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Filing Chapter 7, is disposable income considered before or after discharge?

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  • Filing Chapter 7, is disposable income considered before or after discharge?

    I just want to know if the trustee looks at my disposable income before my debt is discharged or what it will be after my debt is discharged when considering me qualified for Chapter 7. If I have to be less than $107 a month while my I still have my debt or after my debts discharged. This is probably is an obvious answer but I've seen misinformation online and just need specifics about this.

    I do qualify under the means test so I'm past that requirement. As of right now I'm about negative $979 after all bills (living expenses and debt) is paid ($3,891). After my discharge, my living expenses equal $2,212. I make $2,912 a month. So that would mean my disposable income after living expenses paid would be $700.

    Edit: I will be filing in about 1 month so I may be asking more questions on here as this is a new experience to me. Thanks ahead of time for any responses.

  • #2
    They are looking at your DMI not including any debt payments that would be discharged. So take those out of the equation. If you have DMI of ~$700/mo, they would think it could go to repay your creditors in a Chapter 13. When you say you "qualify" I assume you mean you are under the median income for a family of your size in your state. Have you done the means test on legal consumer's site? That will give you a good idea of how it all works -- what expenses "count" when figuring your DMI and which ones do not.


    • #3
      Chrysalis I just finished doing that legal consumer means test and I'm pretty sure I messed up somewhere. It's stating I have a disposable income of negative $2,107 per month. That doesn't add up. It asks for the taxes paid each month and health insurance paid each month, but I don't know if that is taking into account the monthly income I put down was AFTER taxes and AFTER my health insurance comes out of my pay check.


      • #4
        Do the means test again and use your gross monthly income -- not net. You will get a much different result. ;)


        • #5
          Chrysalis I am getting my tax refund Feb 27th in the amount of $4,158. I plan on using a portion of that to pay my attorney. He recommended I spend the rest on non luxury expenses like home improvement, child necessities etc before I file so that refund can't be taken by the creditors. Is this legal? Am I aloud to spend my tax refund the way I want, within the limits of non luxury purchases, then pay the attorney with the rest, and go forward that way without the trustee questioning why I chose to wait to file until after I spent all of my refund?


          • #6
            Completely legal, and advised by attorneys all the time. You spend it on necessities, or they take it -- it's as simple as that.

            People frequently wait to file until after their tax refund is spent. If you wait too long, they start wanting part of the refund you may receive in 2019. So really, this is the smart way to go.

            You will find (in general) that if your attorney is not stressed out / worried about something -- you shouldn't be, either. If you feel you've picked a good one, or at least a decent one, just remind yourself that they do this for a living, all day, every day. I'm not trying to discourage your questions in any way whatsoever -- ask away, and we're happy to help. Just trying to reduce your stress a little. I know it's hard when you're in the thick of it.


            • #7
              Chrysalis I fixed the income to equal my gross monthly and it came to -$569 of disposable. Which makes more sense. I am a 4 person household as well. So by that logic we would qualify the means test based on state median income and disposable income.

              Thank you for explaining the tax refund part. It's been hard for me to wrap my head around spending a few thousand on home improvements without feeling guilty or something. I know it's my money but still.

              My first (free) consultation I had with my attorney went great and he seems like a very knowledgeable guy with great reviews online. I obviously didn't ask enough questions (hence why I'm on here =P).

              You're the first person that has given me clear and concise info regarding bk (other than my attorney). I did have a question regarding my current car lease and how it will affect the bk process. My car lease is up in May, It's current on payments, which I plan to pay after I file bk. I'm starting to get calls from the dealer to get a new car. I've explained my situation regarding my filing and awaiting his call back with what options they have for me. I own 1 car currently (the wife uses primarily). My leased car is what I use for work. I want to get a new car after my lease for sure. What is the best way forward in that process? Try to get a new car now, wait until after I file, after the debt is discharged? I want to get a loan for the car because after the debt is discharged I will for sure be able to make whatever payments I will have. I can't imagine being qualified for anything big as far as a loan goes. I don't know what to do though. Best case scenario is I'm able to have a second car concurrently throughout the bk process.

              Again, thank you so much for answering my questions!


              • #8
                I'm not sure if you have already answered this elsewhere on the forum -- but please refresh my memory if you have. Have you already stopped making unsecured debt payments? Are you behind on things? Mainly I'm wondering what your credit looks like now vs what it will look like after you file.


                • #9
                  Chrysalis I have stopped making any payments towards all of my unsecured debt. I am current on most as of January but February will be the first month where I will be late on all of them. I made a conscience decision to for sure do that at my attorney consultation per his recommendation. So by the time I file (early March), I will be a month late on most and 2 months late on my $20,000 personal loan. I am current on all of my other monthly bills such as mortgage and car payment and utilities. Credit as of today is 639.

