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Ch. 7 Confusion in TX

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  • Ch. 7 Confusion in TX

    Please help! I lost my job in October 2010 but I still have income from my VA disability. My wife also still works as a teacher. We were supposed to sign our petition for Ch. 7 this morning with Macey & Aleman (possibly the fly-in-the-ointment); however, after three previous appointments, the lawyer is now telling us that the "means test" shows us clearing almost $3K a month. That's ridiculous because we're dipping into savings to get by. Nevertheless, the lawyer is pushing for us to file a Ch.13 to ensure that the trustee accepts the terms. However, if we file a Ch. 13 and start making any payments, we'll have even less money than we do now. Any advice?

  • #2
    We can't tell unless we know what the Means Test indicates. Apparently, your attorney believes that you have more than $182.50/month left over after "allowable expenses". Please know that your credit card payments don't count in the allowed expenses since they are dischargeable.

    Also, did your attorney figure out whether your debts were incurred while you were active or is your disability service connected? While the VA benefits count as income, they can't be used to pay a creditor. I know, that's confusing, but that is where most people can't distinguish between it (VA disability) from being out of reach from a creditor but included as income for purposes of the Means Test.

    The real problem is that the Means Test defines all income, except for Social Security or certain special war crime or terrorism related payments. It does so without regard to the taxable nature, or the inability for creditors to garnish it or diminish your right to receive the benefit.

    I would review your disability and if it was service connected and/or you incurred most of your debt while on active duty, you could bypass the Means Test. Unfortunately, I'm not good at this specific area of means testing and bankruptcy strategies for veterans.

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    Last edited by justbroke; 12-31-2010, 06:43 PM.
    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


    • #3
      Thx justbroke, my disability is service related. I've read that in TX my VA benefits are exempt, but I'll look into how that effects (if at all) the means test.

      Comment


      • #4
        Originally posted by phaedrus74 View Post
        Thx justbroke, my disability is service related. I've read that in TX my VA benefits are exempt, but I'll look into how that effects (if at all) the means test.
        Exemption and counting as income are two different things, and this is why I believe you have some confusion. This is probably why your attorney is including it in the Means Test since it is "income" per definition of the Bankruptcy Code (in 11 USC 101, under definition of current monthly income).

        However, I would kindly ask your attorney if s/he specializes in military disabilities and the impact of a service-connected disability on filing bankruptcy! Definitely go back to the attorney and ask them if they completed the Means Test and if they did, ask why they didn't complete section I and skip the rest of the Means Test.

        Other than that, I don't know what your attorney is seeing. I don't see how you are even required to "complete" the Means Test and if your attorney is saying that you fail the Means Test... something is wrong with either your attorney or s/he didn't have enough information from you to list you as a service-connected disabled veteran.

        By the way, thank you for your service.

        From Official Form B22A - Means Test...

        Disabled Veterans. If you are a disabled veteran described in the Declaration in this Part IA, (1) check the box at the beginning of the Declaration, (2) check the box for “The presumption does not arise” at the top of this statement, and (3) complete the verification in Part VIII. Do not complete any of the remaining parts of this statement.

        1A Declaration of Disabled Veteran. By checking this box, I declare under penalty of perjury that I am a disabled veteran (as defined in 38 U.S.C. § 3741(1)) whose indebtedness occurred primarily during a period in which I was on active duty (as defined in 10 U.S.C. § 101(d)(1)) or while I was performing a homeland defense activity (as defined in 32 U.S.C. §901(1)).
        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


        • #5
          Hi phaedrus,

          First of all, I want to express my gratitude for your service.

          I don't think Congress intended to slight Veterans when they wrote soc.sec. benefits into the BK law and left VA benefits out; I think my brother Eds law applies: Never attribute to malice anything adequately explained by incompetence
          Really applies since VA benefits were included in the House version, but not in the Senate version which ended up the code.

          The fact that it is exempt means that anything you have in the bank from VA benefits can't be touched.

          Unfortunately it counts as income.

          We were supposed to sign our petition for Ch. 7 this morning with Macey & Aleman (possibly the fly-in-the-ointment); however, after three previous appointments, the lawyer is now telling us that the "means test" shows us clearing almost $3K a month. That's ridiculous because we're dipping into savings to get by. Nevertheless, the lawyer is pushing for us to file a Ch.13 to ensure that the trustee accepts the terms. However, if we file a Ch. 13 and start making any payments, we'll have even less money than we do now. Any advice?

          My advice: don't sign and find another attorney. The means-test is one of the very first parts of a BK and they take 4 meetings to figure out what Chapter to be in?! ...not a good sign...."ensure the trustee accepts the terms" ....what the heck? The trustee doesn't have 'terms,' they follow the terms in the BK law. Something here doesn't pass the smell test...

          Did you go over the means-test including the expense deductions from income?
          If it is just you and your wife, do the deductions get you close to $4500 a month?
          Did you discuss how much $ it would take to fund a Ch 13 plan?
          If there isn't enough $ to fund a plan, you should be a Ch 7 even if you fail the means-test.
          Did you go over Schedule J expenses subtracted from your income?
          How much income is leftover after you subract Schedule J expenses?

          Good luck with this, keep up posted on how things work out!

          Tom in Colo
          Ch7 filed 5/12/2010.....341 meeting 6/30/2010....report of no distribution 8/15/2010.....discharged 10/01/2010.....closed 11/09/2010

          Comment


          • #6
            tc and justbroke,
            After talking with the lawyer again I have a better understanding of the problem. Apparently, the lawyer had looked at my disability but our median income is too high. The median income in TX for a family of 3 is $55,000. Between my disability and my wife's salary, we're around $65,000 (pre-tax). Nevertheless, when we work through the budget to fund a Ch. 13, we have about a $160.00. There seem to be some common sense factors that the formula's are not expressing.

