When I hear the term “wasteland,” it conjures up images of a post-apocalyptic world in ruins. Perhaps there is desert terrain stretching out as far as the eye can see. There is no food, no water and a sense of hopelessness fills the air.
Before I let my imagination run wild, this post has a purpose. The bankruptcy process actually has its own wasteland. A dark, dreary, hopeless place where sometimes escape is difficult. Difficult, but not impossible.
With the help of an experienced bankruptcy lawyer and proper planning, there is hope.
What is the Bankruptcy Wasteland
The bankruptcy wasteland is that “no man’s land” between chapter 7 bankruptcy and chapter 13 bankruptcy. With the current shifting demographic of the bankruptcy filer, I am noticing more and more people getting stuck here.
With the passing of the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) and the implementation of the means test, an income qualification was placed on the filing of every bankruptcy petition.
If your income (for the previous six months), after certain allowable deductions falls below the median income where you live, you qualify for chapter 7 bankruptcy. If your income, according to the means test, sits above that median, you are forced to file chapter 13 bankruptcy.
Unfortunately, the means test does not always reflect reality and can be unfair.
Specifically, the means test is calculated using income from the previous six months. This income may not accurately reflect your current and/or future income.
Additionally, the deductions allowed on the means test are standardized and in many cases are much less than your actual monthly expenses. The means test could very well indicate that you have more disposable income than you actually do. This would make your chapter 13 plan payment more than you could reasonably afford.
So, your income is too high to qualify for chapter 7 bankruptcy but according to the means test, you have too much disposable income to be able to afford chapter 13 bankruptcy. You are now stuck in the bankruptcy wasteland with nowhere to go.
Finding a Way Out
Not only is the means test unfair, it is highly technical and confusing. It is important that you work with an experienced bankruptcy lawyer to get out of the wasteland and on to a better financial future.
Certain strategies can be implemented and with proper planning, it is possible to reduce the disposable income as listed on the means test. Sometimes it is simply a matter of waiting and recalculating at a later date.
In addition, the Bankruptcy Code does allow certain deductions for “special circumstances” such as a serious medical condition.
Don’t Lose Hope
The point is, if you find yourself in this bankruptcy wasteland, do not lose hope. An experienced lawyer can help you navigate the terrain and with the proper planning, open unseen doors.
It is quite the rare situation when bankruptcy cannot be used as a tool to improve your financial future despite the restrictions of the means test.
Image courtesy of Denis Defreyne (Flickr).
I filed chap 13 last year. My dahghter will be starting college next summer and I would like to move to a smaller apt or rent a room so I can free up more of my income to pay for her college expenses. My lawyer says I will have to pay that “extra” money to the trustee because my daughter will be considered an adult. We looked into financial aid FAFSA which clearly considers my income until she is 26!!! I feel stuck and I need advice. I asked the trustee if I coudls pay out early by borrowing from my parents and then I could pay my parents back while still decreasing my living expenses and using that extra money to pay for my daughters college. Can anything be done??
Gina
Gina,
In chapter 13, all disposable income should go to paying back creditors through your plan. You are one of the people I talked about in this article.
I will contact you to discuss this matter privately.
Frank