Bankruptcy Bits

Does it matter if a creditor gets a lien before I file bankruptcy?

If a debtor does not pay an unsecured debt, the creditor has several options. Specifically, after calling and generally harassing the debtor, the creditor may then pursue the debtor in court. If the creditor obtains a judgment against the debtor, the creditor may then look to put a lien on the debtor’s (i) bank account; (ii) car; (iii) real estate; and/or (iv) attach the debtor’s pay stub. Although a subsequent Chapter 7 bankruptcy filing will discharge the underlying debt, the debtor may wonder if the involuntary lien can subsequently be removed. Debtors will be happy to know that that the bankruptcy code provides them relief. Specifically, the code allows the debtor to file a Motion to Strip an Involuntary Lien in order to allow the debtor to get rid of the debts, keep their assets free of liens, and get a fresh financial start.

by: Justin H. Dion, Esq.

Medical bills - one of the key reasons people file personal bankruptcy

Harvard University has reported a study finding that medical bills and related health care expenses and problems, (such as loss of employment for the ill and their family caretakers,) were a major cause of personal bankruptcy in 62% of all consumer cases filed in the calendar year 2007.

Many of these people did have health insurance, but it was not enough of a safety net to keep people from falling into a financial hole. A combination of co-pays, non-covered services and high deductibles all combined to add to these people’s problems.

While often not the sole cause of people’s financial woes, the medical situations were often the burden that pushed people over the edge. These studies are adding support to the momentum for Congress to pass some form of heath care reform package, which would hopefully address the issues of co-payments, deductibles, out-of-network charges and caps on maximum annual benefits, thereby easing the burdens on the average working family.

by: Michael B. Katz, Esq.

Why does family size matter when I am filing bankruptcy?

Under the 2005 Amendments to the Bankruptcy Code, Congress instituted a Means Test to determine whether filing Chapter 7 was presumed to be abusive. As part of the test, the debtor is initially required to compare the income of their family to the median income of a similarly sized family for the state in which the debtor resides. If the income is less than the median income, the Chapter 7 filing is presumed to be non-abusive.

For example, in Massachusetts, the median income for a family of one is $54,842, compared to a family of three which is $83,104. Thus if the debtor earns $83,000, they are initially eligible to file a Chapter 7 if their family is reported as three, however they are not eligible if the family size is one or two.

The key issue then becomes how to determine household size. For example, if the Debtor is a single parent without physical custody of their two kids, can they claim a household size of three based on the fact child support is being paid, despite the fact the children do not reside with the debtor? Simply put, the larger the household size, the easier it is to pass the means test.

Unfortunately, the IRS and Census Bureau definitions differ on the concept of family size. Some Courts have adopted the Census Bureau definition described as a “heads on beds” definition in that anyone actually sleeping and eating in the house is a household member. Other Courts are more concerned with whether the debtor is financially supporting others, regardless of where they actually live. In short, the more evidence a debtor can show that someone is a family member that they care for and that resides with them, the more likely the debtor will be able to include them as household members and ultimately become eligible to file bankruptcy.

By: Justin H. Dion, Esq.

Can I keep my bankruptcy filing private?

Although filing bankruptcy is not illegal or immoral, most people would prefer to not tell the world of their financial problems. Specifically, many debtors are concerned about their family, co-workers, and neighbors finding out about the bankruptcy.

As such, a common question asked by clients regards their ability to keep their bankruptcy filing private. My response is often a combination of both legal and practical advice.

From a legal perspective, bankruptcy is a public filing, and thus information on everyone who files bankruptcy is available to the public. In addition, as you are required to list all your creditors in your filing, so if you owe money to a friend or family member, they will receive notice of the filing.

That being said, unless the debtor is a business or a public figure, the daily or weekly newspaper or television, (at least in Western Massachusetts,) is not going to report on the bankruptcy filing. Accordingly, although a bankruptcy filing is technically public, in most cases, as long as your friends, family, and co-workers are not creditors, they will generally not find out about the bankruptcy.

by: Justin H. Dion, Esq.