The History of the New Bankruptcy Laws
The new bankruptcy code written by the United States Congress went into effect on October 17, 2005. Big banks lobbied big government because they wanted taxpayers to be forced to pay them after the banks were kind enough to lend people money at interest rates that was "usurious" or illegal as recently as the early 2000's. Just like the economy, those banks failed. You are still eligible to file bankruptcy and obtain the relief you need. We know that you did not choose to be in this position. We also know that you were forced into your debt situation because of one of the following: Loss of job, reduction in income, death, divorce, someone became sick, interest rates, the bad economy, or some other similar life event. Life happens. Now you need to make the right decisions to get past these events and prepare for the future.
Pelley Law Office, L.L.P. recently did a study of whether the percentage of Chapter 7 bankruptcies versus Chapter 13 bankruptcies filed by our firm had decreased since the law changed in 2005. Results: it has not. In fact, the percentage of Chapter 7 versus Chapter 13 bankruptcies that we have filed has remained about the same. As you will read in our Bankruptcy FAQs, almost everyone is still eligible to file bankruptcy.
The 2005 Bankruptcy Code and the "Means Test"
The 2005 legislation requires debtors to undergo a Means Test Analysis. The intent of the Means Test was to give the appearance that you have the ability to pay your unsecured creditors (credit cards) who have charged you astronomical interest rates and penalties. Our job is to see that you pay nothing or as little as possible to them, so that you can start saving for your retirement and your children's future.
Practically speaking, there are two parts to the bankruptcy Means Test Analysis. The first half of the means test asks three questions of the debtor:
- How big is your family?
- In what state do you reside?
- What is your income level or "Current Monthly Income"?
"Current monthly income" is a term of art and is an average of your gross pay from all sources in the six (6) months prior to the month in which you file the petition (with limited exceptions, like Social Security income).
At the free initial consultation, we will calculate what your "Current Monthly Income" (CMI) will be over the six months prior to the month in which you file the bankruptcy. Then, we will compare that to what the IRS's guidelines state the average income is for most families of your size in Texas. You may fail the first part of the means test, because most families make more in our community than what most other families make in other parts of Texas. Nevertheless, most of our clients pass the second part of the Means Test analysis here in North Texas. That means most of our clients pay back none of their credit card and other unsecured debt.
The second part of the test compares your "Local Housing, Utility, and Transportation Expenses" vis-à-vis the IRS's guidelines. This is how almost all of our clients pass the Means Test—on the second half.
Obviously, one of the things that we will discuss at length not only at the initial consultation but also at subsequent conferences prior to the bankruptcy filing is the timing of the filing of the bankruptcy. Just because you come to a conference today does not mean that you have to file immediately (However, it does probably mean you will stop wasting money immediately). Our attorneys will counsel you on the appropriate date to file and show you how to improve your credit score quickly.
You can easily lose thousands of dollars and/or unnecessarily repay dischargeable debt if you do not have an experienced bankruptcy lawyer.
Who wants to owe the IRS? If you settle your debts with your creditors outside of bankruptcy then under the Internal Revenue Code the debt that is forgiven is included in gross income. In other words, you are probably going to be taxed on that settlement. Plus, your credit score will suffer greatly.
An exception to the gross income rule is discharge of indebtedness under the Bankruptcy Code. Plainly stated, if you discharge debt through a bankruptcy, it is not a taxable event! Plus, your credit score will have an opportunity to improve rapidly.
If you file either Chapter 7 or 13 and pass the Means Test, then you pay back none of your unsecured debt (credit cards, etc.) and pay only those things that you wish to keep (such as your house or your vehicles).
Learn Your Options and Quit Wasting Money Today
Many of our potential clients are skeptical as to whether they will pass the Means Test, so they delay scheduling an initial consultation. There is no charge for the initial appointment and Means Test analysis with an experienced bankruptcy attorney, so it is pointless to wait. Also, if you file we will tell you how to rehabilitate your credit score.
Contact Pelley Law Office, L.L.P. Today
We invite you to call Pelley Law Office, L.L.P. at 972-468-0919 or 903-813-4778 to schedule a free confidential consultation with an experienced bankruptcy lawyer. You can also contact us by e-mail now to request an appointment to discuss your options. You will be under no obligation to hire us. We look forward to speaking with you and explaining how we can help.
Please view our Bankruptcy FAQs to learn more about our practice.