Tax Brake with Robert G. Nath, Esq.

In the proposed legislation, there will be a presumption that a Chapter & (liquidation) filer is in fact abusing the bankruptcy system if certain conditions are fulfilled. The consequence of such “abuse” finding will be to dismiss his case, or more likely, convert his case to a Chapter 13 case in which his “disposable” income will have to be paid to general unsecured creditors.

In calculating whether someone is presumed to be “abusing” the discharge provisions of Chapter 7, the Bankruptcy Code will use the IRS' calculations of what's reasonable for living. Of course, THOSE figures were never overly generous. But in any case, things like child support were OK if supported by court order. The new Bankruptcy Code will also allow additional house payments, certain private school tuition, and continued care for ill members of the family.

What this means is that in a divorce situation, child care and alimony will be protected in terms of their allowability as necessary expenses. Also, the first mortgage, apparently no matter how high, will also be allowed. Likewise, payments for one car, even if it's a BMW.

With these and other provisions, the intent of the new Code is to make it harder for some people to use Chapter 7 to discharge their debts. In all likelihood, that will be the effect, but probably only for some rich people and a fair number of middle class as well.

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