Limitations on Filing
1.0 In General
Any individual who resides in, has a domicile (a home) in, a place of business in or property in the United States may file bankruptcy. Any business operating or owning property in the United States may also be a debtor under the bankruptcy code. Bankruptcy may also be filed on behalf of children, the insane, or individuals with mental handicaps or who are otherwise incompetent. However, there are limitations on what type of bankruptcy may be filed by specific debtors. Those limitations will be discussed in the material which follows.
2.0 Nonprofit Budget and Credit Counseling Agency Briefing
New section 109(h) states that no individual may be a debtor unless they have “received from an approved nonprofit budget and credit counseling agency ... an individual or group briefing ... “ in the 180 days prior to filing. This requirement can be waived by a judge after a hearing if it is determined that the person is incapacitated, disabled, or on active duty in a war zone.
3.0 Prior Filings
3.1 In General
The code has limitations on the filing of a new bankruptcy if you have previously filed bankruptcy. For example, section 109(g) states that no individual or family farmer may file a new 7 if in the preceding 180 days (6 months) their prior case was “dismissed by the court for willful failure of the debtor to abide by orders of the court”, to appear at any schedules hearing, or to properly move the case forward. The same section prohibits a new filing in the same time period if the debtor “requested and obtained the voluntary dismissal of the case following the filing of a request for relief from the automatic stay ...”.
3.2 Chapter 7
Under former law six years had to elapse from the filing of a chapter 7, 11, or 12 in which the debtor received a discharge to the filing of a new chapter 7. New section 727(a)(8) changes this to eight years.
Section 727(a)(9) has not been changed which states that a debtor must wait six years from the filing of a chapter 12 or 13 in which the debtor received a discharge to the filing of a new chapter 7, unless the debtor repaid at least 70% to unsecured creditors in the prior bankruptcy.
While not a prohibition to filing, new section 727(c)(1) provides that if an individual has been convicted of a “drug trafficking crime” or a “crime of violence” the court can dismiss their case after notice and hearing.
Finally, 727(a)(12) and 522(q)(1) state that a discharge will not be granted to any debtor who owes : (1) a debt from violations of securities laws, (2) fraud in connection with a security, (3) any civil remedy under 18 USC 1964 (racketeering), or (4) serious injury or death to another person in the last 5 years.
3.3 Chapter 13
Under former law only one year had to pass between the filing of a chapter 7 in which a discharge was issued and the filing of a new chapter 13. The new law requires a period of four years to pass between the filing of a chapter 7, 11, or 12 in which a discharge was granted and the filing of a new chapter 13. The new law also adds a provision that two years must pass between the filing of a chapter 13 in which a discharge was granted and the filing of a new chapter 13.
New 1329(h) and 522(q)(1) state that a discharge will not be granted to any debtor who owes: (1) a debt from violations of securities laws, (2) fraud in connection with a security, (3) any civil remedy under 18 USC 1964 (racketeering), or (4) serious injury or death to another person in the last 5 years.
4.0 Other Limitations
4.1 Chapter 7
Section 109(b) states that railroads, insurance companies, banks, savings banks, cooperative banks, savings and loan associations, building and loan associations, homestead associations, or credit unions except for foreign businesses not engaged in such business in the United States cannot file chapter 7.
4.2 Chapter 9
Chapter 9's are limed to cities and municipalities.
4.3 Chapter 11
While chapter 11's may be filed by anyone, they are primarily for businesses that wish to reorganize their debt or conduct an orderly liquidation of assets.
4.4 Chapter 12
Chapter 12 is only for family farmers and fishermen, where at least 80% of their income comes from farming or fishing. For a family fisherman there is also a debt limit of $1,500,000.
4.5 Chapter 13
Chapter 13 is only available to individuals with regular income whose non-contingent, liquidated, unsecured debt as of the date of filing of bankruptcy is less than $307,675 and whose non-contingent, liquidated secured debt is less than $922,975. Regular income means an income that is sufficiently stable and regular to enable the making of monthly chapter 13 plan payments. Stock brokers and commodity brokers may not file chapter 13's.
5.0 The Means Test
Amendments to section 707(b) further limit the availability of chapter 7 to individual filers with primarily consumer debt in cases where it “would be an abuse” to allow the filing.
Abuse is always presumed if a debtor has at least $166.67 in net monthly income, or $10,000 projected over five years, available for repaying general unsecured claims. Abuse is never presumed if a debtor’s net monthly income is less than $100, or $6,000 projected over five years. Between these two extremes, or “trigger points,” abuse is presumed if a debtor’s projected monthly income after deductions is sufficient to pay at least 25% of the debtor’s general unsecured claims over five years.
The statute sets out a complex two step process for determining abuse that attorneys call the “median income test” and the “means test”.
The median income test is used to determine your “disposable income” over the next five years. Disposable income is determined by combining only certain defined sources of income over the last six months, dividing that number by 6, subtracting what the IRS and congress consider to be reasonable monthly expenses, and multiplying the result by 60.
The means test uses the disposable income from the previous test to determine if abuse exists. Abuse is presumed (meaning the debtor may not file a chapter 7) if disposable income is over $10,000 (or 166.67 per month) or if disposable incomes is between $6,000 and $10,000 (or between $166.67 and $100 per month) and is sufficient to return more than 25% to non-priority unsecured debt. This presumption is rebuttable, meaning if special circumstances exist (such as a serious medical condition or military service giving rise to additional justifiable expenses) and a judge agrees the individual might still qualify to file a chapter 7. Abuse is not presumed (meaning the debtor “might” be able to file a chapter 7) if disposable income is under $6,000 (or $100 per month) or is insufficient to return 25% to non-priority unsecured debt.
Unfortunately, a result of “no presumption of abuse” is not the end of the story. Any creditor, the court, and the trustee may still file an action under 707(c) if they think it would be an abuse to let a debtor continue in a chapter 7. The law also imposes severe penalties on an attorney who files a chapter 7 if the court ends up determining that such a filing was an “abuse”. The purpose of this section may be to encourage attorneys to have their clients file a chapter 13 even if they pass the means test.
It should be noted that the median income and means tests do not use real numbers for portions of the calculations. As a result, your real disposable income (what you have left after paying bills each month) may be higher than the amounts above. If this amount is over $100 you may not be allowed to file a chapter 7.
As a final note, if your “current monthly income” is less than the Utah Median Income for a household of your size, only the court and the trustee may allege abuse. If above that amount, any interested party can allege abuse.