Can Bankruptcy be good for your health?

I saw this report while watching the news this morning. I thought it was worth sharing. 

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at FreeDigitalPhotos.net

A Fox 29 report - "Financial expert on how credit card debt could be hurting your health"

The reports states the average household in the US has over $6K in credit card debt. The story talks about the health impact debt has on people and gives tips on how to get out of debt. But happens when those tips don't work. This is the purpose of bankruptcy law. There is a way to get back on track.

If you want assistance, legal representation, or just want to know more about me, Mark M. Medvesky, or Wells, Hoffman, Holloway & Medvesky LLP, check out our website at www.whhmlaw.com.

#bankruptcy Chapter7 #Chapter13 #MontgomeryCounty #lawfirm #BucksCounty #Pennsylvania     

Bankruptcy Chapter 13 - How much will my monthly payment be? (Final - Part 4)

This is the fourth and final part of this blog series. In Part 1, I explained the first step in determining the amount of the monthly chapter 13 payment is to determine what a debtor must pay. In Part 2, I explained the second step is to determine what debts must be paid in full through the plan. In Part 3, I explained the next step is to complete the Disposable Income analysis, which is referred to as the "Means" Test. Finally, a review of the debtors' budget to determine if the debtors' actual disposable is sufficient to meet the minimum required payment. 

Getting back to John and Jane Smith; what do we know so far? We know they have $18,000 of property they cannot exempt or protect from creditors. That means they have to pay a minimum of $18,000 into the plan to protect their property. We also know they have $26,000 in secure and priority debt that must be paid through the plan. That means as long as the Smiths can pay their secure and priority debt, they will pay enough through the plan to protect their property that is not exempt.

We also know the means test shows the Smiths must pay a 60 month plan and should have at least $375 per month disposable income. The sum of $375/month for 60 months equals $22,500 total into the plan. This is not sufficient to meet the full debt of $26,000. The next step is to determine if the Smiths can pay at least $26,000.

John and Jane Smith need to figure out their budget. They must add together all their income no matter the source. Once you have the total gross income calculated, they will deduct everything they pay out; taxes, mortgage, utilities, auto loans, education, entertainment, etc. ... everything. Whatever is left is the Smiths' actual disposable income. In this case,  John and Jane Smith found they have $475 a month left after paying all their bills. That will be the plan payment.  The sum of $475/month for 60 moths equals $28,500 total into the plan. That is enough pay the mortgage company $19,000 to cover the arrears, late fees and attorneys costs; the IRS $7,000 in back taxes; and unsecure creditors $2,500. This is a plan that can work.

This allows the Smiths to file for Chapter 13 protection proposing a plan paying $475/month for 60 months. After the case is filed, the plan may need to be adjusted as creditors file proofs of claims. Creditors have a period of time to make claims against the bankruptcy estate. Once that period passes, the plan can be amended to adjust to any underestimated; unexpected, or unclaimed debts. 

In a side note, if the Smiths' budget would have shown they only had $400/month of disposable income, the Smiths would not be fully protected by filing for Chapter 13 protection. The full sum would have been $24,000 and not enough to pay the required sum of $26,000.

If you want assistance, legal representation, or just want to know more about me, Mark M. Medvesky, or Wells, Hoffman, Holloway & Medvesky LLP, check out our website at www.whhmlaw.com.

 #bankruptcy Chapter7 #Chapter13 #MontgomeryCounty #lawfirm #BucksCounty #Pennsylvania    

Bankruptcy Discharge of student loans - Brunner Test

In Pennsylvania, the US Court of Appeals, 3rd Cir. has adopted the "Brunner" Test announced BRUNNER v. NEW YORK STATE HIGHER EDUCATION SERVICES CORP., 831 F.2d 395 (2d Cir. 1987). The opinion set up a three prong test. All three prongs must be met to establish "undue hardship" allowing student loans to be discharged in bankruptcy. The court in Brunner stated: 



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"... As noted by the district court, there is very little appellate authority on the definition of 'undue hardship' in the context of 11 U.S.C. § 523(a) (8) (B). Based on legislative history and the decisions of other district and bankruptcy courts, the district court adopted a standard for "undue hardship" requiring a three-part showing: 

(1) that the debtor cannot maintain, based on current income and expenses, a "minimal" standard of living for herself and her dependents if forced to repay the loans; 

(2) that additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period of the student loans; and 

(3) that the debtor has made good faith efforts to repay the loans. For the reasons set forth in the district court's order, we adopt this analysis..." id. emphasis added.

Most commentary on this test discusses the Draconian effect of the application of this test (see this article). This test is near impossible for a younger healthy adult to meet. Also, attempting to prove "undue hardship"  in a case can be quite costly. For these reasons, most bankruptcy attorneys are cautious about trying to discharge school loans.
 
If you want assistance, legal representation, or just want to know more about me, Mark M. Medvesky, or Wells, Hoffman, Holloway & Medvesky LLP, check out our website at www.whhmlaw.com.

 #bankruptcy Chapter7 #Chapter13 #MontgomeryCounty #lawfirm #BucksCounty #Pennsylvania