Bankruptcy Law – Page 6 – Law Office of Rick Morin, PC

Chapter 7 Means Test Income Look-Back

Eligibility for Chapter 7 Bankruptcy in Sacramento is governed by two main tests. The Means Test and the Totality of the Circumstances Test. The Chapter 7 Means Test is often understood. But it is a critical component to every Chapter 7 Bankruptcy case.

The Chapter 7 Means Test was imposed by Congress in it’s 2005 revision to consumer bankruptcy laws. The means test is theoretically used to ensure that only debtors truly in need of bankruptcy assistance are eligible to file.

Potential clients often have already attempted to determine their means test results by using an online calculator. Many times, their results are incorrect.

The main piece of information driving means test calculations is the debtor’s “currently monthly income.”

Current monthly income is a term used in the bankruptcy code and is often abbreviated “CMI.” Current monthly income is determined by averaging the debtor’s income over the prior full six months.

For an example, assume that a person will be filing bankruptcy in December 2013. The calculation of current monthly income will be determined by averaging the person’s income over six months. In this case, it would be June through November. Why not include December? Because the definition of “current monthly income” in 11 U.S.C. 101(10A) states that the six months ends on “the last day of the calendar month immediately preceding the date of the commencement of the case…”

As you can see, careful timing of a bankruptcy case can impact a debtor’s eligibility for Chapter 7 Bankruptcy relief. This is especially true for debtor’s with incomes that fluctuate from month to month.

Knowing that the Court will look back six months, a debtor with a large bonus in December or January may wish to wait until such time that the bonus will not factor into the Chapter 7 Means Test.

There is nothing wrong with carefully timing a bankruptcy filing. If you have any questions about your eligibility for Chapter 7 Bankruptcy, please contact Rick Morin at (916) 333-2222 for a free bankruptcy consultation.

December 18, 2013/by Attorney Rick Morin

How to Handle Bitcoins in Bankruptcy

Have you heard of Bitcoins? A Bitcoin is an online currency that is not backed by any government. Bitcoins have been receiving a lot of media attention recently, including extensive coverage in the New York Times. As a Bankruptcy Attorney in Sacramento, I have been following this trend closely. I have also been considering how to treat a debtor in possession of Bitcoins.

A strong case can be made that Bitcoins should be treated just like any asset.

Just like cash in hand, money in the bank, or bearer bonds, Bitcoins represent value to the Debtor and need to be fully disclosed. Once a Chapter 7 Bankruptcy case is filed, the debtor’s Bitcoins would become the property of the Bankruptcy Estate for the duration of the case.

The volatility of Bitcoins poses a problem: how do you value them? Not all assets have steady valuations. Houses and cars change in value over time. Stocks are the asset class most like Bitcoins because the value of a stock could change dramatically day-to-day.

Bitcoins should be listed as personal property on Schedule B of the Bankruptcy Petition. I would list the number of Bitcoins the debtor possesses along with a valuation, the date of the valuation, and the exchange upon which the debtor bases his or her valuation.

For instance, on Schedule B I would list “2.5 bitcoins. Value from mtgox.com on 12/03/2013. Value: $2,750.”

In order to protect the debtor’s interest in his or her Bitcoins, the proper exemption would need to be applied. In California, I would utilize the wildcard exemption to fully protect the debtor’s interest. Without the proper exemption, the debtor’s Bitcoins would be subject to liquidation by the Bankruptcy Trustee.

Given the potential of appreciation for a debtor’s Bitcoins, it is important that they be handled correctly in a Chapter 7 Bankruptcy case.

If you have any questions about Chapter 7 Bankruptcy, please contact Sacramento Bankruptcy Attorney Rick Morin at (916) 333-2222.

December 4, 2013/by Attorney Rick Morin

Bankruptcy Law, Chapter 7 Bankruptcy

Are medical debts considered “Consumer Debts” in Bankruptcy?

My blog today is a bit more in-depth than usual. The purpose of the blog is to consider whether medical debts count as “consumer debts” for purposes of a 707(b) dismissal. As best as I can tell, the answer is not entirely clear.

The Bankruptcy Code defines “consumer debt” in 11 U.S.C. 101(8) as “debt incurred by an individual primarily for a personal, family, or household purpose.”

The leading case interpreting the term “consumer debt” comes from the Ninth Circuit Court of Appeals, In re Kelly. (In re Dickerson (Bankr. M.D. Fla. 1996) 193 B.R. 67.)

It is the purpose for which the debt was incurred that determines whether it is a consumer debt. (In re Kelly (9th Cir. 1988) 841 F.2d 908, 913.) Debt incurred for business s ventures or other profit-seeking activities is plainly not consumer debt for purposes of section 707(b). (Id. at p. 913)

Debts incurred by the debtor with a profit motive are not consumer debts. (In re Stine (9th Cir. BAP 2000) 254 B.R. 244.)

Surprisingly, I could not find a reported case where the issue of medical debt was directly addressed. The following two cases both cite Kelly yet come to different conclusions regarding the classification of medical debt.

In In re Morse, after laying out the Kelly rule regarding substantial abuse, the court stated that “medical debts are personal expenses” in the same way as food and gas. (In re Morse (Bankr. E.D. Wash 1994) 164 B.R. 651.)

In In re Dickerson, after stating that Kelly is the leading case interpreting the term consumer debt, medical debts were listed as “non-consumer debts” in In re Dickerson. (In re Dickerson (Bankr. M.D. Fla. 1996) 193 B.R. 67.)

Dickerson at least gives a debtor a way to argue that medical debts are not consumer debts. With that being said, it would seem like a stretch to argue that medical debts were incurred with a “profit motive” as the Kelly and Stine seem to require.

However, the thought that involuntary medical debt would be lumped into the same category as credit card debt from excessive shopping is troubling.

If you have any questions about including medical debt in bankruptcy, please call Sacramento Bankruptcy Lawyer Rick Morin at (916) 333-2222.

December 2, 2013/by Attorney Rick Morin