Is there a good time to file my bankruptcy case?

21 Mar Is there a good time to file my bankruptcy case?

A client recently visited my office seeking to file bankruptcy.  Fortunately, he’s still working.  Unfortunately, he just suffered a big pay cut.  In fact, just last month, his income was reduced by $50,000/year.  Even though he’s in severe financial difficulty, it’s not a good time for him to file a bankruptcy case under chapter 7.  How come?

Although he is making less than the median income for a family his size now and would clearly qualify for chapter 7, his “current monthly income” – the average income he had in the past six months – reflects the income that he had when his salary was $50,000/year higher.  At that level, he would not pass the means test.  His “current monthly income”  – which is not current at all – would be higher than the median income for family his size.  At that level, he would be presumed to be abusing the system to file a chapter 7 and his case would be subject to a motion to dismiss.

So, this client will have to wait a few months until his “current monthly income” reflects his new reality.  

Isn’t that silly?  What was Congress thinking?  Was Congress thinking?  I don’t think so.

Lakelaw represents people and businesses in bankruptcy in Illinois and Wisconsin.

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Jay S. Fleischman is a bankruptcy lawyer with offices in Los Angeles and New York. He can often be found on Google+ and Twitter, where he shares information about consumer protection issues and personal finance.
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