Means Test, Schedule J, and Debt Owed

[sisterfunkhaus]

I know I need to consult a lawyer and all of that, but I am just trying to understand some things to see if we will be filing a chapter 7 or 13.

There is a chance we will fail the means test having $200-$300 left over. But on schedule J, we come out negative. We have around $80,000 in student loan debt and $100,000 in consumer debt incurred over a 12 year period. Even though we may have more than $166 left over per month, we would be able to pay less than 5% of our debt back on a chapter 13 plan. Plus, when we submit our budget to a trustee, there is little to no chance that we would have money left at the end of the month --we actually come out a couple of hundred negative--this is with pretty modest expenses. (I know they can find ways to eek it out, but lets just say for giggles in actuality I have nothing or negative.) What then? Might they still make me do a chapter 13 even though almost nothing would be payed back in the grand scheme? What if we have no money left at the end of the month to pay anyone according to our budget and they can't find ways to eek anything out?

I am confused becasue in the NOLO chapter 7 book, they give an example of someone who has $400 left at the end of the month, but would not be able to pay back anywhere near 25% of his unsecured debt. It says that he would most likely be allowed to do a 7 because of this. But, the means test has a presumption of abuse if you have over $10,000 left at the end of 5 years. Also, what is the purpose of schedule J if you take the means test?

Lots of questions, I know.

[CATCHMEIFYOUCAN]

There is no such thing as a pass or fail regarding the means test, its just a test to prove whether you have disposable income or not. The means test was set in by the new laws with IRS standards. Schedule J shows your "real budget." this is where the gray area of the law comes in. For example, Im filing chapter 13 (but just yesturday i converted to chapter 7). But back to the means test, the test showed i had no disposable income, yet schedule J showed I had plenty of disposable income, it is than left to the trustee or the judge to decide how much one should pay back. If the means test shows you have at least $100 or more of disposable income more likely that will put you into a chapter 13 if you are gunning for a 7 at first. They want you to be able to pay back as much as possible, IF possible. Im not a lawyer but that is my assumption.

Good Luck, Catchmeifyoucan

[SinkingFast]

The way the Law was written and how it's being applied are not one and the same in many Courts, Sister.

Our attny told us back in the Spring, the Court here was forcing anyone with $100 or more/mo of disposable income into a Ch 7. I know that's anecdotal reporting, but other posters have heard similar reports from other attnys all over the country.

And, we're seeing people post here of payback levels as low as 7% of their total unsecured debt.

So take how the law was written, and that book's explanation for what should happen with a grain of salt.

[anonymuse]

I know I need to consult a lawyer and all of that, but I am just trying to understand some things to see if we will be filing a chapter 7 or 13.

There is a chance we will fail the means test having $200-$300 left over. But on schedule J, we come out negative. We have around $80,000 in student loan debt and $100,000 in consumer debt incurred over a 12 year period. Even though we may have more than $166 left over per month, we would be able to pay less than 5% of our debt back on a chapter 13 plan. Plus, when we submit our budget to a trustee, there is little to no chance that we would have money left at the end of the month --we actually come out a couple of hundred negative--this is with pretty modest expenses. (I know they can find ways to eek it out, but lets just say for giggles in actuality I have nothing or negative.) What then? Might they still make me do a chapter 13 even though almost nothing would be payed back in the grand scheme? What if we have no money left at the end of the month to pay anyone according to our budget and they can't find ways to eek anything out?

I am confused becasue in the NOLO chapter 7 book, they give an example of someone who has $400 left at the end of the month, but would not be able to pay back anywhere near 25% of his unsecured debt. It says that he would most likely be allowed to do a 7 because of this. But, the means test has a presumption of abuse if you have over $10,000 left at the end of 5 years. Also, what is the purpose of schedule J if you take the means test?

Lots of questions, I know.

The means test is there to show whether or not there is a presumption of abuse. It's a way to look at higher income filers (above the state median income) to see if there is a possibility to payback some of their debt based on national and local standards.

Here's the quote from NOLO pg 189:

If the information you provide on this form [B22A] shows
that you can pay more than 25% of the debts you
listed in Schedule F over a five-year period, your
Chapter 7 filing will be presumed to be abusive,
and the U.S. Trustee will ask the court to either
dismiss your Chapter 7 filing or, with your consent,
convert your case to a Chapter 13 case. If this
happens to you, we highly recommend that you
obtain the services of an attorney to help you stay
in Chapter 7, unless you are willing to sign up for
a five-year repayment plan. If you do, you can
use most of the bankruptcy papers filed in your
Chapter 7 case in your Chapter 13 case.

It isn't as cut and dry as they make it.

First, when you meet with your lawyer, you need to make sure all of your "other" areas contain your extras to get the disposable income way down--there must be stuff in your schedule J that isn't showing up on the means test--but you have to prove it is necessary. Is there another expense you believe is truly necessary but doesn't fall into any of the categories? (Put them in Part VII). And if what you actually pay is higher than the IRS standards, they need to be accounted for also (i.e. energy, clothes, food). As long as you have bills & receipts to back them up, you'll be okay. Are all of your secured claims accounted for properly? The form states an initial and secondary presumption determination. But Part VII allows for an unwritten tertiary presumption.

So why even have schedule J? I've read articles where it says the means test is there to look backwards while Schedule I&J are there to look forwards. Means test is based on IRS standards and Schedules I&J are actual numbers. Both should only contain reasonable expenses (based on a trustees determination).

On page 168, this is how NOLO interpreted the difference:



Conversely, (my non-lawyer opinion) I think the means test combined with the schedules can be used together to prove that it is not abusive. Otherwise, there would be no reason to fill out these schedules for either a Ch 7 or Ch 13.

