| For Immediate Release
Gary A. Armstrong, Partner
Armstrong Law Firm
5646 Milton St, Ste 711
Dallas, Texas 75206
Daytime Phone: 214-265-0808
Facsimile: 214-853-5323
www.ArmstrongAttorneys.com
www.Dallas-Bankruptcy.com
email: GArmstrong@ArmstrongAttorneys.com
Some Debtors Benefit From New Bankruptcy Law
Dallas, Texas October 3, 2005: The new bankruptcy law was designed to make it harder for people to file bankruptcy. But, many people will benefit by waiting to file after the new law goes into effect on October 17, 2005.
Under the new law, individuals and families who earn more than the median income for their family size face new restrictions on filing bankruptcy. They can file a Chapter 7 case, which discharges their debts without additional payments to creditors, only if their permissible expenses use up nearly all of their income.
To determine which expenses are permissible, the debtor's actual expenses are compared to a schedule of standard expenses published by the Internal Revenue Service. For certain expenses, the debtor can claim the higher of his actual expenses or the IRS' allowed amount. For other expenses, he must claim the lower of the two amounts.
“It’s the variation between actual expenses and the IRS allowed expenses that may benefit some debtors,” said Gary Armstrong, a Bankruptcy attorney in Dallas, Texas. “People with very low or no payments on their houses or cars and people who are making 401(k) contributions or 401(k) loan repayments may benefit dramatically by waiting to file bankruptcy until after October 17th.”
The IRS allowed expense schedules permit, for example, a car payment of $475 for the first car in the family. Under the new bankruptcy law, a debtor can claim the full $475 as an expense, even if the car is paid off or the actual car payment is lower.
If the IRS expenses are higher than the debtor's actual expenses, the debtor is more likely to be eligible for Chapter 7. If she is not eligible for Chapter 7, she may have to file Chapter 13. Under Chapter 13, the debtor makes monthly payments to a Chapter 13 Trustee, who distributes those payments to the creditors.
The payment to the Chapter 13 Trustee is based on the amount the debtor has available under her budget—not the amount that is owed to creditors. Under current Chapter 13 law, if the Debtor’s actual expenses are low, he will pay more to the Chapter 13 Trustee. Under the new law, the Debtor can choose the higher IRS expense allowances in many categories. The result could be a lower monthly payment to the Chapter 13 Trustee.
But, there are costs associated with waiting. The new law imposes additional counseling requirements on debtors to help them manage their financial affairs better after the bankruptcy. Debtors must also file additional paperwork with the court, including copies of pay stubs and tax returns, to prove their eligibility for bankruptcy relief. Filing fees and legal fees are also likely to be higher under the new law to cope with the increased paperwork.
Many people are rushing to file bankruptcy prior to October 17th. If you are considering filing bankruptcy, be sure that your attorney advises you about how your case would be affected under the new bankruptcy laws. You might be better off waiting.
Median Income Table
The new Bankruptcy law's provisions affect people who make more than the median income differently from those who make less. Those who make less are presumably eligible for Chapter 7, regardless of their expenses. Those who make more than the median income face closer scrutiny before a Chapter 7 will be approved. The Census Bureau is responsible for calculating and publishing median income information for use by the Bankruptcy Courts. Here are the 2004 Median Income numbers for Texas, which will be used until the Census Bureau releases updated numbers:
Household Size |
Texas Median Income |
1-earner family |
$33,280 |
2-person family |
$46,454 |
3-person family |
$48,755 |
4-person family |
$56,246 |
Each additional person |
Add $6,300 |
Source: United States Trustee Program, Department of Justice
Median Income Family May Qualify For Chapter 7
Even a median income family may qualify for Chapter 7 bankruptcy after October 17th. The example below is based on the IRS' allowable expense tables, which vary from county to county.
Because the net income available to creditors is less than $100 per month in the example, this debtor family is eligible for Chapter 7 under the new law. This example does not include any budgeted expenses for health insurance, child care, or telecommunications, all of which are also deductible under the new law.
The example uses the IRS expense allowances, which the family may claim under the new bankruptcy law even if their monthly debt payments and expenses are lower than those shown in the table.
|
Dallas County |
Collin County |
Current Monthly Income |
$4,687 |
$4,687 |
Less: Social Security and federal tax withholding |
$709 |
$709 |
Equals: Take Home Income |
$3,978 |
$3,978 |
Less: IRS Housing Allowance |
$1482 |
$2029 |
Less: IRS Transportation Allowance |
$1238 |
$1238 |
Less: IRS Food, Apparel and other Misc. Expense Allowance |
$1298 |
$1298 |
Equals: Net Available to Creditors |
($40) |
($587) |
Source for Expenses: IRS National Collection Standards
For more information:
Gary A. Armstrong, Attorney and Partner
Armstrong Law Firm
5646 Milton Street, Suite 711
Dallas, Texas 75206
Phone: 214-265-0808
Facsimile: 214-853-5323
www.ArmstrongAttorneys.com
www.Dallas-Bankruptcy.com
email: GArmstrong@ArmstrongAttorneys.com
Firm Information:
The Armstrong Law Firm helps families and small businesses cope with financial stress. The Dallas bankruptcy attorneys of the Armstrong Law Firm have many years of experience helping residents of the Dallas Metroplex make sense of bankruptcy law and their rights.
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