Bankruptcy in North Carolina, Part 3
BAPCPA, 'means test,' safe-harbor provisions
Continued from "Bankruptcy in North Carolina, Part 2."
Effects of BAPCPA, the reform act of 2005
Under intense pressure from credit-card companies (and the banks that own them) and their lobbyists for about five years of hard-corner, back-room negotiations, Congress passed BAPCPA, designed to make it more difficult for consumers to file for bankruptcy protection. The idea was to make it tougher for individuals to file Chapter 7 (so-called liquidation bankruptcy), steering them toward Chapter 13 (so-called reorganization bankruptcy or the wage-earner plan).
Trustees and the means test
According to the Justice Departments BAPCPA page, the act gave the U.S. Trustee Program new responsibilities in a number of areas, including:
- implementing the new means test to determine whether a debtor is eligible for chapter 7 (liquidation) or must file under chapter 13 (wage-earner repayment plan);
- supervising random audits and targeted audits to determine whether a chapter 7 debtors bankruptcy documents are accurate;
- certifying entities to provide the credit counseling that an individual must receive before filing bankruptcy;
- certifying entities to provide the financial education that an individual must receive before discharging debts; and
- conducting enhanced oversight in small business chapter 11 reorganization cases.
Median income vs. finding of abuse
The trustee is now charged with more areas of ensuring the accuracy of filings and the determinations made under the means test and the disposable income test.
Before BAPCPA, income had no bearing on eligibility for Chapter 7. What comes into play now is the states median income, as determined by the Census Bureau (see North Carolina QuickFacts, Census Bureau). Basically, if your household income is higher than the North Carolina median income, you must satisfy the criteria of the means test in order to file under Chapter 7. This also puts you in the category of being subject to provisions against abuse of the bankruptcy code, whereas pre-BAPCPA law was framed in terms of substantial abuse. If abuse is foundsubject to an appeal hearingthe Chapter 7 case can be dismissed (thereby exposing you once again to creditors) or converted to a Chapter 13 (or Chapter 11) filing.
Safe-harbor provisions, IRS criteria
If your household income (also relative to number of dependents) is below the median for North Carolina, you have what is known as safe harbor from the abuse provisions and allows you to file under either Chapter 7 or Chapter 13. A sidenote: although Chapter 11 is commonly perceived as restricted to business reorganization, individuals with unsecured debt more than $336,900 are not eligible for Chapter 13 but can file under the more expensiveand more flexibleChapter 11.) The means test uses the IRS national and local collection standards for determining household and living expenses.
Typically, a Chapter 7 bankruptcy turns out to be a no asset or low asset filing. In such cases, theres simply not enough stuff for the trustee to sell (liquidate), and so the case proceeds onto discharge within a few months, usually about three or four. Also, in rare cases, a Chapter 7 filing can also help a debtor keep the home. Again, this varies from state to state, and is another reason to consult with an experienced bankruptcy attorney whos not only familiar with the code but also with the asset exemptions in Indianaplus the ins and outs of the various judges in the North Carolina district courts.
Next, Bankruptcy in North Carolina, Part 4.
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