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Bankruptcy means test: how big families can pass

Posted by Robert Weed / in General Information About Bankruptcy Law, The 2005 Bankruptcy Law / 12 comments

The 2005 bankruptcy law is unfair to families.   If you have children, you need to fill out your bankruptcy means test budget very carefully.  Here’s why.

The means test in the 2005 bankruptcy law is easy on singles, and hard on big families.    Here’s an example:  a household of one is allowed $300 for food.  A family of four is allowed $757.   That’s ten dollars a day to feed the first person in the family–$5.07 a day each for the next three.  (When you go above four, it drops to $4.80.)

Congress set this up so that just trying to take care of your kids is called bankruptcy “abuse.”

There’s not much we can do about the unfairness of what the bankruptcy law allows for food and clothing.   But, other things you spend money on for your children, you are allowed to claim your real cost.

Those are the areas where you need to focus when you fill in your bankruptcy means test budget.

Child care.  Most families pay for child care by the week.  And then multiply by four to calculate the monthly.  But you should multiply by 4.333.  Because there  are more than twenty eight days in a month–usually thirty or thirty one.   So don’t short yourself.  Budgeting those extra three days could be the difference between having your bankruptcy approved and having it turned down.

Besides pre-school or after school care, budget for baby-sitting.  Most families, maybe once a month, both mom and dad have to go somewhere, together, and you need a sitter.   That twenty bucks or so goes in your bankruptcy means test budget, too.

Do you send the kids to summer camp?  That’s child care–and goes into your child care budget.

Are the kids lagging in school?  Let’s make sure we take advantage of that.  (In bankruptcy everything is upside down–bad is good; good is bad.)  So having trouble in school is an advantage in bankruptcy.

You are allowed to budget $125 per month to pay for schooling.  Now if the kids are in full time private school, at $125 a month doesn’t begin to cover it.  But if the children need tutoring to get through a tough class–or need to pay for summer school to catch up–that could be that $125 per month you are allowed in your bankruptcy budget.

(This schooling budget only covers kids up through age 17.  Congress says they are on their own for college.)

Are the kids having big trouble in school?  If the children are “challenged,” then the $125 per month cap doesn’t apply.  Your bankruptcy budget for education for employment of physically or mentally challenged children is unlimited.   (And goes past age 18, too.)

I see some parents who put their kids in private school because they couldn’t handle the public schools.  In that case, you can claim that whole expense.

Health and medical.   The bankruptcy means test allows you $60 per person for health and medical expenses.  Most people think they spend a lot less–but actually spend a lot more.

A lot of what you think of as grocery money can actually be counted at health care.  And for healthcare, unlike groceries, you can claim above the allowance.

Let’s start at Walgreens or CVS.    Vitamins–that’s health care.  Tylenol, allergy medication–health care.   Shampoo and toothpaste goes in the grocery budget–but anything stronger is health care.   Does your dentist recommend Listerine–that’s healthcare.

Lots of families are spending $20 or more per person on over-the-counter stuff that you can claim in your health care budget.

Prescriptions.  Should be obvious, but don’t leave it out.

Glasses or contacts.  According to the Vision Council of America, approximately 75% of adults use some sort of vision correction.   I’m spending over four hundred dollars a year–thirty five dollars a month–on glasses.  Your children may be spending more–because they lose or break them.

The dentist.  Just routine dental check ups can cost a couple hundred dollars a year.  Maybe half the people I talk to about bankruptcy tell me they are avoiding the dentist because they can’t afford what it will cost.  Budget that in.

You are allowed to claim the dental work you’ve been putting off  as health care.

Braces.  Approximately 4 million people are in braces in the US at any one time.    Orthodontics can cost a couple hundred dollars a month.  If the children need braces, put it in your budget.

Runny noses and broken arms.  In addition to preventive care, children (and adults) catch cold and flu, break their arms, and end up at the doctor’s one way or another.  Allow something for the unexpected in your bankruptcy health care budget.

