PERSONAL BUDGET: The Envelope Accounting System

In my bankruptcy law practice I have realized that many of my clients have never taken the time to make and live on a budget. Many times the first time my clients have ever made a budget is when they sit down with me to file for bankruptcy. The other day I ran across this personal budget idea that I thought mat be helpful:
The Envelope Accounting System is a method of budgeting where on a regular basis (i.e. monthly, biweekly, etc.) a certain amount of money is set aside for a specific purpose, or category, in an envelope marked for that purpose. Then anytime you make a purchase you look in the envelope for the type of purchase being considered to see if there are sufficient funds to make the purchase. If the money is there, all is well. Otherwise, you have three options: 1) you do not make the purchase; 2) you wait until you can allocate more money to that envelope; 3) you sacrifice another category by moving money from its associated envelope. The flip side is true as well, if you do not spend everything in the envelope this month then the next allocation adds to what is already there resulting in more money for the next month. With envelope budgeting, the amount of money left to spend in a given category can be calculated at any time by counting the money in the envelope.

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CAN MY UTILITY COMPANY CUT OFF SERVICES IF I FILE BANKRUPTCY?

Public utilities, such as the electric company, cannot refuse or cut off service because you have filed for bankruptcy in Utah. However, the utility can require a deposit for future service and you do have to pay bills which arise after your bankruptcy is filed. More information regarding Utah bankruptcy can be found HERE.

What is a Chapter 13 Hardship Discharge?

If after confirmation of a Chapter 13 Bankruptcy plan, circumstances arise that prevent the debtor from completing the plan the debtor may be able to obtain a hardship discharge. In such situations, the debtor may ask the court to grant a “hardship discharge.” 11 U.S.C. § 1328(b). Generally, such a discharge is available only if: (1) the debtor’s failure to complete plan payments is due to circumstances beyond the debtor’s control and through no fault of the debtor; (2) creditors have received at least as much as they would have received in a chapter 7 liquidation case; and (3) modification of the plan is not possible. Injury or illness that precludes employment sufficient to fund even a modified plan may serve as the basis for a hardship discharge. The hardship discharge is more limited than the discharge described above and does not apply to any debts that are nondischargeable in a chapter 7 case. 11 U.S.C. § 523.

WHAT DISCLOSURES MUST A COLLECTION AGENCY PROVIDE A DEBTOR?

Typically, a collection agency begins its efforts with an introductory letter. This letter usually contains the required legal disclosures, which include:
• The amount of the debt,
• The name of the original creditor,
• The period of time in which the debtor may dispute the validity of the debt (thirty days), and
• The obligation of the collection agency to send the debtor verification of the debt if its validity is disputed.

In the original correspondence, the collection agency must also inform the debtor that it is attempting to collect a debt and that any information it gathers from the debtor or other sources will be used for that purpose. If this information is not included in the initial contact letter, the collection agency must provide it within five days.

Most lawyers recommend that debtors request verification of the debt because, in that case, a collection agency may not resume collection efforts until the information is confirmed with the original creditor. The collection agency may not, whether by threatening to destroy the debtor’s credit rating or by threatening to sue if payment is not received immediately, make a statement in the initial correspondence that overshadows the debtor’s right to dispute the debt for thirty days. Visit our website www.dlblaw.com

What is a Chapter 13 Hardship Discharge?

If after confirmation of a Chapter 13 Bankruptcy plan, circumstances arise that prevent the debtor from completing the plan the debtor may be able to obtain a hardship discharge. In such situations, the debtor may ask the court to grant a “hardship discharge.” 11 U.S.C. § 1328(b). Generally, such a discharge is available only if: (1) the debtor’s failure to complete plan payments is due to circumstances beyond the debtor’s control and through no fault of the debtor; (2) creditors have received at least as much as they would have received in a chapter 7 liquidation case; and (3) modification of the plan is not possible. Injury or illness that precludes employment sufficient to fund even a modified plan may serve as the basis for a hardship discharge. The hardship discharge is more limited than the discharge described above and does not apply to any debts that are nondischargeable in a chapter 7 case. 11 U.S.C. § 523.

More information on Utah Chapter 13 bankruptcy can be found HERE.

WHAT IS THE BANKRUPTCY “MEANS TEST”?

Your eligibility for bankruptcy protection is determined in part by your household income. The Bankruptcy Code requires that you calculate your median income by looking at your gross income earned by you, your spouse and any other working member of your household during the 6 months proceeding the current month. You then have to add up all the income and divide by 6 to arrive at a number. This number is then compared to a median income table provided to us by the Census Bureau and the United States Trustee’s office. This calculation is called the “median income test.”
If you are over the median income, then a presumption of abuse arises as to your eligibility for a Chapter 7 bankruptcy and you must proceed to perform additional calculations (these additional calculations are called the “means test.”).
The addition of the median income and the means test to the consumer bankruptcy process has made bankruptcy a lot more complicated both for lawyers and for individuals. Many lawyers who used to handle bankruptcy cases no longer do so because of the complexity of the median income/means test process. My best advice is to speak with an experienced lawyer about your case. Ask the lawyer how long they have been filing bankruptcy cases for clients and how many cases they file a year. As with most things in life, experience matters. Click HERE for an experience Utah bankruptcy lawyer.