Debts can dramatically affect our lives. Events like accidents, medical bills, loss of employment, lawsuits, or even overspending, can cause debts to skyrocket. Hunt Law understands that life happens and doesn’t judge anyone’s reason for considering bankruptcy.
No matter the reason, bankruptcy is simply the legal process where people can eliminate debt. Don’t let social stigmas stop you from getting that fresh start.
Though each case is unique, here are some basic questions that we get regarding debt relief:
- I’ve heard that it is more difficult to file bankruptcy now. Is it?
- What is the means test?
- What does it cost to file bankruptcy?
- What happens if I can’t pay the Court filing fee?
- What debts can’t I get rid of?
- What happens if I file bankruptcy and my co-signor doesn’t?
I’ve heard that it is more difficult to file bankruptcy now. Is it?
In 2005, bankruptcy rules were changed to include stricter income requirements. Debtors must now pass the “means test.” This test is meant to keep higher-income filers from qualifying for Chapter 7 bankruptcy. This doesn’t mean that it is harder to file. It just means there’s an extra step to make sure filers qualify for relief.
What is the Means Test?
The means test is meant to determine if a debtor can repay part of his or her unsecured debts. The test compares income to certain allowable, necessary expenses. The expenses include secured debts, court-ordered payments, child care, taxes, insurance, housing, and transportation. Unsecured debts, like credit cards or a 401k loan, are not considered necessary expenses for the means test.
For the test, your last 6 months of income is averaged and must be below the median income for your state. If your average income is greater than the median income, there is a secondary test. The secondary test looks at your expenses to see if they offset the income. If this doesn’t help you to qualify, we would look at whether if your disposable income would pay less than 25% of your total, unsecured debt.
Not all debtors have to qualify under the means test. You may be excluded if:
- Your income is lower than the state median income; or
- Your debts are mostly for a business; or
- You are a disabled veteran and most of your debt incurred while on active duty; or
- You are a military reservist or member of the National Guard called to active duty prior to filing your case.
If you don’t qualify under any of these methods, you may have to consider filing another form of bankruptcy, or waiting to file to another time. We can help you to decide what may work in your situation.
What does it cost to file bankruptcy?
There are a few fees involved with filing. First are attorney’s fees, which must be paid prior to filing bankruptcy. Hunt Law charges $1200 for a single filer and $1400 for joint. Hunt Law requires half of our fees up front and before we will do the means test. The other half is simply due prior to filing the case. You can make payments, but we can’t file anything until the entire fee is paid in full. Due to the nature of bankruptcy, Hunt Law cannot accept use a filer’s credit card for payment. We do have other payment options, so call us to discuss.
Next, there is the Court filing fees, which is $335 (effective 6/1/2014). Depending on the case, there can also be a Trustee fee. Finally, there are the fees for the credit reports and required Credit Counseling and Debtor Finance Classes, which will run approximately $25 each.
What if I can’t pay the Court filing fee?
One option is to apply to pay the fee in installments. If approved, you can file your petition and then pay the fee over 4-6 months.
If you can’t afford to pay the fee at all, you can try to request a waiver of the filing fee. The fee may only be waived if your income is less than 150% of the poverty line applicable to your family size and you cannot otherwise pay in installments.
What debts can’t I get rid of?
Most debts can be eliminated through bankruptcy. Those debts that can’t be eliminated include child support, debts allocated in a divorce decree, student loans, and certain legal fines, judgments, and penalties.
Hunt Law wants to stress that filing Chapter 7 bankruptcy will NOT relieve divorce-related debts. Many think that filing a bankruptcy after divorce will relieve them of debts they agreed to pay during a divorce – this is NOT the case. For example, you and your spouse had a credit card and you agreed to pay the debt. You then file bankruptcy and the credit card company goes after your spouse. You still have an obligation to your spouse and he or she has recourse against you if you don’t continue to pay the debt. However, there are other options if you are in this situation, so contact Hunt Law if you fall in to this category.
What happens if I file bankruptcy and my co-signor doesn’t?
Many attorneys will tell you that, when one co-signor files bankruptcy, it should not affect any other signor on a loan or credit card. Hunt Law has not always seen this to be the case. To the contrary, have seen a co-signor’s credit score drop because creditors improperly report the bankruptcy on the co-signor’s credit report.
We highly recommended that non-filing co-signors monitor their credit reports during the filer’s bankruptcy. The filer’s bankruptcy can and does get reported on the non-filers credit report.
If this happens, the non-filing co-signor should dispute the account through the reporting bureau, as well as contact the Creditor, to make sure it is cleared up. Be aware that the process of removing a bankruptcy reference on a non-filer’s credit report can take months, so it’s important to stay on top of it.