New Means Test & Bankruptcy Rules: Yes, You can Still File for Bankruptcy

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NEW MEANS TEST GOES INTO EFFECT October 15, 2007

PRESS RELEASE- For Immediate Release
October 1, 2007

HOUSTON – The Houston-based BANKRUPTCY AND FAMILY law firm Busby & Associates help explain a new law affecting bankruptcy rules, while assuring clients that it does not impact their rights to bankruptcy protection.

The partners explain that the Bankruptcy law requires all debtors to fulfill two education requirements: a credit counseling course prior to filing and a financial management course before obtaining a discharge – While one of the Chapter 13 Trustees in Houston offers the required 2ND course to Chapter 13 debtors, another trustee does not offer them. Chapter 7 debtors are required to take the courses on their own.

“All bankruptcy education courses are available in person, over the phone, or over the Internet. They are approved for the district in which the debtor is filing and we can provide all of the information on course costs and availability,” said Partner Ricardo Contreras.

What is Chapter 7 Bankruptcy?
Chapter 7 Bankruptcy is often referred to as a “liquidation bankruptcy.” In Chapter 7, all of the debtor’s assets, other than those specifically exempt from liquidation, are turned over to a bankruptcy trustee for sale. Sale proceeds, if any, are distributed among the creditors. In most cases, Chapter 7 debtors have little non-exempt personal property, because of Texas exemption laws. Chapter 7 Bankruptcy is used to eliminate, or discharge primarily unsecured debts such as credit cards or medical bills. Chapter 7 does not eliminate secured debts, such as vehicles (unless the secured item is surrendered). Chapter 7 will not save houses from foreclosure or a car from repossession if payments are delinquent.

What is a Chapter 13 Bankruptcy?
Chapter 13 bankruptcy results in a plan to repay all or part of a debt. Many times a debtor is allowed to pay credit cards and medical bills at pennies on the dollar. Chapter 13 is used most often to save a house from a foreclosure sale or vehicle from repossession. Chapter 13 is also useful to eliminate some IRS debt and to establish an affordable plan to pay IRS debt that cannot be eliminated. Chapter 13 Bankruptcy is available to debtors with regular income.

What is the Means Test and does the Means Test Apply to Me?
The means test is an objective test to determine ones ability to fund a Chapter 13 plan or eligibility for a Chapter 7 bankruptcy. If a debtor is above the median income for their state, and their debt is primarily consumer debt then they must submit to a means test. Effective October 15, 2007 the median for households one to four are noted below:

one two three four
TEXAS $35,280 $49,933 $52,313 $59,808

Should a debtor’s household income exceed the amount allocated for the six months prior to the filing of their case, then a particular form called the B22 must be completed and may determine the payment in a Chapter 13 – otherwise the result could be a finding of abuse and subsequent dismissal of a Chapter 7. Although a debtor may be above the median income and have to submit to the means test, this does not disqualify them from bankruptcy. It simply results in a more detailed analysis of income and expenses.

Busby & Associates is a full-service bankruptcy and family law firm which works on Chapter 13 and Chapter 7 bankruptcies, credit repair, debt consolidation, adoptions, Attorney General and child support cases, CPS cases, contempt actions, contested and uncontested divorces, military divorces, modifications of visitation and custody orders, motions to terminate wage orders, paternity cases, and protective/temporary restraining orders. To learn more about the firm and the services they provide, visit www.busby-lee.com, or call (713) 974-1151.

Contact: Michael Busby, Jr.
Busby & Associates, Attorneys & Counselors at Law, P.C.
2909 Hillcroft Suite 350
Houston, TX 77057
Tel: (713) 974-1151
Fax: (713) 974-1181
E-mail: consumerlaw@busby-lee.com
www.busby-lee.com

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