The 109(e) limits for a consumer chapter 13 case are $336,900 for unsecured debts and $1,010,650 for secured debts. These debt limits are reasonable if a Debtor has one or two properties but with the California home prices as high as they are, a chapter 13 case may be out of the question for certain consumer debtors. The determination of what constitutes as secured debt is an ongoing contested matter as some Trustees take the stance that the debt is only secured as to the market value of the property. For instance, if the market value of the home is $1,000,000 but the lien is $1,200,000 one could argue that the extent of the security is only as to the market value, therefore making the $200,000 unsecured. If there are two liens attached to the property and the first exceeds the market value of the home, the second lien can be avoided through the bankruptcy but if the lien is considered secured until the lien is avoided, the Debtor would not qualify for a chapter 13 bankruptcy at the time of filing as the total secured amount exceeds the debt limit.
While in the active bankruptcy, Debtors are given the opportunity to enter into a reaffirmation agreement for property with secured liens (most common for vehicle liens). The agreement is a new financial agreement and if granted by the Judge, would no longer be a dischargeable debt. There are several factors for evaluation.
1. Does the vehicle have equity or is it under water?
2. Does the car payment impose an undue hardship upon the debtor now or could it in the foreseeable future?
3. Is the debtor current on payments?
4. Will the Judge grant the reaffirmation agreement?
Ford is one of the most aggressive creditors to insist upon the filing of the reaffirmation and has been known to repossess vehicles if there is non-compliance. Many reaffirmation agreements are neither granted nor denied by the court and as long as the Debtor remains current the creditor cannot repossess the vehicle.
Although bankruptcy may not be fun, we make it easy. The most difficult step in filing for chapter 7 bankruptcy is making the decision to contact an Attorney. Many of our clients did not realize that they could keep their personal belongings and in most cases their home and vehicle. A chapter 7 bankruptcy discharges the Debtor’s personal liability for most unsecured debts and gives the Debtor an opportunity to surrender secured property that is under water.
The means test determines whether a Debtor will qualify for a chapter 7 bankruptcy. The test consists of a formula accounting the Debtor’s 6 month average income and the Debtor’s ongoing qualified expenses. Debtors who make more than the median income for their household size can still qualify for a chapter 7 case if they have enough qualified deductions to offset their income. The current median incomes for California are as follows:
• 1 person = $47,969
• 2 person = $64,647
• 3 person = $70,638
• 4 person = $79,194
• 5 person = $86,094
• 6 person = $92,994
• 7 person = $99,894
• 8 person = $106,794
Qualified deductions include mortgage payments, car payments, taxes, spousal support, child care, charitable contributions, health insurance and union dues. A Debtor cannot deduct expenses that are associated with secured property that is being surrendered.
A chapter 7 is considered the easiest bankruptcy chapter as the case timeline is approximately 90 days from the date of filing.