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Above Median Income Question

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  • Above Median Income Question

    I know that every situaton is different and that it is possible to qualify for Ch 7 even for higher income people. Having said that does anyone have a realistic estimate of what is too high of an income?

    By my calculation of the means test I am about $2500 over our state median in Nevada. However, factoring in the allowances, along with childcare ($1500 / mo for 2 kids), modest giving to church ($200 / month), life insurance, very small car payment (when divided by 60), and small business expenses, I feel like I am pretty close to qualifying. However, I had an attorney tell me that I would never qualify if I was more than 10% over the median. Of course this attorney ran no numbers, didn't account for the fact that my income is small business (which has fixed monthly expenses), etc.

    Just curious if there is some rule of thumb regarding income above state median. Thanks.

  • #2
    Is that $2500 per month over, or $2500 over for the entire 6 months?

    If we are looking at the total for 6 months, generally, if the debtor is only over by 1-10%, they can probably still swing a chapter 7 if they have the right expenses. 10-20% over is pushing it, but again, living in the right part of the country, with the right expenses, "maybe" they get a chapter 7, but that case would receive high scrutiny. Over 20%, nearly all debtors will be chapter 13 short of being self employed or a business owner with significant business expenses.

    The attorney quoted you the correct rule of thumb, but all rules have exceptions. (note, most attorneys are not going to run numbers at an initial consultation).

    Comment


    • #3
      If it's 2500 for the 6 months-- which I assume it is or you wouldn't be asking---many find the solution is to buy a new car.

      Keep On Smilin'

      Comment


      • #4
        Having been in the same situation(over median by almost 20%), I would highly recommend speaking with a lawyer. I ran the numbers a few times myself and kept coming to the same conclusion that we were destined for a 13....after speaking with a lawyer and taking a hard look at what our actual expenses were, it was determined that we could go for the 7. My perspective is that when your situation goes from cut and dry to possibly and maybe....consult someone who does this for a living....you'll pay for the expertise but in my experience, it was well worth it.
        Filed 9/14/2012 341 10/23/2012 Discharged 01/02/2013 Closed 01/07/2013

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        • #5
          I am over the medium, too. My yearly salary is almost double the allowance for my size family even with two decreases within the past 8 months.

          On the means test, I come out with a DMI of -450. The only way I am actually making ends meet is because I haven't used all of the auto operations monies the means test considers...but one major car repair or health issue and we are in big trouble! I should be saving for those new tires!
          I have a higher "mortgage/hurricane-flood-home insurance/tax payment" by about $800 than the means test allows for my area. Plus, I have life insurance, health insurance and infant day care which are all legitimate expenses.

          So, when I consulted with a couple of attorneys, they also stated I was most likely a 13 but none ran the numbers. To HHMs point, I don't think they do that for free. One offered to run them for a few hundred dollars and that would go towards his fees, if I hired him afterwards. I'm considering doing this.

          I really want to find an attorney who has had a case very similar to mine (as in...over the median but with legitimate allowable expenses). One that can tell me if they will question my withheld taxes (which I just had reduced but still adds up to almost $9K/year not including SS or Medi).

          Anyway, I will be following this thread! Thanks.

          Comment


          • #6
            Originally posted by dinosaurlove View Post
            Just curious if there is some rule of thumb regarding income above state median. Thanks.
            All lawyers I have spoken with were fixated on 120% of median as the magical cut-off point, though it may be pegged to local cost-of-living standards. Reason being, 'average' allowable expenses tend to run about 20% above my state's median income level. With this in mind, it's no wonder average people end up in trouble.
            Filed Joint, No Asset, > $100,000 Unsecured Ch.7 6/7/13 ~~ 341 Meeting 7/15/13 ~~ Discharged 9/16/13 !!

            Comment


            • #7
              We are over median income by more than double. I am beginning to see that my case was an exception to the rule, but my attorney was willing to fight for me if he had to. We were -700 dmi on means and -2700 on I/j. We are set to be discharged in 4 days. No questions, nothing from the US trustee. I think every case is different and it depends on the district?

              Comment


              • #8
                The district's rules and precedents are vital in these cases. Every district has different rules, which should not be the case, but that's how it is.

                My case is an extreme example, and meant only to illustrate the wild variations.

                Florida Middle allows a debtor to claim the expenses associated with owning a home, even if you plan to abandon the home. This is somewhat unusual, but not unheard of. In our case, our home ownership expenses ran from 6k-9k per MONTH. In abandoning the house, we swung our income nearly 85k to the positive side annually.

                Because of the district precedents we were able to file a chapter 7 and received no questions about this from the court.

                We were able to purchase a house with cash shortly after discharge partly because of this variation in precedent among districts.

