Wednesday, January 16, 2008

2008 changes to bankruptcy law

We hope the start of your 2008 has been happy and healthy and that you’ve been able to keep all of your New Year’s resolutions!

This month, we’d like to review the changes in bankruptcy law that took effect on January 1, 2008.

1. Median income. The new median income for a New York State household with 1 earner is $43,352. For a household with 2 people, the median income is $52,891, for 3 people, $62,882 and for four people, $75,513. The median income is increased by $6,900 for each individual in excess of 4.

2. National Standards: Food, Clothing and Other Items. The new National Standards for food, clothing, housekeeping supplies, personal care products and services and miscellaneous are $494 for 1 person, $925 for 2 people, $1,123 for 3 people and $1,331 for 4 people. $246 is added to the allowance for each additional individual in the household.

3. Local Standards: Housing and Utilities. These are set at the county level. For New York County (Manhattan), the new Local Standards are: $671 for non-mortgage expenses and $3,102 for mortgage or rent for 1 person, $788 for non-mortgage expenses and $3,643 for mortgage or rent for two people, $830 for non-mortgage expenses and $3,840 for mortgage or rent for 3 people, $926 for non-mortgage expenses and $4,281 for mortgage or rent for 4 people, and $941for non-mortgage expenses and $4,350 for mortgage or rent for 5 or more people.

4. Local Standards: Transportation. Nationally, $163 is allowable for public transportation costs and $478 for ownership costs for each car (up to 2). In the New York Metropolitan Statistical Area, $268 is allowable for operating costs for 1 car and $536 for 2 cars.

5. National Standards: Out-of-Pocket Health Care Expenses. This is a new standard. Out-of-pocket health care expenses include medical services, prescription drugs, and medical supplies (e.g. eyeglasses, contact lenses, etc.). Elective procedures such as plastic surgery or elective dental work are generally not allowed. For each person under 65, the standard amount is $54. For each person 65 and older, the standard amount is $144. The out-of-pocket health care standard amount is allowed in addition to the amount taxpayers pay for health insurance.

6. Marital Adjustment. Under Section 101(10A)(B) of the Bankruptcy Code, “current monthly income” includes any amount paid by any entity other than the debtor (or in a joint case the debtor and the debtor's spouse), on a regular basis for the household expenses of the debtor or the debtor's dependents (and in a joint case the debtor's spouse if not otherwise a dependent). The marital adjustment line on the calculation of current monthly income now has lines for specifying the basis for excluding spousal income (such as payment of the spouse’s tax liability or the spouse’s support of persons other than the debtor or the debtor’s dependents) and the amount of income devoted to each purpose.

7. Tax Relief for Mortgage Debt Forgiveness. At the end of the year, President Bush signed into law a bill that exempted mortgage debt forgiven through a foreclosure, a short sale (where a home is sold for less than the amount of the loan) or a loan restructuring from being treated as taxable income. Ordinarily, forgiven debt is treated as taxable income. The legislation is retroactive to Jan. 1, 2007 and scheduled to expire at the end of 2009

2008 also inaugurates a new way for Shenwick & Associates to work with our bankruptcy clients. We now offer a Web-based Questionnaire to our clients who are filing for bankruptcy protection.

As always, please contact Shenwick & Associates for the most up to date bankruptcy services.