San Diego Bankruptcy Lawyer – The consumer debtor has two Chapters of the Bankruptcy Code under which debt relief may be sought: Chapter 7 debt relief (liquidation), or Chapter 13 debt relief (rehabilitation). The goal of all consumer debtors is a complete discharge or release from all debts through the bankruptcy process. After comparing the legal effect of discharge under Chapter 7 with that under Chapter 13, one might conclude that Chapter 13 should be the favored remedy for all consumer debtors. While requiring that the debtor make “meaningful” payments to creditors, Chapter 13 bankruptcy provides two benefits unavailable to the debtor under Chapter 7: (1) a “super-discharge” from personal liability on more kinds of debt than is available under other Chapters of the Bankruptcy Code (including tax liability in some cases),and (2) the ability to cure arrearages in payments on home mortgages, even over the objection of the mortgage creditor. However, Chapter 13 is not for everyone and your San Diego Bankruptcy Lawyer can advise you. If a debtor’s residential mortgage is current and there are no facts which suggest a debt could be found nondischargeable in a case under a Chapter of the Bankruptcy Code other than 13, the debtor may wish to seek the remedy of the simpler, quicker discharge of Chapter 7.
Since the enactment of the new bankruptcy law, however, the consumer debt relief has been largely overridden by Congressional determination that any consumer debtor with more than $167.67 in discretionary monthly income be given a choice between dismissal and entry into a five-year plan under Chapter 13 debt relief bankruptcy. Under Code § 707(b) as amended by BAPCPA, the bankruptcy court, the US Trustee, the case trustee, or any “party in interest” may bring a motion to dismiss a Chapter 7 consumer debtor’s case for abuse, which presumably includes any disagreement with the debtor’s computations of his or her “current monthly income” or expenses included in the “means” test. The debt relief means test is really a standard directly related to the debtor’s ability to make payments to creditors from nonexempt future assets, generally earnings. The limitation of this sort of motion to only those cases where an individual debtor’s obligations are “primarily” consumer debts means that San Diego business debtors of any sort (generally the larger dollar amount of creditor claims) are not exposed to this sanction.
The debt relief test to determine whether the debtor is abusing the provisions of Chapter 7 bankruptcy contains several factors. First, the court should review the evidence to determine whether the debtor has dealt with creditors in an honest and undeceptive manner, or is instead using the provisions of the Code with the sole objective of gaining an advantage over creditors. In a related test, the court must decide whether the debtor’s financial circumstances show need of the relief a discharge will provide. To reach this determination, the court can consider the debtor’s ability to repay creditors from future earnings, eligibility for Chapter 13, state remedies, the existence of negotiations with creditors, and the nature and amount of the debtor’s expenses. In fact, what is likely to happen is that the debtor’s filed record of his or her computations of current monthly income and expenses are likely to be the sole basis for the majority of these motions because some party aware of the case disputes one or more of the debtor’s figures. In addition, no credit should be obtained during the pendency of the Chapter 13 debt relief case without the permission of the case trustee unless obtaining that permission was impracticable. The Chapter 7 debtor in San Diego who must show disposable income on Schedules I and J, or who describes a prospective inheritance in response to questioning, may anticipate the possibility of a challenge under these provisions.
There are practical considerations which can recommend the liquidation provisions of Chapter 7 debt relief bankruptcy in San Diego to a consumer debtor. A debtor proceeding under Chapter 13 will not receive a discharge until the end of the plan period, often several years from the commencement of the case, and then only if the plan has been fully performed. A debtor under Chapter 13 can expect to encounter credit problems over the entire life of the plan period because there is no discharge until the end of the plan. The legal status of the debtor’s prepetition financial obligations thus remains unsettled for several years and the debtor remains “in bankruptcy” during the term of the plan. The existence of the Chapter 13 plan would be a material fact on an application for credit and the debtor’s failure to disclose that fact might well result in the nondischargeability of the debt (or in some states prosecution for a criminal offense). Yet the disclosure of the pendency of the bankruptcy case may lead to a denial of credit. While the debtor under Chapter 7 is enjoying a “fresh start” unhampered by legal restrictions and unsupervised by any court, the debtor under Chapter 13 is continuing to devote a “meaningful” portion of present and future income to the payment of prepetition debts in the hopes of eventually obtaining the broader discharge. The inclusion of future income in a plan under Chapter 13 includes any increases in income the debtor may receive over the term of the plan. The net effect is to permit a creditor or trustee to cause a postconfirmation modification of a plan, and direct a continuing inquiry into the debtor’s financial status. A debtor under Chapter 7, by contrast, receives the full benefit of any future increases of income free of the claims of prepetition creditors once the debtor has obtained a discharge. Also note that the trustee or creditor may force the confirmation modification on a reluctant or unwilling debtor. Because of the restrictions on the Chapter 13 debtor’s future disposable income, the credit restrictions caused by the debtor’s uncertain legal status, and the lengthy pendency of the bankruptcy case, the debtor should carefully weigh the special benefits available under Chapter 13 against the detriments before choosing a remedy.
Any San Diego consumer debtor and his or her counsel must carefully consider and compute the means test to determine whether a Chapter 7 is even a possibility as it is likely that the US Trustee, panel trustees, and creditors may this provision to force consumer debtors to choose between denial of all bankruptcy relief through dismissal of a Chapter 7 debt relief case, and conversion to a Chapter 13 with a five-year plan in prospect. Since this abuse/means test applies whenever a Chapter 7 is brought by an “assisted person,” there is no reason to think it will not apply equally if a Chapter 13 debtor attempts to convert to Chapter 7 debt relief bankruptcy after a plan confirmation fails.
We at the Law Office of Harold D. Thompson are San Diego Bankruptcy Lawyers dedicated to helping you get out of financial distress. If your debts are piling up and you are looking for a “fresh start” call a San Diego Bankruptcy Lawyer that will fight for your rights. Bankruptcy fees start as low as $800.00. Don’t be fooled by big advertisers charging thousands of dollars. Call us TODAY at 619.615.0767 or visit one of our two websites at www.ThompsonLawSD.com or www.MySanDiegoBankruptcy.com/bkblog
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