If the debtor’s income is below the state median, the dreaded Means Test is “done.” However, if debtor’s gross income exceeds the median (gross income for the household size chosen is greater than the state median), the rest of the Means Test Form must be completed. Debtor can deduct things like mandatory deductions from gross income, income taxes and union dues.

Debtor can also deduct secured payments to be made in the next 60 months. In other words, if debtor financed a car and there are 45 payments left. The 45 payments are added and divided by 60. The figure is then deducted from the income. Same techniques is applied to mortgage payments(also a secured debt).

What about secured payments on collateral to be surrendered in a chapter 7 or soon after

Can you still get the benefit of the deduction? Because technically the Means Test is backward looking in that even if your income at the time of filing is lower than the median, it doesn’t matter if the income during the 6 months prior to the filing exceeds the median. Likewise, shouldn’t your obligation during those 6 months be allowed to set off that income? Well, Courts are all over the place on that specific issue.

In California, the 9^th Circuit is pretty settled on the answer. Thankfully for those of us practicing in the Circuit.

Intent to surrender collateral, irrelevant and deduction is still allowed in the following 9^th Circuit cases:

C.D. California: In re Wilkins, 370 B.R. 815 (Bankr. C.D. Cal., July 2, 2007) (Bankruptcy Judge Meredith A. Jury) (Chapter 7 case)

E.D. California: In re Vartan, 2007 WL 640006 (Bankr. E.D. Cal., Feb. 26, 2007) (Bankruptcy Judge Robert S. Bardwil) (Chapter 7 case)

N.D. California: In re Rodrigues, 2008 WL 372742 (Bankr. N.D. Cal., Feb. 11, 2008) (Bankruptcy Judge Alan Jaroslovsky) (Chapter 7 case); In re Chang, 2007 WL 3034679 (Bankr. N.D. Cal., Oct. 16, 2007) (Bankruptcy Judge Arthur S. Weissbrodt) (Chapter 7 case);

S.D. California: In re Sederberg, Case No. 07-02065-JM7 (Bankr. S.D. Cal., Dec. 20, 2007) (Bankruptcy Judge James W. Meyers) (Chapter 7 case); In re Maya, 374 B.R. 750 (Bankr. S.D. Cal., Aug. 14, 2007) (Chief Bankruptcy Judge Peter W. Bowie) (Chapter 7 case)

Idaho: In re Kelvie, 372 B.R. 56 (Bankr. D. Idaho, July 10, 2007) (Chief Bankruptcy Judge Terry L. Myers) (Chapter 7 case)

Oregon: In re Stewart, Case No. 08-33275-rld7 (Bankr. D. Or., March 11, 2009), amended (March 16, 2009) (Bankruptcy Judge Randall L. Dunn) (Chapter 7 case); In re Oliver, 2006 WL 2086691 (Bankr. D. Or., June 29, 2006) (Bankruptcy Judge Randall L. Dunn) (both Chapter 7 and 13 cases)

W.D. Washington: In re Smith, 401 B.R. 469 (Bankr. W.D. Wash., Nov. 14, 2008) (Bankruptcy Judge Paul B. Snyder) (both Chapter 7 and Chapter 13)

From the above, it is pretty clear that you can deduct secured payments for collateral you intend to surrender in the 9^th Cir. (California included).

What about collateral that was already surrendered, repossessed or foreclosed on prior to filing?

The answer is less clear. I would say that this is not something yet decided and I would advise clients, if circumstances permit and the deduction is necessary, to file before the property is surrendered, repossessed or foreclosed on. I think that the case law currently is leaning toward not permitting deductions.

Caution: sometimes it is better and necessary to wait until after and risks must be weighed to determine which option is better. I recommend consulting an experienced attorney to help you make the right decision.

Deduction was not permitted in this case:

In re Ballard, 2008 WL 783408 (Bankr. N.D. Ohio, March 25, 2008)

(Bankruptcy Judge Russ Kendig) (the creditor obtained a foreclosure judgment prepetition); Case number 07-61486.

Today Washington Post had a story on the effects of foreclosures on mental health. To read the full article click: http://www.washingtonpost.com/wp-dyn/content/article/2009/08/24/AR2009082402333.html

Unfortunately, this is a story too familiar to a bankruptcy attorney who has been practicing for more than a week. In fact, the very first client I met (while working at another firm) committed suicide.  He had a complicated case. His problems were compounded by the fact that by the time he dealt with his finances he has “borrowed” a large sum from an aging parent. I don’t presume to understand what he was going through. I met the person once. I will be honest, I considered finding a new area of law to focus on, but I didn’t.

Since that horrible time, I have seen a LOT of sadness and pain come through the doors of the firm I was working for, and more when I opened my own practice.  Like everyone else, I don’t like to see so much pain and loss. What has kept me practicing bankruptcy is the fact that I also see a solution for the majority of people. It isn’t always roses and it isn’t always ideal, but at times it truly is a very good option that does give people a “fresh start” and allows them to sleep again.

I hear this time and time again, “ After meeting with you, I got my first good night of sleep in a very long time.” Hearing that, keeps me coming back.

It is important to periodically check your credit report to make sure it is accurate. While you will see a lot of advertising for a “free” report, you will often find that it requires you to sign up for their services, etc. Basically, buy this and we’ll give you YOUR report for “free.”

What these sites don’t tell you is that you are entitled by law to a TRULY FREE annual report. Go to this site: https://www.annualcreditreport.com/cra/index.jsp

If you need help disputing inaccuracies, feel free to contact our office at (213) 382-2926 for your free consultation.

When you file for bankruptcy and you have a lawsuit pending in state court it is important to give notice of your bankruptcy in that state court. Use this form in the Los Angeles, CA state courts: http://www.courtinfo.ca.gov/forms/fillable/cm180.pdf

Credit bureau reports are limited in how they represent foreclosures today, so it’s generally not possible to tell from the credit report if a reported foreclosure is a short sale, deed in lieu of foreclosure, settled account, regular foreclosure, or some other variation.

The FICO® score treats all of these descriptions that appear on credit reports as serious delinquencies, so they have an impact on the score similar to the impact from a charge off, tax lien or account included in bankruptcy.

Repost from www.myfico.com

There is a lot of misinformation out there. Please make sure that you are getting your facts from a reliable source.