Here are the rest of the important changes affecting Chapter 7 and Chapter 13 bankruptcy cases filed on or after April 1, 2016.
Our last blog post a couple days ago described how every 3 years many of the dollar amounts within the bankruptcy laws are adjusted for inflation. The next set of these adjustments will be effective April 1, 2016. The changes don’t apply to ongoing bankruptcy cases but only to new ones filed on or after that date.
The upward adjustments are relatively small, reflecting a 3% or so increase in the consumer price index over the last 3 years. But because these changes affect so many aspects of consumer bankruptcy, they are worth noting.
Our last blog post described a couple of the increased amounts. Here are the rest that are worth your attention. (You can see the entire list as just published by the federal Judicial Conference .
Maximum IRA Exemption
In general, retirement funds are exempt (protected for you from your creditors) when you file a bankruptcy case. However, there is a cap on money that you can exempt in traditional individual retirement accounts (IRAs). The relatively high cap started out in 2005 at $1,000,000. Through inflation that cap will now be at $1,283,025. (Section 522(n) of the Bankruptcy Code.)
This cap does NOT apply to either “SEP IRAs” (Simplified Employee Pensions) or “simple IRAs” (Savings Incentive Match PLans for Employees).
A Limit on Recently-Acquired Homestead Exemption
If you live in or are considering moving to a state with a very high or unlimited homestead exemption (Massachusetts, Texas, and Florida, for example), you could be limited in how much of your state’s homestead exemption you could use. This limit only applies if you acquired the property in the 1,215-day period before filing bankruptcy. If so, the state homestead exemption limit is being increased from $155,675 to $160,375. (Section 522(p)). Since most state’s homestead exemptions are lower than this new limit, only homeowners filing bankruptcy in very high or unlimited homestead exemption states are affected by this increase.
Chapter 7 “Means Test” Calculation
The Bankruptcy Code’s “means test” contains a rather complicated formula for determining whether there is a “presumption of abuse” when a person files a Chapter 7 “straight bankruptcy” case. The purpose of this formula is to help determine whether you have the “means” to pay a meaningful portion of your debts within a Chapter 13 payment plan. If the formula says that you do have the “means” to do so then you are said to be “presumed” to be abusing the bankruptcy law if you are filing a Chapter 7 case.
This formula includes elements like your “disposable income” (your income minus allowed expenses) and the amount of your unsecured debts. It also includes some specific dollar amounts.
It’s these specific dollar amounts that are being increased. We’ll explain how this works in an upcoming blog post. For now know that the result is that in some circumstances you can have a little more disposable income and still qualify for Chapter 7. (Sections 707(b)(2)(A)(i)(I & II) and 707(b)(2)(B)(iv)(I & II).)
Chapter 13 Debt Limits
You can have an unlimited amount of debt when you file a Chapter 7 bankruptcy. But there are debt limits when filing a Chapter 13 “adjustment of debts for an individual with regular income.”
There are separate maximum amounts of unsecured debts and secured debts. Having too much of either type of debt disqualifies you from Chapter 13. The unsecured debt limit is increasing from $383,175 to $394,725 and for secured debt is increasing from $1,149,525 to $1,184,200. (Section 109(e) of the Bankruptcy Code.)
Length of Chapter 13 Plan
Whether your plan is obligated to last 3 years or instead 5 years turns on the comparison of your “current monthly income” with the published “median family income” amounts for your size of family in your state.
These published “median family income” amounts only include household sizes of from 1 to 4 individuals. For larger households, you add a stated dollar amount for each additional individual in the household to come up with the appropriate “median family income” for the household. This monthly additional dollar amount per additional household member is increasing from $675 to $700 per person. (Sections 1322(d) and 1325(b).)
Priority Debts for Wages and Benefits
Assume that you are not filing bankruptcy yourself but your employer is. You’re owed wages and employee benefits for work you did.
The bankruptcy law favors you by making the employer’s debts to you for unpaid wages and benefits “priority” debts. “Priority” debts must be paid in full by the debtor before other “general unsecured” debts are paid anything.
There are certain conditions to meet for wage and benefits debts to have this favored “priority” status. One of those conditions is a maximum amount that a wage or benefits debt can be “priority.” (Sections 507(a)(4) and (5).)
That maximum for “priority” wages is going up from $12,475 to $12,850. There is a separate and identical maximum for unpaid benefits payments by your employer, which is also increasing to the same $12,850 amount.
In the next several blogs we will more fully explain how these upward adjusted amounts work to potentially affect your bankruptcy case.