There are certain income requirements to file a Chapter 7. That amount typically adjusts for inflation twice per year. That amount varies based on your household size and by state.
In the State of Florida the amounts are as follows:
One person household: $60,429
Two-person household: $74,131
Three-person household: $83,396
Four-person household: $100,476
Five-person household: $110,376
Six-person household: $120,276
Dependents in your household include children under the age of 18. If custody is split, we usually factor in how much time the child spends at your residence and how many children there are. If custody is split 50/50 and there are two children, we would list a two-person household. Children under the age of 24 that are in school full-time can also be considered dependents or any disabled children. If there are elderly parents living in the household, they can be considered in the household size or any other relatives. However, if any person is included in the household size, we need to include their income and expenses as well. Social security does not count towards the income amount.
If you are still over that amount, there is still a potential you could qualify for a chapter 7 if you “pass” the long form of the means test. The means test is required for all those debtors who are over the “median”. The test determines your eligibility for a Chapter 7 or the amount of your plan payment in a Chapter 13. It uses some of your actual expenses and some expenses are determined by the IRS guidelines based on your household size and county where you reside. It can get a bit complicated, so it is good to consult with a bankruptcy attorney to guide you through the process.
There are situations that arise where a potential debtor inherits property. Let’s say for example, a house is inherited that is worth 200,000 and its devised in the will to all four surviving children so each child has a 25% interest/$50,000 interest in the property.
The first issue to determine is who resides on the property. If the debtor is living in the property than it can be exempted as homestead. If another relative is living in the property and the debtor has another residence, then the trustee does have an interest in the debtor’s proportionate share.
Typically, the trustee will try to have the other owners buy out the debtor’s portion. In this case, the trustee would likely try to see if the other three siblings could put in 50K to buy out the debtor. They would have to figure out how to finance or fund that $50,000 on their own to pay the trustee.
If those three siblings did not have the financial ability to provide those funds to the trustee, the trustee would have the option to sell the property and distribute the proceeds. It is usually best to resolve these issues prior to filing your bankruptcy.
If you do receive an inheritance six months after filing your bankruptcy case then you are obligated to notify the trustee. Anything that is inherited (personal property, jewelry, real estate, liquid cash and/or stocks) would have to be turned over to the trustee.
If the inheritance is more than the amount of your unsecured debt, then you would receive the balance of proceeds. The trustee cannot take more than you owe your creditors (less a small trustee fee to administer the case).
There are occasions that arise either before or during bankruptcy cases where a married couple gets divorced and wants to sell their martial home.
If you are residing in the marital home at the time you file for bankruptcy you can declare it as homestead property, and it is exempt from the trustee taking it. If you decide to divorce and sell your marital home prior to filing bankruptcy, then the proceeds from the sale of the home are not exempt.
You would either have to spend those funds on reasonable living expenses prior to filing your bankruptcy case or invest those sale proceeds into another home. If you are getting divorced in the middle of your Chapter 13 case and want to sell your marital home, you will need to file a motion and have a court order permitting the sale and have a determination made on how the sale proceeds will be spent.
You can typically re-invest the money into a new homestead, as long as, that occurs within a year. You would need to open a new bank account that is clearly titled “Homestead proceeds” and not co-mingle that money with other funds in order to protect those funds.
If you plan to move out of the State of Florida, then the home sale proceeds would not be exempt since you are relocating outside of the state. These situations can be tricky and its best to seek the advice of an attorney prior to making any decisions to ensure those funds are protected.
In the final segment of the series, we will be discussing the process or procedure for getting your student loans discharged. Student loans do not automatically get discharged when you file the bankruptcy case.
They are presumed to be non-dischargeable unless you file what is called an adversarial proceeding complaint seeking a discharge of your student loans based upon undue hardship. The adversarial proceeding is associated with your bankruptcy case, but it’s a totally different proceeding with a different case number.
The first step is to determine if you meet the requirements previously mentioned so you have a likelihood of success when you file the adversarial proceeding. There is a process of collecting your student loan payment history and noticing the proper defendants when the lawsuit/adversarial proceeding gets filed.
There is now an attestation form that is filled out with supporting documentation to streamline the process. This is intended to encourage the department of education and trustee’s office to be able to stipulate to some facts without unnecessary litigation. The attestation form goes over some of the same categories as the bankruptcy petition such as your current income and expenses, future inability to repay your student loans, prior efforts to repay your student loans, and current assets.
There is additional costs associated with the adversarial proceeding such as additional attorney’s fees so you would need to budget the attorney’s fees and costs to file both the bankruptcy case and your student loan adversarial case. A ballpark estimate for both would be approximately $5,000-$6,000.
In Part VI of our series, we are discussing the possibility of getting a partial discharge of your student loans if you are unable to get a full discharge. A partial discharge can occur where the bankruptcy court discharges a portion of the outstanding student loan debt while requiring you to pay the remainder of the balance. The bankruptcy code is silent on the issue of whether the bankruptcy courts may offer a partial discharge of student loans based on undue hardship. However, this issue has been litigated and is recognized by several court of appeals. A partial discharge will require that the debtor establish elements necessary for an undue hardship determination.
According to the departmental guidance regarding student loans, the department of education attorneys may consider a partial discharge if they have made the determination that the debtor has the ability to make some payment on the loan while maintaining a minimal standard of living, but an inability to make the full standard monthly repayment. That is distinguishable from getting a full discharge where the debtor is completely unable to maintain a minimal standard of living and has no disposable income after paying their expenses. A partial discharge should result in a balance lower than the debtor’s discretionary income so they can afford the monthly loan payment over the remaining term of the loan. A partial discharge may also be available if a debtor can liquidate assets to pay a portion of the debt but is unable to make the monthly payment while maintaining a minimal standard of living.
In the last part of our series, we will be discussing the process/procedure to get my student loans discharged?