            Comment


            • #7
              Originally posted by phaedrus74 View Post
              tc and justbroke,
              After talking with the lawyer again I have a better understanding of the problem. Apparently, the lawyer had looked at my disability but our median income is too high. The median income in TX for a family of 3 is $55,000. Between my disability and my wife's salary, we're around $65,000 (pre-tax). Nevertheless, when we work through the budget to fund a Ch. 13, we have about a $160.00. There seem to be some common sense factors that the formula's are not expressing.
              I was under the impression that, for disabled veterans, it doesn't matter if you are over the median income - you are exempt from the means test. I think you may need an attorney who is better informed. It would be very unfortunate to get pushed into a Ch 13 that cannot be sustained.
              Filed Ch. 7: 10-28-2010 Report of No Distribution: 12-16-2010 Disharged and Closed 2-18-1011

              Comment


              • #8
                Shop other attorneys. After my experience a few years back and recent experiences of a few other folk I'm aware of, a good attorney who's willing to "take on the establishment" can easily get a ch.7 through.

                Comment


                • #9
                  Originally posted by phaedrus74 View Post
                  tc and justbroke,
                  After talking with the lawyer again I have a better understanding of the problem. Apparently, the lawyer had looked at my disability but our median income is too high. The median income in TX for a family of 3 is $55,000. Between my disability and my wife's salary, we're around $65,000 (pre-tax). Nevertheless, when we work through the budget to fund a Ch. 13, we have about a $160.00. There seem to be some common sense factors that the formula's are not expressing.
                  Being over the median is not a reason to file a Chapter 13. Over the median income filtes receive Chapter 7 discharges EVERY SINGLE DAY, including today! You need to shop new attorneys or have a heart to heart with this attorney to get him to file and fight for you!!!

                  You are not only under the $182.50/month for it to be an abuse, you also have a rebuttal to any argument the Trustee has since you have a service-connected disability (period).

                  I think your attorney just doesn't want to fight for you. If he is unwilling, then tell him that you will find another attorney who will fight for a person who fought for his freedom. (I know, that's kinda putting it to him, but it's the truth!)
                  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


                  • #10
                    Hi phaedrus,

                    Have to go along w/ the 'it might be time for another attorney' bandwagon....

                    We have seen 10K over median fly by successfully here on the forum, not that hard to do, maximize expenses on the means-test.

                    Schedule I&J disposable income +160 Also not hard to fix, as you said, some expenses get missed, add them in, you're OK

                    There have been lots of folks on the forum who successfully did a Ch 7 w/ worse numbers than you have. Unless we are missing something here, your case should not be that hard. Definitely doable....

                    Keep your options open, do what's best for you, not what is easiest for your attorney....

                    Tom in Colo


                    ps to fellow posters: disabled vets get a break on the means-test only if they incurred the debt while on active duty
                    Ch7 filed 5/12/2010.....341 meeting 6/30/2010....report of no distribution 8/15/2010.....discharged 10/01/2010.....closed 11/09/2010

                    Comment


                    • #11
                      Originally posted by tcreegan View Post
                      ps to fellow posters: disabled vets get a break on the means-test only if they incurred the debt while on active duty
                      Yes, that's included above in the Statement from Form B22A question 1A. The other rebuttal that the person has is that they are disabled. That's always a rebuttal when you're a presumed abuse. At $160 DMI, I see any presumption argument quashed due to the disability alone.
                      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


                      • #12
                        It would be interesting to see OP's numbers on Schedules I and J to see where the attorney is coming up with this Ch 13 idea. With a disability, dependents, and a teacher's income it shouldn't be hard at all to sail through on a Ch 7.
                        Filed Ch. 7: 10-28-2010 Report of No Distribution: 12-16-2010 Disharged and Closed 2-18-1011

                        Comment


                        • #13
                          And I swear, justbroke, I have read a case where the court agreed that VA benefits/Soc.sec. benefits is potatoe/potato and excluded them...but I didn't save it and I'll be danged if I can find it now....
                          Ch7 filed 5/12/2010.....341 meeting 6/30/2010....report of no distribution 8/15/2010.....discharged 10/01/2010.....closed 11/09/2010

                          Comment


                          • #14
                            Originally posted by tcreegan View Post
                            And I swear, justbroke, I have read a case where the court agreed that VA benefits/Soc.sec. benefits is potatoe/potato and excluded them...but I didn't save it and I'll be danged if I can find it now....
                            It is based on underlying State non-bankruptcy law in "some" cases. But, for the majority and consensus, VA benefits do not fall under the Social Security Act, and the definition of Current Monthly Income (CMI) in 11 USC 101 (the definitions chapter for Bankruptcy) indicates that only SSA benefits and some special war related benefits are exempt from being income.

                            As to exemptions... that's an entire different story as all States and the Federal statutes exempt the right to receive VA benefits and SSA benefits from the reach of creditors. However, the definition of income for purposes of the Means Test is "special" and there are many courts that have considered the interplay. The clear definition is in 11 USC 101 and it is quite clear. How some judges are able to skirt around it for the Means Test is another story.

                            As for the Form B22A question 1A portion that you eluded to, debts incurred while in active duty or while performing a homeland security function, can render the means test inapplicable if those debts are the majority of the debt.
                            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

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