Here's some interesting reading for you:

http://www.bkforum.com/showthread.php?t=8093

http://www.bkforum.com/showthread.php?t=7296

http://www.bkforum.com/showthread.php?t=2687

http://www.bkforum.com/showthread.php?t=10119

And, please refrain from posting basically the same post in multiple forums--be patient and people will get back to you and respond.

[sisterfunkhaus]

You guys are so knowledgable!!! Thanks So it is sounding like a presumption of abuse doesn't mean you can't file ch 7. It just means they will look closer and it may have to be converted to a 13. And with my bills being higher than what's on the chart, we might can eek by. I don't know why I'm so freaked out at the prospect of a chapter 13. I should just be happy that I will be unburdened of all of those bills that we cannot afford to pay-- that we would only have to pay a very small portion of them.

I'm a little confused still b/c even though I have a monthly income, I still have business expenses. Last year, even though my income averaged about $1700 a month rolling in from my business, when it was all said and done, I showed less that a $5000 profit, so my income really wasn't that high. I just started my business last year so I had start-up expenses. It isn't tax time yet, so I haven't figured up business expenses yet. I was looking at the means test and noticed it does allow for business expenses. So, that might save us on the means test.

Sorry if I'm blabbering, I am just so freaked out about this. I can't quit thinking about our financial problems. I'm sure you all are in the same boat. I really want to get past this worry and fear and be okay with it all. I guess my logic is that the more I know, the more control I have, which is totally not true. I have no control over what our trustee or the US trustee decides. No one does.

[anonymuse]

I think you're going to be able to go visit attorneys with good knowledge and a good set of questions in front of you. Otherwise, so many people go into those initial meetings just hearing the same old song and dance that you can read on the DOJ pages.

[jane taylor]

We were forced into a Chapter 13 because of our income and the fact that we were late on our mortgage. We are in a 0% to unsecured plan that was confirmed back in June. We've had so much medical expense and there is so much that needs to be done to our house and it is so depressing some days.

Some days I could kick myself for not filing before the law changed, but I know that doesn't do me any good.

To answer your questions, you do have to report any increased income. My dh got a promotion shortly after we filed and we were told to "lay low." I have it documented that I reported it. Our Trustee will not allow debtors to make payments--he will only accept garnishments.

Keep us posted.
jane

[sisterfunkhaus]

And, please refrain from posting basically the same post in multiple forums--be patient and people will get back to you and respond.

I didn't realize I was doing that Just because I explain my situation several times but ask different questions, doesn't mean I am posting the same thing in each post. I have different questions to ask in each post. I may be occasionally overlapping, but my questions are generally different in each post. I guess I just won't post anymore If I am going to be accused of asking the same questions in every post when I don't see it that way, it isn't worth it for me to post. I'm already stressed and depressed enough without being slapped on the wrist in the place where I come to get help and advice. It seems like people would be more sensitive to that in a place like this. But I guess this must be an information board rather than a support board.

Thanks everyone for your help. This place has been super helpful. I would be completely in the dark without the help I have gotten here from not only my posts, but the post of others.

[anonymuse]

Continue posting--this is not a slap on the wrist.

I was just trying to answer some of the new posts on the board and when I had read another of your posts, I thought I had just answered the same question. Sorry if I didn't read it carefully enough.

We are here for both knowledge AND support. Please don't take my post the wrong way and please continue actively participating in the boards. Sorry.

[treehugger1]

Annoymuse (sorry if I butchered that) made a statement that is important. I also believe that the means test can be coupled with schedules I and J for a variety of concerns. I'm no attorney, but my sense is that there can be a compromise between the two issues. Documentation can be importnat, but take the time to download form 22 and follow the directions which eventually lead to a plan payment, in a 13, albeit an estimate.

I'll give you an example: I own two autos with high mileage that are questionable to make it through a five year plan. My actual auto payments are below the standards of the IRS. If one only looks at the current expense schedule, then I would not be able to continue to cover the cost of replacing one (or both), and eventually having to deal with no functional automoblies. It seems to me that a reasonable argument for a compromise between the IRS data, form 22, and the expense schedule is to add on a replacement cost as an expense. Will my attorney go along with this? I believe he will since when it comes to the trustee, one needs to keep in mind the feasibility of 13 plan. I have since learned from reading comments on this board that trustees vary, and it might be worth your while to do a bit of research into how the trustee (or judge) in your district interprets the "means" test and all that it implies and does not imply.

[SinkingFast]

That's a very good point about the vehicles, Tree.

We are prepping for the 341 coming up this next week.

I hadn't even thought about bringing to the Trustee's attention that we have old, beater cars. All 140K+ miles. We're gonna need to replace at least one of them sometime in the near future. That's an anticipated necessary expense increase. Taking on a car payment when you don't currently have one.

[treehugger1]

I am in the same boat. One vehicle has 147K miles and the other 209K miles. I figure that between the two of them, I should have one at least running on a couple of cylinders at the end of five years. On the other hand, "ownership cost" is an expense. I think many folks just figure "ownership costs" as payments. But, I believe that for older cars, ownership expense/cost should account for some replacement expense. I'm probably dreaming, but the attorney I'm speaking with keeps emphasizing that "we" will stress the importance of a workable and feasible plan, and I won't be left eating dandelions out of the neighbor's yard for nourishment.

Best to you SF on your hearing. I'm guessing I'm looking at mid December to mid January. I'll be curious to hear what your trustee thinks about your plan. Or, maybe he/she will not go into detail until they digest all the information.

[anonymuse]

I never even considered that. I only have one car and it has 167K miles on it. Knock on wood, everything works, but I've never really figured more than oil changes into my Schedule J (Luckily, dad changes sparkplugs, antifreeze, etc.)