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​LESSONS LEARNED: My IMPERFECT road to… being DISCHARGED!

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  • ​LESSONS LEARNED: My IMPERFECT road to… being DISCHARGED!

    I am so relieved. My story began 5.5 years ago with a trustee’s audit, a ‘Presumption of Abuse’ and a Dept. of Justice Audit thanks to an inexperienced BK lawyer. It’s a long read but I can’t imagine anyone going through this gauntlet again so I chose to share the major lessons I learned from start to finish:

    Two years into the great recession the floor appeared to be giving way underneath me while the banks where squeezing me by hiking interest rates and monthly payments. I retained a local attorney who advised me to file Chapter 7.

    LESSON #1: Seek out an experienced attorney. Mine wasn’t - otherwise he would have known not to try for a Chapter 7 given my income – causing a lot of needless time (5 mos.) and a grueling audit.

    LESSON #2: Your Employer will find out you filed for BK if a.) you have a 401K loan outstanding or b.) you have your wages garnished from your paycheck. Regarding a): I wasn’t including my 401K loan in my BK but I was required to list them as a debt. Didn’t matter. Work received the BK notice anyway via the benefits group handling our 401K plan. Regarding b): My district permits auto-debit from checking in lieu of wage garnishment so this wasn’t bad.

    LESSON #3: Avoiding panic at the 314 hearing
    At my Chapter 7’s 314 hearing, a 2nd trustee appeared in front of the crowded room and I was called into a separate, private room with my lawyer and had to do a Q&A session. It was really just an in depth examination to all that I had submitted in the BK paperwork. Assets, expenses, who shared my household (and their contributions), my work, my income, etc. Just be prepared to be honest and don’t panic.

    LESSON #4: Surviving a Dept. of Justice AUDIT (and I mean FULL AUDIT)
    Within a couple weeks of the 341 hearing, my lawyer received the official notice that I was going to have to undergo a Department of Justice audit. It happens sometimes he claimed. “Why me?” Well, over the next 10 days or so I had to supply all types of bank records, deeds, car notes, W-2’s and various bank records going back a half a year and in a couple instances they wanted three year’s worth of docs – like my tax returns. It was a huge shuttling of paperwork.

    LESSON #5: When the Trustee files a ‘Presumption of Abuse’
    It didn’t take long afterwards that my lawyer received notice that the trustee had filed a ‘Presumption of Abuse’ in my case which essentially means I didn’t quality for a Chapter 7 because I still had too much income and that I’d have to do a Chapter 13 instead. Five months after my initial Ch. 7 filing, my case was converted to Ch. 13. Had my attorney been more experienced, I truly believe I could have been spared these 5 months of being hounded by the DOJ. I was, essentially, over-funded for a Ch. 7.

    LESSON #6: During a Chapter 13
    Make sure payments are made on time and (when required) all your Federal tax refund checks get to the trustee. Mine lasted 60 months and in retrospect, I can’t believe (now) how quickly it went by. Essentially, keep your nose clean. A word on CREDIT CARDS: My court district allows no more than $500 in new debt ‘except for that which is needed for work or business’. I travel and run through about $1,500 in expenses each month for work. The biggest hurt was going from $200K in available credit lines to $700 after my filing. Credit One (a terrible card but it worked when I needed it most) gave me two increases during my 5 years. Somewhere around year 3, BarclayCard sent me an unsolicited offer which I accepted. These guys have been the best card (even pre-BK) that I think I have ever had. Generous credit lines (especially given my FICO 630) and NO monthly fees.

    LESSON #7: LAST PAYMENT MADE – NOW WHAT
    You need to be on Pacer. I received the Trustee’s notice that the audit was completed and ‘Closed’ about 7 weeks after my last payment. 7 days went by and still no Discharge. I called my lawyer (the same one) and asked what the time frame was. His reply is that he thought the discharge had already happened. Pacer only showed a ‘Closed’ status – not a ‘Discharge’. He called the BK Court Clerk. Some of the Trustee’s paperwork from 7 days earlier was never entered into Pacer. My lawyer faxed his copy to the clerk and within 2 hours Pacer was updated to “DISCHARGED”. Lesson: Be aware of what is happening on Pacer.

