Craig W. Andresen is a consumer bankruptcy lawyer in Bloomington, Minnesota, with 22 years’ experience in consumer and small business bankruptcy cases. He is the Minnesota chair of the National Association of Consumer Bankruptcy Attorneys, and is a member of the Minnesota State Bar Association’s Bankruptcy Section. Mr. Andresen lectures often on the topic of consumer bankruptcy at local and national legal seminars.


Author: Craig Andresen, Minneapolis, MN, Bankruptcy Attorney

06 Dec The Bankruptcy “Means Test” Explained in English

Few concepts are as difficult to grasp for a potential bankruptcy debtor than the "means test," which Congress added to the bankruptcy law in 2005. To be sure, the means test can be confusing, and it has been roundly criticized both by lawyers and by judges in bankruptcy court decisions. While this brief article will not attempt to explain everything about the means test, it will explain the purpose of the means test, and help you to understand how to assist your lawyer in preparingit. The key to understanding the means test is to know that it is financial formula, not unlike a tax return. The means test aims to predict (1) whether you can afford to pay off some or all of your debts, and thus should be required to filechapter 13 bankruptcy rather than chapter 7, and(2), how much you can afford to pay each month into a chapter 13 payment plan. The means test is a formula developed by Congress to answer the question of which type of bankruptcy, chapter 7 or chapter 13, is appropriate for you. What Congress attempted to do through the means test was to establish a uniform method to enforce its desire that bankruptcy debtors who could pay back part of their debts in chapter 13 be made to do so. The means test is fundamentally an income and expenses test. Those who can afford chapter 13, based on the means test formula, in nearly all cases cannot file chapter 7. The means test is only half the inquiry into your income and expenses, because when Congress enactedthe means test formulain 2005, it left untouched the "actual income and expenses" test it created in 1986. Yes, that's right, there are two income and expenses tests in the bankruptcy law: the actual income and expenses testenacted in 1986, and the means test enacted in 2005. Each of these separate tests is designed to tell if you should be forbidden from filing chapter 7 because of your ability toafford a monthly payment in a chapter 13 case. It's littlewonder, then, that people are confused about the income and expenses issue.
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06 Nov Student Loans Not Discharged Due to Boyfriend’s Income and Voluntary Underemployment

Below poverty level income for five of the past six years was no basis for discharging a chapter 7 debtor's student loans, where she was voluntarily underemployed, had no dependents,and lived with her boyfriend,relying on his income as if they were married, according to the Bankruptcy Appellate Panel for the Eighth Circuit. The debtor in Sederlund v. Educational Credit Management Corp., 2010 WL 4273243 (8th Cir. BAP Nov. 1, 2010), was a 42 year old college graduate who had obtained her degree in psychology, but had never worked in that field. She graduated in 1992 owing $16,649.70 in student loan debt. She paid $11,825.10 toward the student loans over the next twelve years, but was later granted deferrals on the payments. At the time of her chapter 7 filing in 2008, she owed approximately $47,000.00 on her consolidated student loans. In the years leading up to the case, the debtor's income had been minimal: in 2004, it amounted to $6,601; in 2005, $5,930; in 2006, $9,180; in 2007, $5,316; in 2008, $12,635; and in 2009, $6,506. All these figures except that for 2008 fell below the federal poverty level for annual income. The debtor had typically worked as a secretary for law firms and had an inconsistent employment history, working most recently at a catering company. The court noted that the debtor had either quit some jobs, or had been fired from others, for reasons for which she was at least partly to blame. She quit one job after arguing with her boss; she quit another because she disliked her supervisors' abusive attitudes; she quit another due to arguments with coworkers; she was fired from another job after having a dispute with a coworker over work hours.The debtor was currently working in food service, but despitehaving a low number of weekly work hours,she testified she was not seeking a better payingoffice job.
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17 Oct Stripping Second Mortgages in Chapter 13: Minnesota Court Says “No”

Bankruptcy lawyers across the country have assumed for years that "stripping" completely unsecured second mortgages on homestead real estate was accepted as fact, at least in chapter 13 cases. A minority of courts have even allowed this to be done recentlyin chapter 7 cases. Imagine the surprise, then, when a Minnesota bankruptcy court ruled in April that second mortgage stripping was never allowed in chapter 13 on a debtor's homestead. Even worse, the court ruled that under the U.S. Supreme Court's recent decision in United Student Aid Funds v. Espinosa, 2010 WL 1027825 (March 23, 2010), bankruptcy courts had an independent duty to review chapter 13 plans and deny confirmation if a plan contained the forbidden lien stripping language, even if no objection to the plan was filed by any party.
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06 Oct Lawyer Fees Charged to Client’s Credit Card; Court Orders U.S. Trustee to Examine Every Case He Filed Since 2005

