CONSUMER BANKRUPTCY 101 

                                        (PART 2) 

This is the second in a series of articles on consumer bankruptcy.

Part of the bankruptcy petition is a schedule of your monthly income from all sources. Your attorney will need to see the last six months of paystubs and other proof of income, to be able to prepare the income schedule.

Another part of the bankruptcy petition is a schedule of expenses, such as food, utilities, rent or mortgage, car payment, insurance and other living expenses.

These two schedules are compared to see whether you have any surplus monthly income.

If you do have surplus monthly income, you may be disqualified from filing a Chapter 7 bankruptcy, and rather may be limited to filing a Chapter 13 bankruptcy.

The bankruptcy code has been revised to set income standards which are used to determine whether a debtor should file a Chapter 7 or whether a debtor should file a Chapter 13 petition.

Presently, in New Jersey, these figures for a one earner family are $56,151.00 for a one person household, $64,821.00 for a two person household, $83,306.00 for a three person household, and $97,131.00 for a four person household. $6,900.00 should be added to the latter figure for each additional member of a household in excess of 4.

If your household income is in excess of the applicable figure, and you file a Chapter 7 petition, you are presumed to have abused the bankruptcy code, and can be required to convert your case into a Chapter 13 petition, or your case can be dismissed. When your household income is in excess of the applicable figure, then your bankruptcy budget must be prepared with reference to household expense figures prescribed by Internal Revenue Service and Census Bureau guidelines. So, for example, if you are spending $600.00 per month on food, that amount of expense may not be allowed, and the applicable guideline may force you to claim a lower figure. The result of the application of the Internal Revenue Service and Census Bureau guidelines is that your monthly budget as allowed by the U.S. Bankruptcy Court may be significantly lower than your actual budget, and the Court would require the resulting surplus income to be paid to your creditors in a Chapter 13 plan over a period of three to five years.

For these reasons, if your household income is in excess of the applicable figure, you should generally assume that you must file a Chapter 13 bankruptcy petition and plan.

In a Chapter 7 bankruptcy, you have the option on a secured claim to reaffirm the debt or to surrender the collateral. For example, you may decide that you cannot afford your car payment and that you will surrender the car to the finance company. In that event, the debt will be discharged. Or you have the option to reaffirm the debt and keep the car. In order to reaffirm the debt, you and your attorney must complete and sign a reaffirmation agreement (usually provided by the secured creditor), which is filed with the court and which is subject to court approval.

Under law, you do have a 60 day period for rescinding this agreement if you wish, starting on the date that this agreement is filed with the court. The consequences of this agreement are that if you reaffirm the debt now, but default later, the creditor can enter a judgment against you, and garnish your wages, attach your bank account, etc. In other words, you are making this loan an exception to your bankruptcy.

(Note that the foregoing is general advice that may not apply to your situation, and that there are always exceptions to general advice. This office does not form an attorney/client relationship without a direct in person consultation with our clients.)