Real Bankruptcy Stories of Jersey



http://www.buzztab.com/
entertainment/teresa-giudice-nephew
-makes-things-worst/

 What does this lovely lady have to do with bankruptcy and my bankruptcy blog? Mostly it is just reality show curiosity, but there is also a cautionary bankruptcy tale present here. 

If you are not a reality show junkie like some of us, you may not recognize this woman.  She is Theresa Giudice of the Real Housewives of New Jersey.  If you do follow these shows (and it's ok to admit it), you probably know that she and her husband filed Chapter 7 bankruptcy in 2009.  As I was doing some fun bankruptcy searching on the internet, I came across several articles about the current status of this bankruptcy.  It appears that the trustee in the Giudice's case has filed an objection to their Chapter 7 discharge claiming that they should not be allowed a discharge because they have misled the bankruptcy court and knowingly hid some of their assets. 

If you will recall, a Chapter 7 bankruptcy is a liquidation bankruptcy.  Meaning that the bankruptcy trustee assigned to your case has the right and the duty to look for assets that can be liquidated for distribution to your creditors and payment towards your debts.  These are assets that are not protected by what are known as your state's exemption laws.  If you do not disclose all of your assets to your bankruptcy trustee, the trustee is not going to be very happy.  And if the trustee is not happy, no one is happy.  What can result is the case of this Real Housewife; denial of the bankruptcy discharge, which is the whole reason you filed bankruptcy in the first place.  If a reality show "star" is not above the bankruptcy laws, then you probably aren't either.  This is why we bankruptcy lawyers get frustrated when you "forget" to tell us about that extra bank account or parcel of land you just remembered you have in your name.  We want you to have a successful bankruptcy, and we can only ensure that happens when we are fully informed of all of the assets you have.

Oh yeah, what assets did Mrs. Giudice allegedly forget to mention? Nothing big...just a bank account, a book royalty, and a fashion line.

This blog is for informational purposes only and is not to be construed as legal advice. 
More information about Perez Law Group can be found on our website, http://www.perezlawgroup.com/.

The Means Test Just Got Meaner

If you have done any preliminary research on bankruptcy, you have most likely run into or seen mention of something called the Means Test.  The Means Test was formulated in 2005, when the bankruptcy laws were changed, in order to prevent abuse of Chapter 7 bankruptcy.  Prior to 2005, almost anyone could qualify for Chapter 7 bankruptcy, whether they had the means to pay their creditors or not.  By 2005, Congress had enough and decided to create the Means Test to prevent those who have the ability to repay some of their debt from filing Chapter 7 and avoiding Chapter 13 bankruptcy.

As bankruptcy practitioners we are just as scared of the means test as you are, and we try our hardest to get clients to "pass" the Means Test.  Unfortunately, passing the Means Test may no longer be enough.  The situation just got meaner as the United States Court of Appeals for the Fourth Circuit recently ruled on a case (Calhoun v. United States Trustee) in which the Debtors "passed" the Means Test but were determined to still have the ability to repay their creditors.  When we say someone "passes" the Means Test, we say that the person has so little disposable income that there is no presumption that they are abusing the bankruptcy process if he/she files a Chapter 7 bankruptcy.  This rule is outlined in the bankruptcy code section 707(b)(2).  However, there is another relevant code section that we often forget.  This is section 707(b)(3), which states that a case can be dismissed for abuse if the Debtor is found to have filed in bad faith or if the totality of the circumstances would show abuse (i.e. despite the Means Test result, the Debtor can actually repay some of his/her debt).  The Court in Calhoun cited another case in which the factors of abuse were outlined.  These included 1) the reason for the bankruptcy filing; 2) whether the family budget and expenses would be considered reasonable; 3) whether the Debtor took cash advances or incurred new consumer debt prior to filing and in amount beyond his ability to repay; 4) whether the filed bankruptcy schedules accurately reflect the Debtor's income and true financial condition; and 5) whether the petition was filed in good faith (In re Crink, 402 B.R. 159 (Bankr. M.D.N.C. 2009)). In Calhoun, the Court of Appeals affirmed a finding of abuse because Mr. Calhoun had significant income from both retirement and social security.  While social security income is not counted in the Means Test it is present, and it gave the Calhouns a monthly income of nearly $8,000.00 for their household of two.  Additionally, the Court looked heavily at the Calhoun's monthly budget and found some of their expenses to be extravagant. 

