Bankruptcy Advice Changed With New Law

After a year and a half of arguing before judges about exactly how the means test works, I’ve changed the advice I give about when to file bankruptcy. I now tell clients to file when they are unemployed, underemployed, or sick, despite the fact they have nothing a creditor could get.

Before the 2005 Bankruptcy amendments, my counsel was to wait to file bankruptcy until things were looking up economically. Wait until you can spare the money for my fees and until you have a salary that a judgment creditor could otherwise garnish.

Now, the uncertainty about whether the means test and the six month income look-back controls eligibility to file bankruptcy has me changing my tune. It is more certain to file while your income is low or nonexistent both before and after the bankruptcy . Otherwise you may encounter judges like I saw yesterday who cannot believe that the law changed and therefore the way we analyze a debtor’s ability to repay creditors changed with the implementation of the means test.

The effect for clients who have waited through a period of unemployment to file bankruptcy under BAPCPA only when they got a job and something worth protecting has been to embroil them in fights with the UST and Chapter 13 trustees about whether their filing is “abusive” since they now have a salary with which to pay their debts. Never mind that Congress in its alleged wisdom made the test for abuse backward-looking.

So, I’m off to appeals courts for clients who believed the words in the “new law” meant what they said.

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