Austin Bankruptcy Lawyers Cantu and Hickson, P.C. About Bankruptcy:
The New Bankruptcy Law
A new bankruptcy law went into effect on October 17, 2005. Under the new law it may be more difficult for some people to qualify for relief under chapter 7of the United States Bankruptcy Code.
To qualify under chapter 7 will be determined by one's family income, family size, and family expenses. If the household income is greater than the state median income, it is considered an abuse to file chapter 7, and unless there are mitigating circumstances to justify filing the case, it will be dismissed and monitary sactions may be awarded against the debtor.
Until it is revised in 2006, the state median income is based on the 2004 Census Bureau. The following are the median income figures for Texas:
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One person family - $34,408.00
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Two person family - $48,029.00
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Three person family - $50408.00
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Four person family - $58,153.00 ( add $6,300.00 for each additional family member ).
Chapter 13 under the new law
Chapter 13 debtors who are earning less than the state median income will not be affected much under the new law and the amount they pay will be basically unchanged to the old bankruptcy laws. For debtors whose income is below the median income the following applies:
Chapter 13 is known as the Wage Earner Plan. It allows an individual to reorganize and consolidate all of his or her debts by putting together a plan specifying how creditors will be treated.*
The debtor is allowed to retain his or her assets but must in turn pay his or her creditors pursuant to the terms as set out in a plan, meeting the requirements under title 11 of the United States Bankruptcy Code.
The plan provides for a monthly payment to a trustee who will administer the funds and disburse payments to the creditors. How much is paid monthly is determined by one's disposable income as well as how much is owed and what type of debt is involved. Chapter 13 does not always require that a person pay the creditors in full, and a plan can be approved by the court even if it only proposes to repay a few cents on the dollar.
There are two requirements for approval of a plan:
1) All income left over after living expenses, known as disposable income, must be paid into the plan.
2) The plan must meet the liquidity test requiring that creditors be paid no less than they would have received had the case been one under chapter 7.
This means that in a no asset case, a person will be making a payment he can afford without losing his or her exempt property. For example, take the scenario of a person with 10 credit cards, each with balances of $3,000.00 and monthly payments of $100.00 on each card. This person also has a car loan with a balance of $10,000.00 and a payment of $280.00 monthly, and this car was valued at $7,500.00. Furthermore, this person is behind on all payments including 3 house payments of $650.00 each and is now facing repossession and foreclosure. This person was paying $1,280.00 a month on the credit cards and the car loan. This same person could reorganize this debt under a Chapter 13 Plan and pay as little as $290.00 a month. He would also be able to stop the repossession of the car and the foreclosure on the house by paying the past due house payments under the plan.
Even though this plan will not pay back creditors in full, any unpaid balance will be discharged upon completion of the plan.
Please be advised that this is solely for informational purposes, and is not intended as legal advice. You are advised to consult an attorney.
Should you wish to speak to someone at the offices of Austin bankruptcy lawyers Cantu and Hickson, for a Free consultation, please call (512) 346-8597.
Chapter 13 for Debtors above the State Median Income
If the income is above the State median income, the new laws provide a new way to calculate your payment amount. The method used to calculate the payment amount is too complicated to cover in detail here. A full evaluation of your income and expenses is necessary before it is possible to caculate the payment amount.
If you qualify, Chapter 7 is a legal method pursuant to the United States Bankruptcy Code whereby one may obtain relief from creditors without losing his or her exempt property.
Chapter 7 is the most commonly known type of Bankruptcy and it is often referred to as a "complete bankruptcy." Under Chapter 7, a person lists all of his or her debts and all of his or her assets. Depending on the exemptions allowed, he or she may emerge from the Bankruptcy debt-free while keeping all exempt property.
A person may discharge, which means not have to pay, any and all debts that are dischargeable pursuant to the United States Bankruptcy Code. These include: most debts other than debts incurred by way of fraud or misrepresentations, or where a false financial statement was provided; most taxes (although there are exceptions); student loans; some types of recent cash advances and some recent credit card purchases; child support and alimony; as well as a few other odd exceptions. A discharge will prevent creditors from ever taking any action to collect, and the Debtor gets to keep all his exempt property.
Secured debt where there is collateral requires a debtor make a choice to either continue to pay to keep the collateral or to surrender the collateral to the creditor. A Chapter 7 bankruptcy will not affect a valid lien and the creditor retains the right to payment or his collateral.
This is for informational purposes only and should not be substituted for legal advice. You should consult an experienced attorney. Should you wish to speak to someone at the offices of Austin bankruptcy lawyers Cantu and Hickson, for a Free consultation, please call (512) 346-8597.
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