Exemptions are what allow you to keep your “stuff’ when going through a bankruptcy. In over 96% of Chapter 7 cases, debtors are able to keep all of their assets. In Wisconsin a debtor has the option of using exemptions found under Wisconsin law or those found under federal law. The exemptions are divided into various categories, and most of those categories have a dollar limit. The federal exemption limits have recently been raised a little and some of those are as follows. Homestead: $23,675.; consumer goods: $12,625.; 1 motor vehicle: $3,775.; wildcard: up to $13,100.; tools of the trade: $2,375.; and jewelry: $1,600. A married couple gets to double those exemptions. To learn about other exemptions available in a bankruptcy (like the $150,000 Wisconsin homestead exemption or the $1,283,025 IRA exemption!) give us a call.
There has been a major revamping of the forms that are required to be filed in a bankruptcy case, and they will be required in cases filed starting December 1, 2015. The Federal Courts’ website states, “The new forms are easier for debtors to understand and complete and are designed to work with scheduled enhancements to the federal courts’ case opening and electronic case management system.” The software companies that bankruptcy attorneys rely on to complete the forms are still scrambling to get the forms updated. Hopefully, the changes will be ready to go on time and the changeover will work seamlessly.
The U.S. Trustee Program has provided new median income numbers that go into effect on 11/01/2015 for the bankruptcy Means Test. The Means Test can determine whether a debtor is allowed to go forward with a Chapter 7 bankruptcy or be left with a Chapter 13 bankruptcy as the only viable option. For Wisconsin they are as follows: a one person household has gone up from $43,666 to $44,764; a two person household has gone down from $59,740 to $59.597; a three person household has gone down from $59,740 to $59.597; and a four person household has gone up from $83,686 to $85,859. The amount added for each person above four remains the same at $8,100. If your income is above these median income levels, it does not necessarily mean that you won’t pass the Means Test. It just means that you have to proceed to the next level of the Means Test to see if you have enough deductions to show that you would not have enough disposable income to finance a Chapter 13 Plan. And, if you don’t pass that level of the Means Test, there is another level that takes into account how much unsecured debt you have. If you don’t pass that level, there is still a totality of the circumstances test that may allow you to go forward with a Chapter 7 case. Needless to say, the more income you have, the more complicated the Means Test becomes.
An article in the Economist entitled, “A Fresh Start: New Evidence That Rules for Debtors are Too Tough,” reports on a study that finds that the trend toward fewer bankruptcies since 2005 is not necessarily a good thing. One of the positive effects of easier bankruptcy laws, found the authors of the study, Will Dobbie of Princeton and Jae Song of the SSA, include significantly increased income of the Debtors in the year after the bankruptcy was granted. Michelle White of UC-San Diego found that another positive effect was lower default rates on prime mortgages. The article concludes by noting that “worrying” figures were released by the Federal Reserve in March of 2015 that showed that consumer debt rose for the 41st straight month, and wonders whether repealing the reforms of 2005 would help or just increase profligacy. The article can be found here.
The Seventh Circuit Court of Appeals continues to apply the Brunner Test to those seeking discharge of student loans in bankruptcy. According to a recent report by Joe Forward in Wisbar News, in Tetzlaff v. Educational Credit Management Corp., the Court held that, “student loans are not dischargeable in bankruptcy unless a debtor shows an “undue hardship” – that is, he or she could not maintain a “minimal” standard of living if forced to repay the loans, “additional circumstances” determine that the debtor’s financial situation is likely to persist, and he or she made a “good faith” effort to repay the loan.” In the Tetzlaff case, it was reported, “Tetzlaff, who was unable to pass a bar exam, said depression, alcohol issues, and criminal convictions made it difficult to secure employment.” However, the Court of Appeals agreed with the Bankruptcy Court that, “Tetzlaff met the first requirement of the so-called Brunner test because he could not maintain a “minimal” standard of living. However, the court concluded that Tetzlaff did not meet the second two requirements.” The Court of Appeals, “noted that the “additional circumstances” prong requires courts to find a “certainty of hopelessness” in the debtor’s financial situation.” The bottom line is that the extreme difficulty in having student loans discharged in bankruptcy in the Seventh Circuit (the Seventh Circuit hears federal court cases from Wisconsin, Illinois and Indiana and sits in Chicago) remains, and for the vast majority of those seeking relief from burdensome student loans their best bet is to look into Income Based Repayment or Income Contingent Repayment plans.