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Bankruptcy Law/Bankruptcy Questions

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Expert: - 8/13/2009


Question
I am currently unemployed and receiving unemployment. My wife does still have her job. Income wise, we went from about $120K to now about $67K between her work and my unemployment. We were barely keeping up at the $120K (which is our fault). Anyway, our house is in the redemption period of foreclosure. I see no way around bankruptcy. We have an opportunity to rent a house from a friend near where my wife works. I talked to an attorney that said not to move. The expenses will be better for qualifying us for Chapter 7. She also said not to sell things which we have been doing just to get by. 1. What is the difference if I move? I still owe the money that the house sale didn't cover. 2. What is wrong with selling stuff? I need to keep the lights on. I worked out a budget and with the savings of the house, we will be able to live on unemployment and my wife's income. Of course we wouldn't be paying the credit cards, the left over money the house didn't bring in the sale, nor the left over money we owe on the car that they repoed. I don't want to pass up this house. I may not be able to get credit from a stranger to rent a house.

Answer

Leon Bayer
I am very sorry that you are facing such a tough situation. I hope you turn it around very soon.

I like the fact that you went to a lawyer for advice, I like the advice that the lawyer gave you, but I don't like the fact that the attorney failed to explain WHY she advised you to do those things.

I think that one of the things that separates a merely adequate lawyer from a great lawyer is that a truly great lawyer will EXPLAIN things. Having the explanation allows the client to make an informed decision. Lawyers should never tell a client to "Do this because I told you so!"

Without the benefit of an in person meeting with you, and without much more detailed financial info about you, the best I can do is make an educated guess to answer your questions. However, I would like you to immediately go see some other local experienced bankruptcy attorney and have another consultation about this. So, here's my take:

The lawyer is probably worried about getting you qualified to file Chapter 7. Filing the bankruptcy while you are still the owner of the house and living in it may allow you to claim the full mortgage and property tax expense as a deduction against your income on your bankruptcy "means test." The lawyer is probably concerned that proceeds you are getting from the sale of personal property will be added into your income, making it harder for you to pass the "means test."

The eligibility rules divide all bankruptcy filers into groupings of those who have above-median income and those who have below the median income. Those who have above-median income are subjected to a “means test.” The means test was devised to identify and then exclude from chapter 7 bankruptcy those filers who may be able to pay back some of their debts. The means test uses a calculation that combines a person’s real living expenses and certain hypothetical living expenses. The combined real and hypothetical expenses are then subtracted from a person’s “current monthly income” to see if there is any “projected disposable income” left over to pay creditors. If there would be any left over income, the law says that person may have to pay the “left over” amount to creditors.

At your current income level, even being unemployed, you may still be "above-median" in your income and be subject to the means test restrictions. If so, you benefit from having all the income deductions that the law may allow, such as mortgage expenses. In fact, if you have been unemployed for less than 6 months, the means test will still count all income from your job received in the past 6 months!

You can do some general reading about the means test and other requirements in my Bankruptcy Guide at http://www.debt-relief-bankruptcy.com/guide-new.asp and by all means, go see another lawyer immediately so that valuable legal rights do not get forfeited by taking the wrong actions.

Good luck to you.  

Los Angeles Bankruptcy Lawyer Leon D. Bayer

Expertise

Leon Bayer has successfully represented clients in bankruptcy for over 30 years. He is frequently called upon by the media, the California Bar and other associations to provide insight and help educate attorneys on bankruptcy issues. If you or other readers want to keep up with my blog postings about life in and out of bankruptcy, you can follow my blog at http://www.bankruptcyblogger.org/ and my personal web site at http://www.debt-relief-bankruptcy.com and A Human Guide to Bankruptcy at http://www.thebankruptcyguide.net/ Leon also writes about bankruptcy law for Nolo, see http://www.nolo.com/law-authors/leon-bayer.html and his "Ask Leon" bankruptcy law blog column at http://blog.nolo.com/bankruptcy/

Experience

Leon is a Certified Specialist in Bankruptcy Law by the State Bar of California, and has been a practicing bankruptcy lawyer in Los Angeles, California for 33 years.

Organizations
National Association of Consumer Bankruptcy Lawyers, California Bar Association, Los Angeles County Bar Association.

Publications
Author, ?The Essentials Of Chapter 13,? Daily Journal Report, December 18, 1987.
Contributing Editor, Basic Bankruptcy, California Practice Handbook, Matthew Bender 1992, 1993.
CEB Consultant, CEB-Personal and Small Business Bankruptcy Practice in California, 2003.


Education/Credentials
B.A., J.D.

Awards and Honors
President, 1995-1996-Los Angeles Bankruptcy Forum; Member - Los Angeles County Bar Association Committee on Commercial Law & Bankruptcy, 1988. Law Advisory
Commission-Personal & Small Business Bankruptcy Law of the State Bar of California, 1996-2000

MR. BAYER SAYS: The big banks and credit card companys have been working overtime for many years to undermine the Consitutional right of the American people to be able to claim bankruptcy protection. In 2005 the banking lobby successfully convinced Congress and the President to make the laws and proceedures more complicated, hopeing that it will stymie legitimate people from filing bankruptcy. They succeeded in gaining these complex new legal proceedures by greasing the legislative system with hundreds of millions of dollars in "campaign contributions." The good news for the American people is that while the new laws have made the proceedures needlessly complex to the point where inexperienced people can't help but trip over the maze of new rules and regulations, the process is still doable, especially with a lawyer who is well trained and experienced in this specialty.

Past/Present Clients
I have probably handled something on the order of about 15,000 bankruptcy cases thropughout my career.

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