New Change Helps Make Bankruptcy More Accessible

            Soon the holiday season will be upon us. To some, this time of year signals warmth, family, and good cheer. To others, the holidays are simply another source of stress. There are many pressures in this modern age that pull our focus in several directions. Family finances are often something that get pushed to the back of our minds, leaving many living beyond their means. As such, financial debt is a keystone burden that many New Hampshire families face. After years of neglect, mismanagement, pride, or the unexpected, families often consider the possibility of filing for bankruptcy. Filing for bankruptcy need not be a daunting or embarrassing process. Rather, many are so thankful for the relief a bankruptcy filing can provide after months of phone calls and dealing with creditors.

There are several different kinds of bankruptcy filings to help those in distress. The different kinds of filings are divided into the frequently-noted “Chapters”. For an individual natural person(s), Chapters 7 and 13 are of significance. Today’s blog post considers a slight, but significant change in the process of filing for one chapter or the other. For the Chapter a debtor chooses is not as simple as picking one form or another. In fact, there are many questions and considerations that a debtor ought to consider with an attorney before filing. The attorneys at Parnell, Michels & McKay are equipped with the prerequisite knowledge and years of experience needed to address an individual’s particular financial situation. This blog post is intended to note a small, but important alteration in the Bankruptcy Rules, not provide legal advice.

 In general, a Chapter 7 is a pure liquidation bankruptcy of dischargeable debt, and a Chapter 13 is a reorganization bankruptcy design to repay some of the debtor’s debt. In 2005, the United States Congress substantially changed its bankruptcy laws to add what is now called the “Means Test”. The Means Test was implemented to prevent Chapter 7 filing abuse by debtors that possessed the ability to repay at least some of their debts. In the most short and simplistic terms, the difference between a Chapter 7 and Chapter 13 is dependent on the debtor’s income. If a petitioner makes too much money, they may be prohibited from filing a Chapter 7 for failing the Means Test.

The Means Test is applied when a debtor possess a gross income that is higher than the median state income as determined by the federal government. Still, an application of the Means Test does not automatically induce a Chapter 13 bankruptcy. Rather, the Means Test considers a certain amount of national allowances (for items like food, clothing, etc.), taxes, the different kinds of debt a debtor possesses, and certain other exceptions, across the six (6) month period prior to filing. To be clear, this a vast over-simplification of how particular (and critical) the Means Test can be for certain debtors. However, the area of concern for this blog post is the recent changes in New Hampshire’s median state income.

As of November 1, 2016, the median income for the state of New Hampshire is $61,580. On October 31, 2016, the median income for New Hampshire was $56,289. This jump in income is unprecedented. As on January 1, 2008, the median income in New Hampshire was $50,086 and when the Means Test was implemented in 2005 the median income in New Hampshire was $50,411. As one can see, the median income is not guaranteed to improve by great leaps and bounds every year. While, the most recent jump in median income may signal more prosperous times for the Granite State, the change in median income also presents the possible opportunity for more debtors to apply for a Chapter 7 bankruptcy. Such a significant jump could prove crucial to those that fell just above the line after completing the Means Test, but would have likely struggled under a Chapter 13 reorganization repayment plan.  

            If you have considered filing for bankruptcy, but have been concerned with the prospect of doing so, now is the time to speak with the attorneys at Parnell, Michels & McKay. Our attorneys will take guide you through a process that can be as technically complicated as it is emotional. Please contact our office to learn more. Let us help you move toward some financial stability.