does not count as income. All household income must be included, even the $300 per month your son earns working part time while in school. If you claim him as a dependent in your bankruptcy, you must include his income.

3. Leaving out cars
Some people say, “I don’t want to lose my car. Why are you listing it in the paperwork?” The car is an asset (or a liability if it is secured by a loan). It must be listed, and the court-appointed trustee reviewing your case must know about every car you own. Even a car driven by your son, which wasn’t transferred into his name, must be listed. And don’t transfer it to him just before filing. That’s the best way to lose it.

4. Leaving out car loans
You must notify all your creditors, even car lenders, that you have filed bankruptcy. You can usually keep the car, but the lender may have specific requirements you must follow. Failure to notify the lender may result in the loss of the car.

5. Leaving out creditors
Most credit card companies centralize the processing of credit card payments and services. Card companies will know that you filed for bankruptcy protection even if you don’t have a balance on that particular card. So don’t try to hide a credit card when you file for bankruptcy. You can get new credit after the bankruptcy. It is not worth it to leave out any creditor.

There is one big exception to this rule, and it pertains to credit unions. You may be able to keep an account with a credit union after filing for bankruptcy. Discuss this option with the credit union before filing.

6. Transferring assets out of your name before filing
Transferring an asset before filing for the purpose of protecting that asset is illegal. Just because you have an asset you want to protect does not mean you can give it away. A competent bankruptcy attorney can discuss how to legally protect an asset that might otherwise be at risk.

7. Repaying family before filing
You may owe your mother $10,000 and have every intention of paying her back. Just don’t pay her back in the 12 months before you file. No matter what you think, she is still a creditor, like your department store or the bank that issued your credit card. The bankruptcy code looks harshly on payments made to family members before a filing. Know the rules concerning payment to creditors before filing your case.

8. Failing to list all potential or pending lawsuits you have against anyone
Suing your former employer for unpaid wages? Suing your former best friend for unpaid rent? Those are assets and must be listed as such in your bankruptcy paperwork. You may be able to continue with the case, but the court-appointed trustee must know about those claims or potential claims.

You may even lose the right to continue with a potential lawsuit because the court-appointed trustee might be interested in taking over your lawsuit on your behalf. The lawsuit becomes an asset in your bankruptcy case and may have significant value. This is a complicated topic, but failing to list potential or pending lawsuits is a common mistake made by bankruptcy filers.

Dewayne Gooch, has over fifteen years as Bankruptcy Attorney in Colorado Springs. Call today for a free initial consultation if you are considering looking for legal advice regarding Chapter 7 or 13 bankruptcy, bankruptcy exemptions, debt consolidation or elimination, or need foreclosure help in Colorado Springs CO.

Dewayne Gooch, P.C.
(719) 636-0001 (Tel)
(719) 636-1529 (Fax)
Email
2532 West Colorado Ave.
Colorado Springs, CO 80904

Dewayne Gooch, has over fifteen years as Bankruptcy Attorney in Colorado Springs. Call today for a free initial consultation if you are considering looking for legal advice regarding Chapter 7 or 13 bankruptcy, bankruptcy exemptions, debt consolidation or elimination, or need foreclosure help in Colorado Springs CO.

Dewayne Gooch, P.C.
(719) 636-0001 (Tel)
(719) 636-1529 (Fax)
Email
2532 West Colorado Ave.
Colorado Springs, CO 80904