                As time went on, my medical problems worsened and that extra income dwindled, but it was there when we needed it most. As I said, ours was an extreme case in a district with unusual precedents. Many districts do not allow you to claim expenses for a home you plan to surrender. But, if you are over the median, it can pay to know the local rules. And this was a rule that our attorney was unaware of. He had not seen a case like ours, and was astonished when he learned of the precedents. Honestly, I don't think he believed me when I told him about my research. Or he thought I was interpreting something wrong.

                Once he looked into it, he saw I was right.

                We avoided a CH 13 and sailed through a 7.

                Know the local precedents as much as you can, if you are over median going for a 7. There are many ways, in almost all districts, to legally plan for and get into a 7, even if you are well over median. Just keep it legal. We saw a fellow who got on the wrong side of this line and he was absolutely destroyed by the court. It was not pretty, and his mistakes were obvious to anyone. He was claiming TWO homesteads, had "misplaced" 600k or so, and was wearing a 5k suit in court. Not smart.
                11-20-09-- Filed Chapter 7
                12-23-09-- 341 Meeting-Early Christmas Gift?
                3-9-10--Discharged

                Comment


                • #9
                  Thanks for all of the responses. I plan on consulting with a 2nd attorney in about a week or so. My income is dropping month to month and I'm thinking that I will still be over median, but a little closer in a few months or so.... as far as I know, my expenses are legit, and I have purposely tried to be conservative on my end just to allow for errors in my calculation of the means test. Thanks again.

                  Comment


                  • #10
                    My partner is over medium by double, and the attorney we hired claims he is going to go chpr 7. We do have 2 car pmts and a 2200 mortgage. We are also buying term life insurance for him this week. We are in Florida.
                    chpt 7 ,5-2009

                    Comment


                    • #11
                      DeadManCrawling, would you mind sharing the home maintenance expenses that were allowed? Dis it include lawn care, pest control, ... or bigger issues like tree trimming (for hurricanes) and big repair issues.

                      Floridagail, are you two filing together or just your husband? My numbers are similar to yours and I am in Florida but still looking for an attorney (one that doesn't just toss me into Ch 13 without looking at all the numbers).

                      Comment


                      • #12
                        If. over 50% of your debt is business related {non-consumer debt} you're exempt from the means test.

                        Comment


                        • #13
                          My partner is filing alone, ( I filed in 2009). We found our attorney thru word of mouth. We explained to him that we would only file a 7, due to being close to retirement and not working period. Are you behind on your mortgage? We had planned to see at least 3 attorneys but were happy with him.
                          The attorney ran the numbers for free, We spent 1 hr with him. A good attorney can tell from your income an expenses if you can go 7 or not.
                          Last edited by Floridagail; 02-05-2013, 09:33 PM. Reason: add
                          chpt 7 ,5-2009

                          Comment


                          • #14
                            We am located in Middle District Florida - Melbourne area in Brevard County. We have 3 rental properties that we am trying to short sale or deed-in-lieu with Chase bank. We have very little consumer debt after short-saling my primary residence in 2011. We want to do a Chapter 7 non-consumer BK, but after consulting with one attorney, he thinks that we will be denied because our household income is about $110K. I explained that my husband travels for business and we are responsible for business expenses but it seemed to fall on deaf ears. Does anyone know of a good attorney in my area - one that has experience with non-consumers like us? We are desperate.

                            Comment


                            • #15
                              If you are planning on doing a bk, why are you attempting short sales? It is to end your HOA exposure? If you complete the short sales will you still have enough “investment/business” debt to qualify you as a non-consumer bk? If the answer is “no”, you should stop trying for short sales.

                              If you are a non-consumer bk you do not have to “qualify” to file a 7. Means testing does not apply therefore a Motion to Dismiss under 707(b) will not be filed regardless of how much disposable income you have.

                              On occasion Motions under 707(a) have been filed in non-consumer cases. These Motions argue that cause exists to dismiss the case based upon the case being filed in “bad faith”. In cases where I have seen this the debtor has a lot of excess income each month and continues to live an extravagant lifestyle, wanting to keep and pay for all of the expensive toys, such as luxury vehicles, vacation homes etc.

                              If you are in a situation where you have not drastically cut back the luxuries, I can see a “bad faith” argument. If you do not have such luxuries or have already cut back “bad faith” is probably lacking even if you have substantial disposable income.

                              I have filed non-consumer cases with as much as $4,000.00 per month disposable income. In each of those cases the debtors had given up the toys or did not have any to give up. In each of those cases my clients were aware of the potential (but unlikely) problem. In each we moved forward with the understanding that the worse thing that could happen would be a dismissal or conversion. None of those cases ended up with a 707(a) Motion and all were timely discharged.

                              I cannot “recommend” an attny (even if I could I don’t know any in your state) but you should continue to search for the right one. It is no different than going to a doctor. Always get more than one opinion.

                              Des.

                              Comment

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