In 2005, Congress passed the Bankruptcy Reform Act as way to deal with perceived abuses of the bankruptcy system by persons who were filing for bankruptcy even though they had the ability to pay their debts or would soon have the ability to pay their obligations.
While the law change did make it somewhat more difficult for certain people to seek debt protection, bankruptcy remains a solution for many people with significant debt.
At the Law Office of Eric K. Fox, our Hendersonville bankruptcy lawyer will talk with you about your situation and help determine if bankruptcy is an option for your situation. Contact our Tennessee bankruptcy law firm to schedule a free initial consultation. We can be reached toll free at 888-808-7604 or locally at 615-338-5291.
Understanding the Bankruptcy Means Test
The group of people who were most impacted by the changes to the bankruptcy laws in 2005 were those debtors who had income more than the state median income. For debtors who are in this category and filing for Chapter 13 bankruptcy protection, their five-year repayment plan will only be approved under one of the following circumstances:
- The debtor promises to pay his or her unsecured creditors in full, or
- The debtor promises to use all of his or her "projected disposable income" during the plan to pay creditors
Most recently, there have been practical questions about what is considered "projected disposable income." The law defines disposable income as a debtor's current monthly income, less amounts "reasonably necessary to be expended" for maintenance or support, business expenses, and certain charitable contributions.
As you can imagine, many questions can come up when trying to define what amounts are "reasonably necessary to be expended." Two questions about this definition were answered by the United States Supreme Court.
In 2011, the court issued a decision in the case Ransom v. FIA Card Services. In this case the court decided that debtors with paid off vehicles can only deduct operating expenses, not ownership expenses. What this means as a practical matter is that a debtor who has a loan against his or her vehicle will be able to deduct the loan payment. In the past, car owners could deduct $496 per month from their gross income, regardless of if there was a loan against the vehicle or not. The ownership expense figure is determined by a federal formula called the IRS Local Standard for Vehicle Ownership Costs.
This creates a problem for debtors who may need to purchase a new vehicle for emergency purposes during the repayment period. In effect, this decision may encourage Chapter 13 debtors to incur additional debt prior to filing for bankruptcy just so that they may take advantage of the "ownership expense" deduction.
In addition, a 2010 case called Hamilton v. Lanning, decided that a debtor's projected disposable income should be used to determine whether a debtor's plan meets the requirements of the bankruptcy code. The Court determined that projected disposable income is not confined to an analysis of the debtor's last six month's of income.
Contact a Hendersonville Redemption Lawyer Today
Regardless of whether these cases raise questions in your situation, the issues demonstrate that it is important to work with bankruptcy attorney who can help you understand your rights in bankruptcy. Contact our Hendersonville redemption law firm to schedule your free initial consultation with lawyer Eric A. Fox today. We can be reached toll free at 888-808-7604 or locally at 615-338-5291.
We are located in the Hazel Path office complex and offer free parking near the lake, off Main Street. Our office hours are Monday through Friday from 8:30 a.m. to 5:00 p.m., with evening and weekend appointments available upon request.
We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.