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Job Loss and Bankruptcy
This is one of the trickiest issues the Texas law firm of M. Linda Rushing, PC, faces.
If a person files too soon and debt mounts after the case is filed, that debt will not be discharged in the Chapter 7 bankruptcy and it is eight years before another Chapter 7 can be filed. However, if a person waits until they get another job, it may keep them from being able to qualify under a Chapter 7.
There are two parts to Chapter 7 eligibility: the means test and the projected income (usually the projected income for the six months after filing).
Means test: The means test looks back six months from the month prior to filing. Therefore, unemployment usually means a person easily qualifies for a Chapter 7.
The means test takes into account the number of people in your household along with your average gross monthly income over the last six months before the month that you file (the "look back" period). Linda Rushing enters every penny of every pay stub during that six month period to determine whether her client exceeds the median income. If the client is under the median income, part one of the eligibility has been passed.
If the client exceeds the median income, all is not lost!
The second part of the test gives her the opportunity to list certain allowed expenses. It takes into account: mortgage payments; car payments; health insurance; child support; charitable contributions; taxes that have to be paid; and a great many other expenses. Some deductions are set by the IRS guidelines; but if you exceed those guidelines, Linda Rushing can help with those expenses. Austin Chapter 7 bankruptcy lawyer Linda Rushing is highly skilled at finding ways to get clients into Chapter 7. She has gotten people into a Chapter 7 that other attorneys have said were not eligible. She uses her experience and knowledge of how the process works and how to maximize every penny for the means test.
If, after Linda Rushing has entered all available deductions, the bottom line on the means test is less than about $110/month, the client is eligible for a Chapter 7.
Projected income looks forward, usually for the six months following the bankruptcy filing. If you file when a new job is finally on the horizon, it may keep you from being able to stay in a Chapter 7. The US Trustee will ask if the client has a new job or if one is right around the corner. If so, the client will have to provide income information on the new job. The US Trustee has the right to object to your Chapter 7 if that income would allow you to pay your creditors.
The projected income part of this can really hurt a client, which makes deciding when to file a real balancing act.
It seems to go against reason to tell a client who is living on unemployment or support from family that they need to pay for a bankruptcy now. It seems like a poor use of money that needs to be used for other things. But, if a client waits until he/she has a job; if they wait long enough so that some of that income appears in the means test "look back" period; and then a steady income is shown in the income part of the bankruptcy schedules, it can prevent a successful Chapter 7.
Unfortunately, the projected income part of the eligibility requirements makes one feel as if one is caught between a rock and a hard place. Linda Rushing counsels her clients that it is best to file when there is no money in your past and none in your future.
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