Monday, October 11th, 2010
The Case Ransom v. MNBA appeared before the Supreme Court last week and raised interesting questions about the role of the means test bankruptcy filers must pass in order to qualify for protection under Chapter 7 of the U.S. Bankruptcy Code. Here's a look at what's involved in the case and what it might mean for future bankruptcy filers.
Car Payments and Income in the Means Test
The court case involves the bankruptcy petition of man named Jason Ransom.
- No car loan: Sources note that Ransom has a car that he owns fully – that is, he is no longer making payments on the vehicle.
- Ownership deduction: In his bankruptcy petition, Ransom reportedly claimed an ownership deduction of $471 per month for his vehicle.
- Court rejection: Because he had no car payment, though, the bankruptcy court rejected this deduction in his initial case filing. An appellate court upheld the decision. The Supreme Court must make a final decision.
- IRS definition: Apparently, both the district court and the appellate court denied Ransom's deduction claim based on the Internal Revenue Service's definition of an allowable deduction for car owners, which limits such deductions to people who are currently making payments on their vehicles.
So the issue at hand is whether or not a Chapter 13 filer (that is, a bankruptcy petitioner who has above-median-income levels and so does not pass the Chapter 7 means test) can keep money each month (instead of paying it to creditors) under the car ownership deduction if he or she is not currently making payments on a car.
Why It Matters: Your Money in Chapter 13 Bankruptcy
The issue may sound fuzzy, but the Supreme Court's decision could have real impact on future bankruptcy cases. Here's a look at why and how.
- The language of the Bankruptcy Code: While the language of the U.S. tax code is clear that an ownership deduction is only available to those still making payments on a vehicle, the language of the U.S. Bankruptcy Code is a bit fuzzier.
- The cost of owning a car: As Ransom's lawyers are reportedly arguing, the "ownership deduction" should be available to those who own their cars outright because such vehicles require maintenance and repairs – especially if they're older.
- The expensive car loan argument: One of the reasons that this issue is so interesting is because it essentially rewards people who have expensive car loans and newer cars and punishes those who are (perhaps more fiscally responsibly) driving older vehicles they've already paid for.
- The freedom of extra money: If the Supreme Court decides to grant the ownership deduction to people who own their cars outright, it could mean greater financial independence for car owners who file for bankruptcy. Because they'd be able to save more money each month, they could potentially catch up on other payments more easily and possibly even build savings, thus preparing themselves more fully for post-bankruptcy life.
Posted in Bankruptcy Courts, Bankruptcy Filing Requirements, Bankruptcy Law, Bankruptcy News and Events, Chapter 13, Chapter 7, Means Test, Supreme Court | Comments Off
Sunday, June 20th, 2010
Bankruptcies come in all shapes and sizes. Some are relatively simple, while others pose particularly troublesome issues. While legal counsel can be beneficial for any type of bankruptcy, many people find experienced attorneys especially helpful during complex filings.
In response to a growing trend of bankruptcy in the Phoenix metropolitan area, which is on pace for around 30,000 filings this year, The Arizona Republic recently listed a few of the most vexing bankruptcy issues:
Divorces
During divorce proceedings, spouses will sometimes agree to shield each other from certain debts, which often include debts incurred during marriage. However, if one spouse later files for bankruptcy, creditors could go after the other spouse for payments on specific debts, despite the previous agreement between the divorced couple.
So, by shielding a spouse from debts during a divorce proceeding, an individual could prevent that debt from being dischargeable during bankruptcy. As a result, couples going through a divorce should tread carefully if one party expects to file for bankruptcy afterward. There may be options to protect both parties and discharge the debt, but these are sometimes best determined by experienced attorneys.
Homeowners Association Fees
Some filers for bankruptcy have recently learned that homeowners associations can still collect unpaid fees, even after those filers have given up their homes. While this scenario may sound implausible, The Arizona Republic offered a fairly common example.
If a homeowner buys a home using a mortgage and fails to make payments on time, that individual may simply leave the home while the lender begins foreclosure proceedings. During this lag, a homeowners association may continue to charge the former homeowner membership fees.
These fees may continue to be charged until the bank completes a foreclosure, which may take several months. If you are facing a foreclosure or a bankruptcy and fear a similar problem, you may wish to contact a bankruptcy attorney.
Faulty Deeds that Leave Loopholes for Trustees
Another complex issue can arise when a homeowner files for bankruptcy. Even if the homeowner makes his or her mortgage payments on time, court-appointed trustees may look for flaws in the mortgage paperwork in order to push their claim in front of a creditor’s.
While this scenario may seem far-fetched, it has occurred, and title companies that complete mortgage paperwork do make mistakes. If such a mistake occurs, and the mortgage lender can’t prove its claim, the trustee could simply sell the home. Again, this is not a terribly common problem, but seeking legal counsel can help avoid such a financial nightmare.
Additional Resources
To read in-depth analysis of further complex issues posed by personal bankruptcy, check out these materials provided by the American Bar Association.
Posted in Bankruptcy Filing Requirements, Bankruptcy Process, Divorce, Foreclosure | Comments Off
