Means Test

Means Test – Exclusion from Chapter 7 Bankruptcy If a debtor’s income is greater than an amount that varies by the number of dependants and household members, the debtor may not file a Chapter 7 bankruptcy petition. This is known as the 707(b) exclusion. This was designed to force debtors to pay off debts over 5 years in Chapter 13. The means test is long and complicated. Because it is subject to various interpretations, lawyers cannot be certain that it will not be recalculated by the trustee or the bankruptcy court. What follows is an outline of the test. An important exception to this exclusion applies if the majority of debt is business debt. Calculation of Income for the Purposes of the Means Test   A. CALCULATION OF INCOME: 1. Gross Wages, Salary, Tips, Bonuses, Overtime, Commissions. 2. Income from the operation of a business, profession or farm 3. Rent and other real property income. 4.  Interest, dividends, and royalties 5.  Pension and retirement income. 6. Any amounts paid by another person or entity, on a regular basis, for the household expenses of the debtor or the debtor’s dependents, including child or spousal support.   7.  Unemployment compensation. 8. Income from all other sources. B. APPLICATION OF 707(b) Exclusion 1.  Determine applicable median family income. C. CALCULATION OF Currently Monthly Income for 707(b)(2) 1. Determine Marital Adjustment D. CALCULATION OF Deductions Allowed under 707(b)(2) 1.  National Standards: food, clothing, household supplies, personal care, and miscellaneous. 2. Local Standards: housing and utilities; non-mortgage expenses. 3. Local Standards: housing and utilities; mortgage/rent expense. 4. Local Standards: housing and utilities; adjustment. 5....

Washington Exemptions

Exemptions from Execution in Washington State Washington’s State Legislature has provided numerous exemptions from execution of judgments. These also protect property in bankruptcy if the debtor elects state exemptions over the federal bankruptcy exemptions. What follows is a generalized summary of the most common exemptions. Several have important conditions and exceptions that are not discussed. If the value of an asset exceed the maximum exemption, the difference usually must be paid to creditors in order to keep the asset. If it is sold, the proceeds up to the maximum goes to the debtor. In bankruptcy, the debtor can chose either the Washington Exemptions or Federal Exemptions schedule. Homestead A homestead is real or personal property which is the debtor’s principal residence (RCW 6.13.010). The exemption is $125,000 for land, mobile homes, and improvements; $15,000 for other personal property used as homestead (RCW 6.13.030). The amount is not doubled for community property, a spouse or domestic partner. However, if the spouse or domestic partner files bankruptcy more than 6 months later than the other, both receive the full exemption (RCW 16.13.080 (3). If homestead property is sold, the proceeds are entitled to the same protection as homestead property (RCW 16.13.180). There is an exception for child support obligations. Retirement Funds All retirement accounts are protected from creditors (except child support obligations) including Keogh and IRAs (RCW 16.15.020 (4)). Clothing All wearing apparel is exempt except the exemption for furs, jewelry, and personal ornaments is limited to $3,500 (RCW 6.15.010 (1)(a)). Photos and Keepsakes All family photos and keepsakes are exempt (RCW 6.25.010 (1)(a)). Libraries Each individual is entitled to an...

Federal Exemptions Summary

Federal Exemptions Summary for Bankruptcy Debtors (not applicable to tax debt) As of 5/6/2011 The following is a summary of section § 522 of Title 11 of the United States Code which provides for exemptions. Each debtor is entitled to these exemptions so in a joint case (husband and wife) the exemptions are doubled. Property and support of a dependent can be included. In Washington and New York, the debtor in bankruptcy can elect either state exemptions or the federal exemptions. In Oregon, the debtor may only use the state exemptions. Washington State exemptions Federal Statute providing these exemptions (11 USC § 522) Alimony and Child Support: § 522(d)(10)(D) – Alimony and child support needed for your support. Crime Victim § 522(d)(11)(A) – Crime victim’s compensation Health Aids § 522(d)(9) – Professionally prescribed health aids. Homestead: § 522(d)(1) – Real property, including mobile homes and co-ops, or burial plots up to $21,625. Unused portion of homestead, up to $10,825, may be used for other property. See “Wildcard” below. Insurance: § 522(d)(7) – All unmatured life insurance policies. § 522(d)(8) –  The loan value of an unmatured insurance policy up to $11,525. § 522(d)(10)( C ) – Disability, unemployment or illness benefits. § 522(d)(11)( C ) – Life insurance payments for a person you depended on for your support to the extent needed for your support. Lost Earnings §522(d)(11)(E) – Lost earnings payments. Pensions: § 522(b)(3)(C) – Tax exempt retirement accounts; IRAs and any other retirement that is exempt from federal taxation. Personal Injury §522(d)(11)(D) – Personal injury recovery up to $21,625 excluding recovery for pain and suffering or for pecuniary...

