This continues the series of our blogs about special legal and practical considerations for older Oregonians, although some of today’s blog will apply to people in every age group.
Special Income Considerations—
1) Fixed Income:
Many seniors simply have no way to increase their income. This has three main consequences:
If your debts are making it impossible to pay for your essentials, and you don’t have the ability to generate any more income, you may not have any sensible choice but to file a bankruptcy case to eliminate or greatly reduce your debts.
Your inability to generate more income may affect your options within bankruptcy, but maybe in surprising ways. On the negative side, you may not be able to keep something that you’re making payments on because you simply don’t have enough income both for essential expenses and the monthly payment on that secured debt. Sometimes bankruptcy can help in amazing ways, but it has some limits. On the positive side, those amazing ways could open you to possibilities you don’t expect. For example, if your most important debt is your vehicle loan, and you simply don’t have the cash flow to make the payments, you may qualify under the Chapter 13 “adjustment of debts” for a “cramdown” of that loan. That could significantly reduce your monthly payment, along with lowering the interest rate and the total amount you’d pay for the vehicle, enabling you to keep the vehicle when you could not have done so under Chapter 7 “straight bankruptcy.”
Low but reliable income can make for a very smooth Chapter 13 case. If you have certain debts that you want to or have to pay, the Chapter 13 “adjustment of debts” can be your best option. If you are behind on your vehicle or mortgage payments, it can give you up to five years to catch up, all the while being protected from those creditors (and all the rest of them). If you owe recent income taxes or some other debt that can’t be discharged (legally written off) in a Chapter 7 case, you would again have up to 5 years to pay it, usually without any additional interest or penalties. The biggest risks in a Chapter 13 case are reductions and increases in income—reductions threatening your ability to finish the case successfully and increases potentially requiring more to be paid to the creditors than originally planned. But if your income is fixed and absolutely steady, you don’t have these risks, making this option more attractive.
2) Lower Income Makes Chapter 7 Qualification Easy:
Most people who want to file a Chapter 7 case qualify to do so under the Means Test because their income is no more than the median income for their state and family size. That is all the more likely if you are a senior on a modest fixed income. In Oregon the current (starting with cases filed on 4/1/13) median income amounts are as follows:
1 earner | Family Size | ||
2 People | 3 People | 4 People * | |
$43,160 | $55,057 | $62,202 | $67,315 |
*For cases filed on or after April 1, 2013, add $8,100 for each individual in excess of 4.
Income for this purpose is calculated in an odd way—the total money received from virtually all sources (NOT just taxable income) during the last SIX full calendar months before filing bankruptcy, multiplied by 2. Most Oregon seniors in financial trouble will likely have income lower than these median amounts.
3) Social Security Income NOT Counted for the Means Test
Social Security payments are definitely not included as income on the Means Test, making it even easier to pass it.
But look out for the unusual situation where your combination of Social Security and other income is relatively high. If your actual income exceeds your actual expenses (which you must report separately from the Means Test calculations), that could possibly raise a red flag. Talk with your attorney—contact us if you are in the Portland metropolitan area—if this may apply to you.
Be aware that many other kinds of benefit income usually ARE included as income for the means test, including both state and private disability income, as well as unemployment compensation payments. Again, most people receiving these kinds of benefits do not have income that is higher than the applicable median amounts, so including these benefits almost never causes a problem.
4) Social Security is Not Counted for Chapter 13 Length Purposes
Under Chapter 13, whether your court-approved plan requires you to pay into it for 3 years or 5 years depends on the same kind of income calculation just outlined above. So not counting Social Security as income helps keep your plan shorter and paying less to the creditors. You are almost always allowed to pay longer voluntarily—not to pay more overall but simply to lower your monthly payments. Although it can help to stretch a Chapter 13 case out longer this way, it’s good to avoid being forced to pay for 5 years if that can be avoided. Not counting Social Security as income can help in this.