How to game the system under the new law: Buy a new car. The payments are an allowed expense. If they are high enough, they could push discretionary income below $100 a month, which would now make the debtor eligible to file for Chapter 7.
Because the debtor bought the car within 2.5 years of filing for bankruptcy, the debtor will have to pay the full cost of the loan to keep the car, but all other debt will be wiped out.
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Bankruptcy Protection: What is Chapter 7 and Chapter 13 bankruptcy? And how will the new bankruptcy legislation change them?
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Mandatory Counseling, A Good Idea in Theory: Michelle Singletary says the bankruptcy counseling provision in the bankruptcy bill "is there as a roadblock. It's a setup, lobbied for by banks and credit card companies, to steer people away from bankruptcy to debt repayment plans."
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Tax Liens Complicate Bankruptcy Filings: Albert B. Crenshaw reminds readers that "[b]ankruptcy laws provide filers with protection from many kinds of creditors, but tax collectors generally are not among them."
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Friday's Question:
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The result: The debtor has a new car and car payments but no other debt.
• If a consumer's disposable income is between $100 and $166 a month, and his or her credit card debt is $24,000 or less, the debtor can't file under Chapter 7 and must instead file under Chapter 13.
How to game the system under the new law: Go on a buying spree to push credit card debt beyond $24,000 -- and do it 91 days before filing for bankruptcy, another detail specified by the bill. (Doing it within 90 days of filing could mean that the debt can't be wiped out.)
The result: Now the debtor's $100 to $166 in monthly disposable income -- spread over five years -- is less than 25 percent of his unsecured credit card debt. That opens the door to Chapter 7.
• If disposable income is $167 a month or more, a debtor must file under Chapter 13.
How to game the system: Stop working for a month so that average monthly income declines in the six-month period before filing for bankruptcy protection.
The result: Monthly income might drop enough to reduce the amount of discretionary income to less than $100, making the debtor eligible for Chapter 7.
Whew.
Of course, some lawyers say such abuses can be thwarted. "People may try that, but there's a general catchall provision in the bill that says if a judge determines that a case has been filed after someone has attempted to game the system, that person's case can still be dismissed from Chapter 7," said John McMickle, an attorney who was formerly the bankruptcy lawyer for the Senate Judiciary Committee.
And while people will always try to find ways around the law, he said, it at least will bring some uniformity to the system by spelling out more clearly what is an abuse, he said.
