Above median income, negative DMI w/IRS standards

[UpsideDown]

We have above median income and from what I understand we have to use IRS standards for expenses.

According to 1325(b)(3), "expenses...SHALL be determined in accordance with.....707(b)(2)....", which states expenses shall be specified under National and Local standards. With those standards we have negative DMI, which is OK with me, but my wife thinks I'm a complete idiot for thinking you can have a negative DMI case confirmed with $0 payment plan.

While I agree with her that this "makes absolutely no sense", that doesn't mean it isn't the law. I didn't make it up, I'm just going by what I read in the code and other cases I've found. After all, since when do laws have to make sense?

She doesn't even want me to ask the lawyer about it, because she thinks it's such a stupid concept. She's afraid that if I bring this up and they use IRS standards, we'll get kicked to Ch. 7 because we have Neg. DMI and therefore can't fund a Ch. 13. The problem with this is that we have a 2nd mortgage we want to strip.

Am I wrong about this? Do we get to choose between actual expenses and IRS standards for determining our DMI and therefore the amount of payment proposed in our plan?

I completely understand where my wife's coming from on this, I'm just going on what I read. It is what it is, but I don't know what it is......

[optimistic1]

From what I understand it will be your choice on which Chapter you wish to file, regardless of your results on the Means test. Check this flow chart.

http://www.mcdonaldlawaz.com/bkinfo/flowchart.htm

Ok, now with that being said, from what I understand, if you have negative DMI, you still will be able to develop a confirmable plan based on your actual expenses to pay to your secured creditors, and 0% to unsecured, unless you are in a 10% district.

Put it this way, I am not filing until August, and when I do, my DMI on the means test is negative $450. But, I have already spoken with many attorneys, and they just tell me that they will go off my actual expenses to develop a payment.

The IRS standards are just a CAP on what you should be spending, in some cases they are very generous in comparison to what people actually spend. They are there so that you DO NOT EXCEED them. You can easily spend less on each category, and then increase your DMI to a level that is acceptable to provide a plan payment.

Check this thread for more on this very topic, I was like your wife and was confused about the whole process at one time.

http://www.bkforum.com/showthread.php?t=32438&highlight=instances

[UpsideDown]

OK, the only thing I have that is secured is my 1st mortgage. The rest is credit cards and a 2nd mortgage, which is unsecured and we're hoping to get stripped as such. That's the only reason we want to file 13 instead of 7. We want to keep the house, but lose that 2nd mortgage, since we're upside down.

Is the 1st mortgage paid through the plan or do we just continue paying it directly to the lender? If paid through the plan, what happens at the end of the plan.......does it just revert back to us paying the lender directly?

[HHM]

Mathematically, I am not sure it is possible to be above median yet have negative DMI based on solely IRS allowed expenses. But that is neither here nor there (I suppose it is possible, but given that the standard expenses are also based of medians, I am not sure it is possible, but I digress).

However, if you need to be in a chapter 13, it is possible to have a comfirmable plan with $0 payment.

[UpsideDown]

Mathematically, I am not sure it is possible to be above median yet have negative DMI based on solely IRS allowed expenses. But that is neither here nor there (I suppose it is possible, but given that the standard expenses are also based of medians, I am not sure it is possible, but I digress).

However, if you need to be in a chapter 13, it is possible to have a comfirmable plan with $0 payment.

When I figured that out, I was running the means test on legalconsumer.com and used the IRS standards and allowable differences, since my mortgage (1st and 2nd) was so high. I was using the Nolo Ch. 7 book as a guide as I went through the test. At that time, though, I was looking into Ch. 7. I didn't know at the time that an unsecured 2nd mortgage could be discharged and the lien stripped. After learning that, I figured it'd be better to go Ch. 13. However, I'm no lawyer, mathematician, or expert on the subject, so I could've been mistaken in my means test figures.

[justbroke]

As HHM succinctly puts it, you can have a confirmable plan paying unsecuerd creditors $0. (There are some Districts which don't believe you can have this, but let's not worry about that very very small minority view.)

You can also have a negative DMI. While HHM is correct, that solely the IRS standards can't put you there... actual secured debt payments, secured debt arrearages, past due federal taxes, past due property taxes as well as the Trustee fee, can put you in the negative.

Also, a minor correction. It's not a $0 payment plan. It's a $0 to unsecured creditors. I say this because your plan may call for you to pay secured creditors, as well as arrearages, past taxes, etc, through the plan. That would make it a positive payment, but nothing to the unsecured creditors. I'm virtually a $0 plan (.2% to unsecured creditors if they all file), yet my plan payments are over $5K/month.

[liz417]

As HHM succinctly puts it, you can have a confirmable plan paying unsecuerd creditors $0. (There are some Districts which don't believe you can have this, but let's not worry about that very very small minority view.)

You can also have a negative DMI. While HHM is correct, that solely the IRS standards can't put you there... actual secured debt payments, secured debt arrearages, past due federal taxes, past due property taxes as well as the Trustee fee, can put you in the negative.

Also, a minor correction. It's not a $0 payment plan. It's a $0 to unsecured creditors. I say this because your plan may call for you to pay secured creditors, as well as arrearages, past taxes, etc, through the plan. That would make it a positive payment, but nothing to the unsecured creditors. I'm virtually a $0 plan (.2% to unsecured creditors if they all file), yet my plan payments are over $5K/month.