Mental health.   A Gallup-Healthways Well-Being Index survey conducted in 2009 revealed that about 40 million American adults had recently been diagnosed with depression.

When life knocks you down, there can be changes in the chemistry of your brain.  People need help–counselling or medications or both–to get back to their right mind.  Things that caused your financial problems–unemployment, break-ups, other health problems–can also bring on depression.

If depression is impacting your family, be sure to add that to your health care budget.  (And be sure to take care of it, too.)

Don’t forget these categories

Charitable giving.  Most people have a good handle on what they give to their church, their favorite cause, or other regular commitment.

But if you have children (or even if you don’t), you get hit for donations for Girl Scout cookies, the high school band, and that kind of thing.  I’m guessing most families spend at ten dollars a month on these neighbor-to-neighbor charities.

Elderlies.  Along with the family in your home, many of us are helping out parents or grandparents.  One of the very few good changes in the 2005 bankruptcy law, help for elderly (or disabled) family members is now expressly ok.  (This includes family overseas.)  

To get your bankruptcy approved, we need to show the court where you need to spend your money.  People who come to talk to me about bankruptcy have been living from paycheck to paycheck–usually for a long time.  But they are often so stressed, they really don’t know where the money has been going.

I hope this article helps you think clearly about your budget–so we can get your bankruptcy approved.

 

 

Bankruptcy and security clearance, and defense cutbacks.

Posted by Robert Weed / in General Information About Bankruptcy Law / 19 comments

Defense cutbacks are now certain.  (At least as certain as anything is in this world.)

Lots of people whose jobs seem safe now will soon be out of work.

Will you lose your job and get behind on your debts?  Please don’t jeopardize your security clearance–and your future.  Please don’t put off filing bankruptcy.

That’s the lesson of the thousand people with security clearances I’ve helped. And the lesson of the half dozen who lost their security clearances because they filed bankruptcy too late.

Bankruptcy and security clearance

Some people think bankruptcy destroys your security clearance.  That is false.  The worst thing for your security clearance is “irresponsibility.”

It is irresponsible to get into debt you can’t pay.

But if you have debt you can’t pay, the responsible thing to do is clean it up.  The irresponsible thing is to ignore it.   The irresponsible thing is to drag out the problem.

This is not just me talking.  The legal office of the Air Force Academy says the same thing.  (Thanks to the Air Force Academy for putting this valuable information in writing.  So much in the security clearance world is not for publication.)

“Not filing for bankruptcy may make you more of a security risk due to the size of your outstanding debts. By the same token, using a government-approved means of dealing with your debts may actually be viewed as an indication of financial responsibility. Eliminating your debts through bankruptcy may make you less of a security risk.”

Here’s a post on security clearances, from the US Army Ft Meade.  They say it’s a “myth” that filing bankruptcy means you lose your clearance.  They say, and I agree, you need to be ready to explain how and why you got into trouble.

Let me make it clear.  Bankruptcy is not a good thing.  Paying everything on time is a good thing.  But bankruptcy is better than not paying. It is better than ignoring the problem.

I’ve helped a thousand people with clearances; and I know a handful who have lost their clearances.  Nearly all lost clearances for an obvious reason–they did not come to see me in time.  They did nothing until they were told they were in clearance trouble for financial irresponsibility.  Then they checked around.   Then they found out they should have filed bankruptcy when they first got into trouble.

Too late.  They needed to show responsibility by facing the problem when they first got into the financial problem.   Waiting until you get into a clearance problem is waiting too long.

Don’t wait too long.

Bankruptcy and Security Clearance articles by two other lawyers

(Russ DeMott, a bankruptcy lawyer in Charleston, SC, has an excellent article on bankruptcy and security clearances.   His experience is pretty much the same as mine.  Except that he’s mostly talking about active duty military people.  And my experience is mainly with civilians:  DoD, CIA and Homeland Security employees, and employees of contractors in the defense, intelligence and security fields.)

