Recently, a large number of Americans have been using Chapter 13 bankruptcy as a way to stop foreclosure and eliminate debt. Because the growth of Chapter 13, many people are questioning the changes to the bankruptcy code were more for the reason of allowing a bankruptcy attorney to charge more for bankruptcy cases. Some have gone as far as to say that they believed attorneys were steering their clients away from Chapter 7 bankruptcy and into Chapter 13 so they can charge higher fees. While it does sound suspect, I don’t believe a bankruptcy attorney would go through that much trouble to make a few extra bucks. A Chapter 13 bankruptcy is very involved and the client is attached to the hip of the bankruptcy attorney for up to five years. This doesn’t sound like a picnic for the attorney either.
Since the changes to the bankruptcy code back in 2005, an individual filing bankruptcy is required to qualify to file Chapter 7 bankruptcy. To qualify to file Chapter 7 one must pass the means test. Basically, the means test takes the last six months income, divides it by six and multiplies it by 12. This will give the annual average income for the individual filing bankruptcy. This amount will be compared to the median income chart in the state the person resides. One thing that most people don’t consider is the bankruptcy court looks at household income, not individual income. So if the person has a spouse working, their income must be included also even if one is filing separately. But this is not all, even though the person may make less than the median income, they need to also complete an income and household expense report. This is where the person will include all their monthly expenses from rent, food, clothes and any medical expenses etc.. The person cannot include any payments to creditors as expenses. If a person has more than $170 of expendable income, they might be forced into a Chapter 13 bankruptcy. This is not the fault of the bankruptcy attorney, but it is the bankruptcy law. Many attorneys will try and make sure the person understands the importance of including ALL their expenses. This is a problem area that many do-it-yourselfers filing bankruptcy short themselves and end up having a bankruptcy trustee trying to push them into a Chapter 13.
The bankruptcy attorney has to work with the numbers that are given to them. They can explain the bankruptcy code until they’re blue in the face, but if the client doesn’t qualify either because they make too much money or they don’t have enough household expenses, it looks like filing Chapter 13 bankruptcy is their only option. In some cases, depending on the career a person has, the bankruptcy attorney can hold off on filing bankruptcy to a time of the year when the individual makes less money. This is typical with people who work for commission like a realtor. People need to get over the idea that an attorney is misdirecting them for financial gain. The numbers speak for themselves and if someone doesn’t qualify to file Chapter 7 bankruptcy the only other option is Chapter 13.