Okay...I understand what both you and HHM are talking about, but what *if* you don't have any "secured debts" to pay/include in the plan (ex: mortgage current and paid outside the plan)? With a -neg DMI, would your payment then be $0 to the unsecured creditors??? Just trying to understand

[justbroke]

Okay...I understand what both you and HHM are talking about, but what *if* you don't have any "secured debts" to pay/include in the plan (ex: mortgage current and paid outside the plan)? With a -neg DMI, would your payment then be $0 to the unsecured creditors??? Just trying to understand

Yes, you are correct. You would pay nothing to the Trustee. This makes them mad, because they make no money.

However, if you have a negative or zero-dollar DMI, then you pay nothing through the plan.

[liz417]

Yes, you are correct. You would pay nothing to the Trustee. This makes them mad, because they make no money.

However, if you have a negative or zero-dollar DMI, then you pay nothing through the plan.

Gotcha!! Thanks for the clarification!! My goal is to have a $0 repayment in a ch 13 plan. Let's see if it works...

[UpsideDown]

As HHM succinctly puts it, you can have a confirmable plan paying unsecuerd creditors $0. (There are some Districts which don't believe you can have this, but let's not worry about that very very small minority view.)

You can also have a negative DMI. While HHM is correct, that solely the IRS standards can't put you there... actual secured debt payments, secured debt arrearages, past due federal taxes, past due property taxes as well as the Trustee fee, can put you in the negative.

Also, a minor correction. It's not a $0 payment plan. It's a $0 to unsecured creditors. I say this because your plan may call for you to pay secured creditors, as well as arrearages, past taxes, etc, through the plan. That would make it a positive payment, but nothing to the unsecured creditors. I'm virtually a $0 plan (.2% to unsecured creditors if they all file), yet my plan payments are over $5K/month.

justbroke:

Using your plan for an example;

1. Is that .2% of your total unsecured debt balance? How did you arrive at the .2% figure?

2. Is your 1st mortgage payment payed through the plan as part of that $5K monthly payment...or do you still pay it directly?

3. If the plan includes your mortgage payment, what happens after 60 months? The plan will be paid off but certainly the mortgage won't be (at least in my case).

I'm in the Middle District of FL, btw.

[justbroke]

1. Is that .2% of your total unsecured debt balance? How did you arrive at the .2% figure?

Yes, the total. I actually had a negative DMI. Since I ahd some potential issue with some equity in some assets, I chose to bump up the payment to pay about $600 over the plan duration. This is 0.2% of the total unsecured claims filed. However, they didn't all file, so they will get something greater than 0.2%.

2. Is your 1st mortgage payment payed through the plan as part of that $5K monthly payment...or do you still pay it directly?

Yes, it's paid through the plan. If it weren't, then I must make a lot of money!

3. If the plan includes your mortgage payment, what happens after 60 months? The plan will be paid off but certainly the mortgage won't be (at least in my case).

No, there are items in a plan which continue beyond the duration of the Plan. Most notably, are mortgages! A little known fact is that if your mortgage was going to be paid off in less than the plan duration, you could re-apportion the payments over the term of the Plan, getting a lower payment.

The Middle District of Florida has some really cool judges like Judge Funk in Jacksonville. He is definitely on the side of the debtor and tends to read the bankruptcy code as it is written... which judge's are supposed to do (strict constructionists).

[BnkrptcyLwyr]

Most bankruptcy courts are adopting a position which starts of with the means test calculation as the presumptive payment - and they then look at schedules I/J (income/expenses) as indicative of the payment you should be paying. Yes, that kind of judicial wiggle has sort of vitiated the whole chapter 13 means test.

On the other hand, there are some courts which apply the test strictly and say that if DMI is 0, then you don't have to pay any more than that. That strict construction works horribly though where you have a lot of income with a high DMI and have a sudden drop in income.

But, I digress.


In short, you will likely have to look at your schedules I/J - not just the means test.

But ... also ... your question is NOT silly because the answer very much depends on your district/circuit.

[UpsideDown]

Well I hope there are some cool judges in Tampa because that's where I'll be filing.

So for the mortgage; if I'm current, I'll have the option to continue paying it outside the plan or is it automatically rolled into the plan? I guess it doesn't matter; the mortgage payment is the same either way.

[justbroke]

Well I hope there are some cool judges in Tampa because that's where I'll be filing.

So for the mortgage; if I'm current, I'll have the option to continue paying it outside the plan or is it automatically rolled into the plan? I guess it doesn't matter; the mortgage payment is the same either way.

In some Districts, you have to ask for permission to pay a secured creditor outside of the plan. Generally speaking, many Florida districts require all secured creditors to be paid inside the plan, unless you motion the court for permission to pay outside the plan.

Of course, if paying outside the plan, your mortgage must be current.

[HHM]

Justbroke...this may be district specific...but as to your "little correction", I really did mean to say a $0 monthly payment chapter 13. Some very enterprising lawyers have proposed these plans and they have been confirmed. Strictly speaking, nothing in the BK forbids it. Granted, the BK Trustees don't like it because they don't get anything. NOW, you do have to state within the chapter 13 plan that if there is DMI in the future, it will be devoted to the plan. But it is legally possible to file a chapter 13 and in your plan propose to make NO payments for the length of the plan.