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Archive for the ‘Changes In Bankruptcy Law’ Category

You’re Now More Likely to Be Paid More Back Wages by Your Bankrupt Former Employer

March 14th, 2016 at 7:00 am

Here’s an adjustment in the law that can benefit you if you are owed wages and/or benefits by a person or business filing bankruptcy.

 

This is the last of a series of blog posts on the effect of changes going into effect on April 1, 2016. These changes are a result of a cost of living adjustment that’s in the federal bankruptcy law. See Section 104(b) of the Bankruptcy Code.

Every one of these blog posts so far have been about these changes would affect you if you were filing a Chapter 7 “straight bankruptcy” or a Chapter 13 “adjustment of debts.” But today’s blog post assumes you’re on the other side of the table, that you are owed money—in the form of back wages and employee benefits—by a former employer that filed bankruptcy.

In this situation you are a creditor of the person or business owing you the wages and/or benefits. But the good news is that you are a creditor who the law treats relatively well. Plus the April 1 cost of living adjustment means that such debts for wages and/or benefits are going to be treated even slightly better.  

Priority Debts for Wages and Benefits

In bankruptcy law a few very select debts are considered “priority” debts that the debtor must pay in full before other unsecured debts are paid anything. Debts for unpaid wages and/or employee benefits meeting certain conditions are “priority” debts. This means that these are much more likely to get paid. (See Sections 507(a)(4) and (5).)

Even better, “priority” debts must be paid by the debtor in a particular order. So the higher priority ones must be paid in full before lower priority ones are paid anything. Among the highest priority debts are those for employee wages and benefits.

In many cases wages and benefits are the highest priority debts that a debtor owes. If the former or current business owner filing bankruptcy is an individual, instead of a corporation, usually only child and/or spousal support arrearage debt, if there is any, has a higher priority.

So if there is any money being distributed to creditors, there’s a good chance that your wage and/or benefits claim will be paid, at least in part.

Not All Wage/Benefits Debts Are Included

For a wage/benefits debt to be given “priority” status you must have earned the wages and benefits within the 180 days before the employer filed bankruptcy. Or if your employer went out of business before filing bankruptcy, you must have earned the wages/benefits during the 180 days before the going out of business.

There’s one more condition, which is where the April 1 cost of living adjustment comes in. There is a cap on the dollar amount of wages and benefits earned during the applicable 180-day period that would be treated as “priority.”

On the wage side that cap has been $12,475 for the last 3 years. It is going up to $12,850. See this announcement in the Federal Register of 2/22/16.

On the employee benefits side, the same dollar amounts apply—$12,475 in benefits earned during the 180 days either before filing or before close of business, going up to $12,850. But here there’s a twist. These amounts that are treated as “priority” are reduced by whatever others amounts are already being paid by the debtor to former employees in wages and other benefits.

“Priority” and “Non-Priority” Wages and Benefits

Any wages/benefits earned outside these 180-day windows or beyond the cap amounts could well be considered a valid debt. Such debts may even be paid in part or even in full in the former employer’s bankruptcy case. But they would not be paid as “priority” debts.

The “priority” portion of the debt would have a much, much better chance of being paid than any “non-priority” portion. Again, that’s because that “priority” portion would be at or very near the head of the line to be paid. In contrast, the non-“priority” portion of the wage/benefits debt would be in the pack with virtually all the other debts. That portion would only be paid if and to the extent there is any money left over after other more important debts are paid.

Conclusion

Regardless what kind of bankruptcy your former or current employer has filed, your back wages and benefits are much more likely to be paid if they fit the conditions for being “priority” debts. But that’s still not a sure thing. If you haven’t already done so, talk with an experienced bankruptcy attorney to understand your rights and to find out what you need to do to get paid.

 

Larger Families More Likely to Qualify for Shorter Chapter 13 Cases

March 11th, 2016 at 8:00 am

Soon families of larger than 4 people can have a bit more income and qualify for a 3-year Chapter 13 payment plan instead of a 5-year one.

 

How could it be that larger families can have shorter Chapter 13 “adjustment of debts” cases?

The reason is that on April 1, 2016—as happens every 3 years—there will be a modest increase in the “median family income” calculation for “a debtor in a household exceeding 4 individuals.” This matters because whether your Chapter 13 case can last 3 years or instead must go for 5 years depends whether your “current monthly income” is more than the published “median family income” amounts for your size of family in your state.

If your “current monthly income” is not more than the published “median family income” then your Chapter 13 case is not required to go longer than 3 years. If it is more, then your case is required to go 5 years.

We explain the upcoming change in the rest of this blog post, and why it only affects “households exceeding 4 individuals.”

Two Different Adjustments Happen in Tandem

This can get confusing because there’s another much more frequent “median family income” adjustment besides the April 1 every-3-year adjustment just affecting households of larger than 4. The published “median family income” amounts affecting every state and ALL household sizes are adjusted much more often—usually about 2 or 3 times a year. As of this writing the most recent across the board adjustments of this type were made effective November 1, 2015 and May 15, 2015.

“Median Family Income” for Households Larger than 4

But these more regularly updated “median family income” amounts only directly refer to 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 was $525 when the law on this was passed in 2005, and has been increasing every 3 years since then. For the last 3 years this amount to add for each additional household member was $675. On April 1 this amount is increasing to $700 more for each additional household member.

On an annual basis, this in an increase in the “median family income” from $8,100 per additional individual ($675 times 12) to $8,400 per additional individual ($700 times 12).

How This Works

If the published annual “median family income” for a household of 4 is $60,000, then before April 1 that amount for a household of 5 would have been $68,100 (which is $60,000 + $8,100). As of April 1 that amount will be $68,300 ($60,000 +$8,300). A small increase. But if it makes the difference between paying a Chapter 13 plan for 3 years instead of 5 years, that could make a huge difference.

 

More New Bankruptcy Dollar Amounts Effective Soon

February 24th, 2016 at 8:00 am

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.

Next…

In the next several blogs we will more fully explain how these upward adjusted amounts work to potentially affect your bankruptcy case.  

 

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