(Here’s a more recent article by Brett Weiss, a bankruptcy lawyer in Maryland, who says pretty much what I am saying here about bankruptcy and security clearances.    He also emphasizes the importance of self reporting to your clearance officer when you get into financial trouble, and before you file the bankruptcy.)

Bankruptcy and Security Clearance Update–December 2014

Yesterday, a Federal agent came to talk to me.  A young lawyer who had worked for me for a couple years had taken a Federal job.  she needed a clearance.

So the Federal agent was doing an investigation.

No surprise there.

Here’s the headline.  The Federal agent, the guy doing the clearance investigation, had filed bankruptcy with me back in 2001.  He didn’t just have a clearance himself–he was doing clearance investigation.  (And back in 2001 he was working for the same agency he was working for now.)

Proof of what I tell people. If you get into financial trouble, you need to clean it up.  And if you can’t clean it up any other way, then file bankruptcy.  The people who lose their clearances are the people who just let the problem get worse.  Be responsible, take control, fix the problem.  File bankruptcy.   (And don’t forget to self-report.)

Bankruptcy and Security Clearance Update–December 2015

Just filed Chapter 7 bankruptcy for Don and Donna.  Both disabled veterans, both battling multiple medical issues, and starting a new family.

They first came to see me in February 2014.  they were in trouble because they downed a house in an area with defense cutbacks that they couldn’t sell.   Told them they needed to file bankruptcy to fix that problem.

Don lost his nerve and they didn’t come back until October 2015.  Don’s clearance had been suspended, along with his job, for financial irresponsibility–and failure to self report.  That’s exactly what I told him would happen, if he did NOT file bankruptcy.  If he was a contract, he’d just be out of luck–and out of a career.  Because he’s a Federal employee, he has more protections.  I’m HOPING that his clearance will be saved on appeal, now that he has, finally, taken care of the problem.

 

Bankruptcy and Security Clearance Update–December 2017

December 28, 2017

After bankruptcy. Help! They're suing my LLC!

Posted by Robert Weed / in General Information About Bankruptcy Law / 16 comments

Many people who file bankruptcy are small business owners.  Especially owners of one-person small businesses.  People like the freedom of being their own boss, but it can be a tough way to make a living.

A lot of those small businesses are set up as corporations or LLC’s.  Why?  People have heard that they are not liable for the debts of their business if they incorporate.   That’s true.

(Now starting out, nearly everyone you do business with will want you to sign a personal guarantee.  So that protection doesn’t go as far as you’d like.  And those personal guarantees for a lot of people are the reason for the personal bankruptcy.)

The advantage of setting up a corporation or LLC turns against you, if you have to file bankruptcy.  Why?  Just like you are not liable for the business’s debts, the business is not covered by your bankruptcy.  You are not the corporation; the corporation is not you.

That hits home hard after the bankruptcy, when creditors keep sending bills, or even send court papers, in the name of your corporation or LLC.   What to do?

Well, if the business is closed, do nothing!  Go back to square one.  Why did you set up the corporation or LLC in the first place?  Because you are not liable for the corporation’s debts.  So if they bill the corporation, you don’t care.  If they sue the corporation, you don’t care.  That was the whole point.  You are not the corporation.  You are not liable for the corporation’s debts.

If the business is closed, why do the bills keep coming?  Why would collection agencies go after closed businesses?  To scare people–specifically to scare people into paying.   The key thing here is, don’t be scared into paying.

“I’ve filed bankruptcy, so I don’t have to pay.  The XYZ Company is out of business, so it can’t pay.”  Keep those two things in mind and you’ll be fine.

(Suppose you are still operating.  Now that’s trickier.  We need to talk about that in person.  If you had a lawyer, accountant or business advisor when you started up, you need to go back to that person again, too.  It’s really important to do that right.)

But if you have closed, then it’s simple.  You don’t care.