Federal Bankruptcy Exemptions

This page is the statute providing for federal exemptions from bankruptcy. The link below provides an easier to follow summary of federal bankruptcy exemptions. Federal Bankruptcy Exemptions Summary   11 U.S.C. 522. Exemptions as of 5/2011 (a) In this section– (1) “dependent” includes spouse, whether or not actually dependent; and (2) “value” means fair market value as of the date of the filing of the petition or, with respect to property that becomes property of the estate after such date, as of the date such property becomes property of the estate. (b)(1) Notwithstanding section 541 of this title, an individual debtor may exempt from property of the estate the property listed in either paragraph (2) or, in the alternative, paragraph (3) of this subsection. In joint cases filed under section 302 of this title and individual cases filed under section 301 or 303 of this title by or against debtors who are husband and wife, and whose estates are ordered to be jointly administered under Rule 1015(b) of the Federal Rules of Bankruptcy Procedure, one debtor may not elect to exempt property listed in paragraph (2) and the other debtor elect to exempt property listed in paragraph (3) of this subsection. If the parties cannot agree on the alternative to be elected, they shall be deemed to elect paragraph (2), where such election is permitted under the law of the jurisdiction where the case is filed. (2) Property listed in this paragraph is property that is specified under subsection (d), unless the State law that is applicable to the debtor under paragraph (3)(A) specifically does not so authorize. (3)...

Litigation Tactic to Delay

Bankruptcy cannot be used merely as a litigation tactic to delay or avoid a state court order. Filing bankruptcy used as a strategy to delay a state court order can be a bad-faith filing. If the creditors will recover more money outside of bankruptcy court than through a liquidation, the court may dismiss the bankruptcy petition. Owens and her husband were divorced but litigation continued over the family home. The Washington State Superior Court ruled that the family home was a combination of community and separate property because some of the funds Owens used in purchasing the home were community property. The court ordered the home sold and the proceeds divided equally between Owens and her former husband. Owens filed for Chapter 11 bankruptcy, claiming the family home as her only significant asset. Her ex-husband filed a motion to dismiss Owens’ bankruptcy case as a bad faith filing under 11 U.S.C. § 1112(b). The bankruptcy court granted the motion, ruling that the bankruptcy was filed in bad faith as a litigation tactic intended to delay the sale. In its decision, the bankruptcy court noted that Owens had an annual earning capacity between $150,000 and $800,000 and that creditors would recover more if the petition were not converted to Chapter 7. In a recent case, the BAP affirmed the bankruptcy court. The BAP cited with approval Rollex Corp. v. Associated Materials, Inc. (In re Superior Siding & Window, Inc.), 14 F.3d 240, 243 (4th Cir.1994) which held that when deciding between dismissal and conversion under 11 U.S.C. § 1112(b), “the court must consider the interests of all of the creditors.” Share...

Types of Bankruptcy Filings

The most common type of bankruptcy filings are: Chapter 7 Chapter 7 is designed for individuals, corporations and partnerships in financial difficulty who do not have the ability to pay their existing debts. Under chapter 7 a trustee takes possession of all the debtor’s non-exempt property, liquidates it for cash and uses the proceeds to pay creditors according to priorities of the Bankruptcy Code. In Washington, the debtor may elect all the state exemptions or alternatively all the federal exemptions. In Oregon, only state exemptions may be used. Chapter 9 Chapter 9 is designed to allow a municipality to continue operating while it works out a repayment plan for its creditors. A municipal unit cannot liquidate its assets to satisfy its debts. Chapter 11 Chapter 11 allows a business to reorganize and restructure its finances so that it may continue to operate, provide employees with jobs, pay its creditors, and produce a return for its owners. While chapter 11 is primarily designed for a business it is also available to individuals. In a chapter 11 case the debtor proposes a plan to creditors which, if accepted by the creditors and approved by the court, will allow a debtor to reorganize. A debtor may also propose a plan of liquidation and cease doing business. Chapter 12 Chapter 12 allows family farmers and fishermen with financial difficulties to repay debts over a period of time from future earnings. In many ways it is similar to a chapter 13 case. The eligibility requirements are restrictive, limiting its use to those whose income arises primarily from a family-owned farm. Chapter 13 Chapter 13...