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Three months ago, Janet Hart’s husband of twenty years died of cancer. Although he had medical insurance, he left Janet with outstanding medical bills of more than $50,000. Janet has worked at the local library for the past ten years, earning $1,500 per month. Since her husband’s death, Janet also has received $1,500 in Social Security benefits and $1,100 in life insurance proceeds every month, giving her a monthly income of $4,100. After she pays the mortgage payment of $1,500 and the amounts due on other debts each month, Janet barely has enough left over to buy groceries for her family (she has two teenage daughters at home). She decides to file for Chapter 7 bankruptcy, hoping for a fresh start. Using the information provided in the chapter, answer the following questions.
- Under the Bankruptcy Code after the reform act, what must Janet do before filing a petition for relief under Chapter 7?
- How much time does Janet have after filing the bankruptcy petition to submit the required sched-ules? What happens if Janet does not meet the deadline?
- Assume that Janet files a petition under Chapter 7. Further assume that the median family income in the state in which Janet lives is $49,300. What steps would a court take to determine whether Janet’s petition is presumed to be substantial abuse under the means test?
- Suppose the court determines that no presumption of substantial abuse applies in Janet’s case. Nevertheless, the court finds that Janet does have the ability to pay at least a portion of the medical bills out of her disposable income. What would the court likely order in that situation?
Rather than being allowed to file Chapter 7 bankruptcy petitions, individuals and couples should always be forced to make an effort to pay off their debts through Chapter 13
Q1: Before filing a bankruptcy petition, the Bankruptcy Code after the reform act requires that Janet ensure that she has a certificate from an approved credit counseling agency, confirming her attendance of individual counseling sessions on finances six months before filing the petition (DeNicola).
Q2: Janet has a deadline of 45 days after filing for bankruptcy to present schedules to the bankruptcy court, and failure results in an automatic dismissal of the petition (Miller 611).
Q3: In a case where Janet files for Chapter 7 bankruptcy, she will undergo the substantial abuse and mean test examination to ensure she qualifies for bankruptcy (Miller 611). The court will compare her average median income of $49,200 per year and state median family income of $49,300 per year. Given that her income is lower than the state median income, she qualifies for relief as she does not satisfy substantial abuse.
Q4: Suppose Janet qualifies for bankruptcy without substantial abuse, yet she can pay a portion of medical bills. In that case, the court can decide to reduce the medical insurance cover provided for Janet to enable her to make payments of portions of her medical bills.
Chapter 7 and Chapter 13 bankruptcy petitions both have their pros and cons; however, Chapter 13 presents the best option for individuals and couples. Chapter 13 gives the debtor control over their property than chapter 7. Chapter 7 offers courts legal possession allowing them to determine which property to sell to repay loans. However, Chapter 13 allows debtors to retain the property but develop a plan for repayment with the court over three to five years, giving them ample time to complete payments (US Court). Chapter 13 offer broad debt discharges as compared to Chapter 7. Chapter 7 provides discharges after selling non-exempt property and paying secure debtors (DeNicola). However, it does not discharge obligations for child support and student loans. Chapter 13 discharge includes property settlement debts in divorce and debts from non-dischargeable tax obligations (US Court). Chapter 13 offers third-party protection from guarantors. Chapter 7 discharges consumer debts but does not protect guarantors from the obligation to pay debts. Chapter 13 prevent creditors from protecting guarantors from financial obligation to the creditor (US Court). Therefore, it is more suitable to apply Chapter 13 than Chapter 7 bankruptcy.
DeNicola, Louis. “What Is Chapter 7 Bankruptcy?” Check Your Free Credit Report & FICO® Score – Experian, 6 Dec. 2019, www.experian.com/blogs/ask-experian/what-is-chapter-7-bankruptcy/.
Miller, Roger L. Business Law Today. 12th ed., Cengage Learning, 2019. pp 1046.
US Courts. “Chapter 13 – Bankruptcy Basics.” United States Courts, 2021, www.uscourts.gov/services-forms/bankruptcy/bankruptcy