    Don’t be afraid. Take control of your life. Or someone else will.

  • #2
    I'm so sorry you had to go through all that. Your story of an audit forcing you into a 13 instead of a 7 was something I was concerned about for my case.

    May I ask if the lawyer was .....optimistic.... in some of his calculations to get you into a 7?

    I was able to qualify for a 7 due to high expenses and stopping overtime.
    Chapter 7, above median, no asset. Discharged with no UST involvement.

    Comment


    • #3
      So was your discharge on the pacer when the trustee sent the audit completed papers.

      Comment


      • #4
        TXskyblue : My lawyer used some common lawyers' software program in the beginning. He took all my info and entered it into this program. The program told him that I qualified for a Ch.7. My initial filing for Ch.7 was based on that software program. A mistake!
        dron : No, Pacer showed "Closed" once the trustee completed her Audit and receive no responses from creditors. There was a form she mailed to both my lawyer and myself (that wasn't filed in Pacer) which had the discharge recommendation. Once the BK clerk received a copy of that filing, Pacer changed from "Closed" to "Discharged".

        Comment


        • #5
          You can't blame the software. Software stil relies on the expertise of the attorney to input data correctly.

          Lesson #1 is very important!

          I am glad you made it through. Congratulations!
          LadyInTheRed is in the black!
          Filed Chap 13 April 2010. Discharged May 2015.
          $143,000 in debt discharged for $36,500, including attorneys fees. Money well spent!

          Comment


          • #6
            Wow great lessons!! Congrats!!!!
            Discharge date: October 2017 (will it ever get here?)

            Comment


            • #7
              Benz,

              Your post is excellent. While districts will vary (no need to list a 401k loan on Schedule F in my district, for example) your experiences will absolutely help others. Three questions:

              1. In the end, were you forced into a Chapter 13 because you did not meet the means test or because your "real" budget, Schedules I and J showed you could afford a Plan payment?

              2. If you initially qualified under the means test, what expenses did the US Trustee claim were improperly put on that test?

              3. When you finally "agreed" with the US Trustee's assertion that you could not remain in a Chapter 7 did you discuss letting the case get dismissed and then working to find a "window" where you would qualify for a 7? Or. . . was your income simply too high to ever qualify therefore doing the 13 made more sense?

              The answers to the above may help others avoid the same issues.

              Congratulations on making it through.

              Des.

              Comment


              • #8
                BenzUp I agree with what Des wrote completely. It would be really nice to know some more details. I'm going to "sticky" this posting as this may help others in the future.
                Chapter 7 (No Asset/Non-Consumer) Filed (Pro Se) 7/08 (converted from Chapter 13 - 2/10)
                Status: (Auto) Discharged and Closed! 5/10
                Visit My BKForum Blog: justbroke's Blog


                I am not an attorney. Any advice provided is not legal advice.

                Comment


                • #9
                  Originally posted by despritfreya View Post
                  Benz,
                  Your post is excellent. While districts will vary (no need to list a 401k loan on Schedule F in my district, for example) your experiences will absolutely help others. Three questions:
                  1. In the end, were you forced into a Chapter 13 because you did not meet the means test or because your "real" budget, Schedules I and J showed you could afford a Plan payment?
                  2. If you initially qualified under the means test, what expenses did the US Trustee claim were improperly put on that test?
                  3. When you finally "agreed" with the US Trustee's assertion that you could not remain in a Chapter 7 did you discuss letting the case get dismissed and then working to find a "window" where you would qualify for a 7? Or. . . was your income simply too high to ever qualify therefore doing the 13 made more sense?
                  The answers to the above may help others avoid the same issues.
                  Congratulations on making it through.
                  Des.
                  Des -
                  I met the means test but only by a small margin (<$500/mo). The Trustee's objection was based on "Totality" and not once specific item. But - a few items do stand out:

                  1.) My domestic partner was capable of contributing $400 to the household even though everything was in my name. My take away here is that the trustee can look at the 'whole' picture of your living situation and claim that anyone living with you, if they have the means, can or should be contributing more to the household's income;
                  2.) My Bonus checks: although not guaranteed income, the trustee argued my lawyer's claim over what I could reasonably expect going forward given past amounts and frequency;
                  3.) An interesting calculation that took 60 future months of my income and expenses and then demonstrated the ability to pay at least 25% of my creditors' claims over those coming 60 months. When this happens, the trustee claimed, the "Presumption of Abuse" exists.

