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Archive for the ‘Chapter 7’ Category

Too Many Benjamins for Chapter 7?

Monday, April 19th, 2010

If you’ve done some light reading on the subject of bankruptcy, you may have come across the “Means Test” and all the confusion it brings.  The idea that you might be struggling under a six figure load of debt, but make too much to file for chapter 7 bankruptcy appears to be an oxymoron like jumbo shrimp, pretty ugly, and kosher ham.  The means test does not preclude bankruptcy filing, but requires debtors (with primarily consumer debt) with good incomes to file under chapter 13 rather than 7.

Here are the three steps in the overarching aerial view of the means test.  To get a hard and fast answer, you need to lace up your hiking boots and walk the terrain of specifics, but this will give you a good idea of where you stand.  The first step compares your income to the median income in your state for the same sized family over the last six months.  You can find the current tables here.  If your income is lower than the median, you are free to file chapter 7.  If your income is higher, you move on to the next step, the means test.

In the means test, you determine if you have extra money left over at the end of each month to pay creditors.  Here’s where your research and further math skills come into play, because it’s the IRS standards that determine the budget categories and amounts.  You can find those numbers here.  If you have less than $100 left at the end of the month, you are free to file chapter 7.  If you have more than $166.67, you’ll be a chapter 13.  If you fall between the two, you carry on to the third and final step.  For the third step, you compare the monthly amount paid over 5 years to the total amount of your unsecured debt.  If it’s less than 25%, you can file chapter 7.  If it’s more than 25%, you are a chapter 13.

As you can see, the means test with its multiple questions and heavy reliance on math can be overwhelming for anyone without a PhD in differential equations or a seat in Congress.  If your head is spinning and your calculator is smoking, you can come see us at the Doan Law Firm and we’ll do the calculations for you.  As a bonus, we’ll answer all your other Orange County and los Angeles bankruptcy questions and prove the oxymoron – honest lawyers.

Chapter 7 or Bust? Over-Median Debtors

Monday, December 14th, 2009

When a client comes to see me, they are usually struggling with debt. Might be a little or a lot; much of it depends on the eye of the beholder. For some, $20,000 in debt is a drop in the bucket; for others (most), it’s a noose that only seems to tighten with each twitch of the head.

So Mr. Dapper Debtor tells me, “I want to file Chapter 7 to get rid of my debts, approximately $50,000 of old credit cards.”

And I say, “I agree with you. You should eliminate this debt if you can no longer pay it back.” (fraud arguments aside)

Dapper then tells me, “Great, so you will help me?”

I say, “Of course, but first we must determine whether you qualify for Chapter 7 relief under the current standards.”

Dapper asks me, “What are these standards?”

I say, “First you must pass a means test, then show no excess income and finally not have any unexempt assets that the court might liquidate for the benefit of your creditors.” (besides not having filed bankruptcy within a certain period of time)

Dapper says to me, “Well, lawyer, I make $150,000 a year and I’m single. Will I still qualify?”

I sink into my chair, get very cozy and say, “Maybe.”


Chapter 7 Bankruptcy Flowchart

Tuesday, November 10th, 2009

Often our clients and other debtors want a simple visual to understand how procedurally a chapter 7 operates.   Accordingly, I have created an easy to follow flow chart to better help you understand how chapter 7 works in a nutshell.  By clicking this chapter 7 flowchart,  you will see how the typical chapter 7 proceeds at Doan Law Firm, LLP.  Over 95% of our chapter 7 cases are handled in this fashion, and if you file your case with our firm, chances are your case will proceed in the exact same fashion.

Does a Judgment for Fraud Issued by a State Court Act as Res Judicata in a Bankruptcy Dischargability Proceeding?

Monday, November 9th, 2009

Simply put, no.

I’ll start by stating that fraud and its appendages as found under section 523 of the bankruptcy code are nondischargeable debts (meaning they survive bankruptcy) .

Now we must define res judicata. In its most basic terms, res judicata prevents a dispute already ruled upon by a previous court to be disputed again in another court.

Being found liable for fraud or absolved of same in a state court proceeding will carry res judicata effect on any subsequent proceeding minus appeal and a very important exception: Bankruptcy.

In Brown v. Felson, 442 U.S. 127, 1979, the U.S. Supreme Court held that “the bankruptcy court is not confined to a review of the judgment and record in the prior state-court proceedings when considering the dischargeability of a debt.”


Know your Debts: Even High Income Earners can Qualify for Chapter 7 Bankruptcy

Tuesday, November 3rd, 2009

An issue commonly overlooked by bankruptcy practitioners is the distinction between consumer and non-consumer debts and the applicability of 11 USC 707(b) (dismissal of a case).

There are two common reasons why a Chapter 7 Debtor will be denied a discharge.  The  applicable code sections are  11 USC 707(a) and (b).   (For the full text of the code, please see

11 USC 707(a) provides that a Debtor’s case may be dismissed for unreasonable delay, failure to pay any applicable fees, or failure to abide by a court order/applicable rule.  In the vast majority of cases, as long as a debtor cooperates with counsel, the local and US Trustee, and the court, a dismissal under this section is rare.

The vast majority of Chapter 7 cases that do get dismissed are pursuant to 11 USC 707(b).  This section  provides that a case may be dismissed “if the granting of relief would be an abuse…”   This section only applies to “an individual debtor…whose debtors are primarily consumer debts.”  Accordingly, if the majority of your debts are “non-consumer,” then this section is inapplicable!


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