Failing to return phone calls from a bankruptcy client,failing to help theclient confirm her chapter 13 plan, and other mistakes may prove costly to an Ohio lawyer, whose client wrote a letterof complaint to the bankruptcycourt, sparking an investigation into the lawyer's conduct in that and other bankruptcy cases. The court also ordered the U.S. Trustee to investigate the lawyer's admitted practice of helping bankruptcy clients charge his fees to their credit cards, in all his cases going back the inception of the Bankruptcy Reform Act of 2005. In this case, In re Seidel, No. 09-58731 (Bky.S.D.Ohio Sept. 30, 2010), the debtor consulted with the lawyer about filing a bankruptcy case to address her mounting credit card debt and burdensome second mortgage on her home. The court found that during this meeting, the lawyer asked the debtor if she had any available credit, and when she responded that she did, the lawyer suggested that his $3,000 fee be chargedto herDiscover card. After the lawyer charged the $3,000 fee to Discover, the debtor left his office thinking she was filing chapter 7. She returned two weeks later with an appraisal of her home's value of $56,500 along with a statement from her first mortgage that the balance owed was 56,900. This seemed to indicate that her second mortgage could be "stripped," and not paid in full, in a chapter 13 case. Consequently, the lawyer stated she should file chapter 13. The courtnoted that this "confounded" the debtor, who had expected a brief chapter 7 rather than a five year chapter 13 plan with $6,000 in payments. After the chapter 13 was filed, the first mortgage submitted a claim saying the balance owed was $56,425. However, buried in the supporting documentation was a different figure: an actual payoff with feesof $56,938. This difference was critical because the lien stripping threshhold for the second mortgage was $56,500. The debtor asked the lawyer to appear with her at her chapter 13 confirmation hearing. He refused, saying thatshe must have given him the wrong amount for her mortgage balance. She also askedthe lawyerto object to the erroneous $56,425 proof of claim, but he refused this request as well. The lawyer also failed to return many of her phone calls and would not agree to meet with her in his office unless she paid him an additional $60 fee.
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06 Sep Lawyer’s Advice on “Exemption Planning” Not Protected by Attorney-Client Privilege, 8th Circuit Appeals Court Says

The U.S. Court of Appeals recently held that a bankruptcy attorney could be compelled to testify against his own clients in a case involving the conversion of nonexempt assets into exempt assets, a process commonly known as "exemption planning." This case, In re Grand Jury Proceedings, 609 F.3d 909 (8th Cir. July 1, 2010), involved both the assertion of the attorney-client privilege and the attorney work product privilege, in an FBIcriminal investigation into whether the debtors had committed bankruptcy fraud. The debtors G.S. and F.S. were Iowa residents who met with an experienced bankruptcy attorney, J.P., for the purpose of obtainingadvice about filing bankruptcy in 2001. (The parties are identified only by intials in the court's opinion due to grand jury secrecy rules.) At that time, G.S. and F.S. had substantial nonexempt assets which would have been subject to sale by the bankruptcy trustee to pay their creditors. These assets included household furnishings, jewelry, stock holdings, and $300,000 owed to them for the sale of a business, payable over the next seven years.
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05 Aug “Attorney Fee Only” Chapter 13 Plans Disallowed by Massachusetts Bankruptcy Court

"Attorney fee only" chapter 13 plans run afoul of bankruptcy code section 1325(a)(3)'s good faith requirement, according to a recent Massachusetts bankruptcy court decision. The court held that where the chapter 13 debtors could have filed chapter 7 and obtained an immediate discharge of all their debts, and where all the debtors' property was exempt, filing chapter 13 for the sole reason of paying their attorney through the chapter 13 plan was an abuse of the bankruptcy process. In re Buck, 2010 WL 2746217 (Bky.D.Mass. July 9, 2010), involved debtors whose retainer agreements with the bankruptcy attorney stated that chapter 7 was appropriate for them, and that the attorney would charge a fee of $2,000 for such a case. The retainer agreements also stated that if the debtors chose instead to file chapter 13, the attorney fee would $4,000 or the attorney's hourly rate, whichever was greater. The debtors chose chapter 13 due to their inability to pay the $2,000 fee for an immediate chapter 7 filing, preferring instead to pay the higher attorney fee, over time, through their chapter 13 plans. Thisapproach would enable the debtors to obtain immediate relief from their creditors in chapter 13. It alsosolved the problem of how to handle creditor collection activity if instead the debtors had waited to file chapter 7 bankruptcy while they saved up the funds necessary to pay the attorney the $2,000 fee for achapter 7 case.
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