So, as we review our clients' bankruptcy cases, we must keep in mind that the Means Test is not the only test out there.  There is a potentially meaner test that the bankruptcy court can apply that looks at all of the circumstances in a case.  While Calhoun is not a case in the Arizona Circuit, we should not overlook 707(b)(3) when we analyze our cases. It is a warning that there are limits to what we can do for our clients. This also means that a potential client should not expect that his/her attorney will file a Chapter 7 bankruptcy when it is not legitimate because it is likely to now be scrutinized under 707(b)(2) and 707(b)(3).

This blog is for informational purposes only and is not to be construed as legal advice. 
More information about Perez Law Group can be found on our website, http://www.perezlawgroup.com/.

Help Wanted

A common fear among our clients is that filing for bankruptcy will cause them to lose their jobs or that their employers will be notified of the bankruptcy filing.  I am here to say that this an unfounded fear and should never be the reason why someone decides not to file for bankruptcy. 

Contrary to the bankruptcy rumor mill and what you might have heard from your mother, brother, next door neighbor, or friend of a friend, personal bankruptcy filings in Arizona are not posted in the newspaper.  I do believe that business filings are sometimes posted.  Also, your employer will never get notification that you filed for bankruptcy.  The only exceptions being if you have a writ of garnishment where you employer is the garnishee or if you have, for some reason, listed your employer as a creditor.  The latter has happened.  For example, we have had clients that work for American Express and also happen to have an American Express credit card. However, it is not a very common occurrence.

What if your employer does, by one way or another, discover that you filed bankruptcy?  How can I be so certain that you will not get fired because of your bankruptcy filing?  I am certain because  the bankruptcy code says so, and no one wants to mess with the code. The specific section we are talking about is 11 U.S.C. Sec. 525(b).  This section states that a private employer may not discriminate with respect to employment nor terminate the employment of an individual solely because that person filed for bankruptcy or did not pay a debt that was dischargeable. Plain meaning of this: your employer can't fire you or negatively affect your employment even if it is known that you filed for bankruptcy.

An important distinction in the code is the term private employer.  The Government has different rules when it comes to discriminatory behavior based on the filing of bankruptcy.  One of the important  differences, as determined by the Fifth Circuit Court Appeals on March 4, is that the Government can also not deny employment because an individual has filed bankruptcy.  The same does not apply to private employers, and the Fifth Circuit determined that there is nothing in the construction of the bankruptcy code that would prove that it would apply.  The Fifth Circuit determined that if Congress felt a private employer should not be able to refuse to hire someone who has filed for bankruptcy, it would have expressly stated so in 11 U.S.C. Sec. 525(b).  Therefore, if you file for bankruptcy relief and then apply for a job at financial institution (the most common example), that employer does have the right to consider your bankruptcy filing when deciding  whether or not you will be hired.  But, if you already work for that institution and then file, you can not be fired only because you sought bankruptcy relief. If this were the case, your employer would be violating the code and be subject to penalties.  And that is why no one likes to mess with the bankruptcy code.

The moral here is that if you are considering bankruptcy and it is something that will help you get back on your feet, you should not let rumors of what can happen after you file affect your decision to seek the financial relief you need.

(On a side note, I do believe that, while the government can not discriminate with regards to employment, it can deny the granting of certain security access if a government employee files for bankruptcy).

This blog is for informational purposes only and is not to be construed as legal advice. 
More information about Perez Law Group can be found on our website, http://www.perezlawgroup.com/.