                  Again, it was the totality of my Ch. 7 filing and not once specific 'trigger' item. In my case, it was mutually agreed between myself, my attorney and the trustee that I would not contest the Presumption of Abuse but instead, convert to Ch. 13.

                  Comment


                  • #10
                    Originally posted by BenzUp View Post
                    The Trustee's objection was based on "Totality" and not once specific item. But - a few items do stand out:

                    1.) My domestic partner was capable of contributing $400 to the household even though everything was in my name. My take away here is that the trustee can look at the 'whole' picture of your living situation and claim that anyone living with you, if they have the means, can or should be contributing more to the household's income;

                    2.) My Bonus checks: although not guaranteed income, the trustee argued my lawyer's claim over what I could reasonably expect going forward given past amounts and frequency;

                    3.) An interesting calculation that took 60 future months of my income and expenses and then demonstrated the ability to pay at least 25% of my creditors' claims over those coming 60 months. When this happens, the trustee claimed, the "Presumption of Abuse" exists.

                    Again, it was the totality of my Ch. 7 filing and not once specific 'trigger' item. In my case, it was mutually agreed between myself, my attorney and the trustee that I would not contest the Presumption of Abuse but instead, convert to Ch. 13.
                    This is good information for future filers.

                    Until now, domestic partners in my State were treated as "roommates" with no requirement to contribute in the context of funding a Chapter 13. With the advent of recognized marriages (something that was never going to happen in conservative Arizona without USSC intervention) domestic partners who are married will have to deal with community property issues and all income will be utilized to determine eligibility. This will be something I will be looking out for in the future. On the flip (good) side, I will no longer have to file 2 separate cases and then seek joint administration.

                    Des.

                    Comment


                    • #11
                      I was not required to list my 401k loan in my chapter 13 paperwork. not sure what you are talking about.

                      Although - I am paying back 100%.

                      Comment


                      • #12
                        Originally posted by puppiesrock View Post
                        I was not required to list my 401k loan in my chapter 13 paperwork. not sure what you are talking about.
                        In a 100% plan, the loan payback would be irrelevant. If you were trying to pay back your 401(k) loan during the pendancy of your Chapter 13 discharge, then you would worry about this if you were not in a 100% plan.

                        Some people don't actually list the loan as a creditor on Schedule F because first, your 401(k) loan is not a creditor (you are personally not a creditor in your bankruptcy). Most people have it as a payroll deduction on Schedule I (mandatory payments). Most people don't include their employer in the Creditor's List.

                        As to how an employer ends up with notification if you are not paying the plan through payroll deductions is district and Trustee specific.
                        Chapter 7 (No Asset/Non-Consumer) Filed (Pro Se) 7/08 (converted from Chapter 13 - 2/10)
                        Status: (Auto) Discharged and Closed! 5/10
                        Visit My BKForum Blog: justbroke's Blog


                        I am not an attorney. Any advice provided is not legal advice.

                        Comment


                        • #13
                          that's what i figured, which is why i mentioned i was paying 100%.

                          Comment


                          • #14
                            #3 - it's a 341 Hearing and mine didn't go anything like yours. It was quick simple and not in a separate room.

                            Comment


                            • #15
                              I am nearing very close to the end of a chapter 13 BK. Pacer is showing a status of "awaiting discharge". The 14 day objection period for creditors to object to the "Notification of Intent to Enter Discharge" ended yesterday. Does anyone know how long it will actually take for the clerk to issue the final discharge?

                              Comment

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