                  Living expenses per month= 2212
                  Unsecured Debt per month= 1679
                  Total average expenses combined per month= 3891
                  Income per month= 2912
                  Net balance after all expenses paid per month= -979

                  Also, is there any reason I should be concerned with keeping my checking account throughout the process? I have a credit card through the same bank as the checking. Can they close my account for non payment? To move my direct deposit and all my bills to another checking account elsewhere would be a task so I just wanted to know if it's something I should be concerned with.
                  Last edited by netengr44; 02-02-2018, 07:16 PM.


                  • #10
                    We always recommend to not have your bank accounts with someone who is going to be included in your bankruptcy. They can and do freeze your accounts and do all sorts of weird things with them. I'm no expert on this -- so I won't even try to get into details of that -- but I'm sure searches here will give you more information about people's experiences, if you think you want to take your chances. Including a conversation recently from a woman (momto4kids, I believe) who is going through this currently with her credit union, and has been very upset and frustrated by it.

                    Personally, we closed the checking we'd had with Chase forever and ever because we had a credit card with them. So I can't tell you what they would have done. I was not in any way comfortable with taking my chances. We had online checking & savings accounts with Capital One already (and no debt with them), so we switched direct deposit and bill pay over to that account, and had no worries whatsoever. I get credit card offers from them in the mail almost every day now, in fact. So they still like me. (Or at least they think they do... haha -- I have not applied.)


                    • #11
                      As far as what to do about your second car: You have informed the dealership that you are going to file bk, is that what you mean? And they are supposed to be letting you know your options?

                      Legally, there is really no concern. People switch things around with their vehicles before filing, after filing -- happens all the time. I mean, as long as you aren't going to have some big luxury vehicle with a payment that will make the trustee raise his eyebrows. (Our attorney thought perhaps our trustee would at least make a comment about our "pretty big" truck payment of $543/mo, and prepared us for that -- but he in fact did not say a word about it.)

                      I really would advise you to speak with your attorney about this one, because he will have your solid numbers vs. us just doing the means test online and speculating. In some cases, it makes sense for people to get their vehicle before filing because the payment amount will help them on the means test. In your case, if you are figuring things correctly, it sounds more like you do not need help on the means test at all, and may have better chances of qualifying for a new loan/lease after your debt is discharged. If they are looking at your debt-to-income ratio, especially. One question is, however, what sort of interest rate will you be looking at post-filing vs. what you can get now? Sure, people can get into new loans right after filing bk -- they love us! Why? A) they know we can't file again anytime soon and stick them with the debt, and B) the interest rates are enough to choke a goat.

                      Just my thoughts for now. Definitely have some frank ("hey guys, don't BS me here") talk with the dealership, and definitely see what your attorney thinks, because he will be able to see your big picture as well as your small details.


                      • #12
                        Chrysalis I have a paycheck depositing into my current checking next Thursday and my tax refund around Feb 27th. Am I aloud to move the money around after it's deposited without anyone questioning it later? I can switch my direct deposit now but I can't stop the tax refund from depositing. And when it does, that's $4,100. Is it as easy as just wire transferring? The 1 credit card I have with USAA isn't even late 30 days yet. I would talk to my attorney but I don't know if I can until I pay them. This is really stressing me out =\ banks aren't aloud to take money from you right? If they freeze the account, does that mean my money is like untouchable? I've been trying to find info on the forum but there's so much to sift through. I'm sorry I am blasting you with a million questions. I don't know where else to go until I retain my attorney.

                        As far as the car advice, I agree. I could go either way and end up fine. The $311 a month payment helps with my DMI. I will talk to the attorney and get his opinion.


                        • #13
                          Sure, you can move money from one place to another. The key is to have it all accounted for and not a large chunk "disappearing". I'm sure they see people switching banks all the time for this very reason. (filing bk)

                          Try not to stress out about it too much. You aren't even going to file until that tax refund is spent. You have some time to figure it out. As far as taking any of your money, I am not an expert on that and maybe an expert will weigh in here. justbroke I do know I have seen stories of frozen accounts and that is not something I wanted any part of. Sounds like an added stress that I didn't need so I just eliminated the possibility.


                          • #14
                            You can move money around so long as you can explain moving money around. It just looks "fishy" before filing and the Trustee will go fishing. People switch banks all the time. They do so before filing to avoid having cash in the same place they have credit products, to avoid any rights of setoff or to avoid a bank that is notorious in freezing bank accounts upon notice of bankruptcy (such as Wells Fargo).

                            When and if an account is frozen, it's just to prevent money from leaving the account. I would not worry about frozen accounts unless you're at Wells Fargo or some other smaller banks. USAA is not an issue as far as I know, but they will not like that you burned them on a credit card. They won't throw you out of USAA, but may reduce the products (credit and deposit) to which you have future access.
                            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.


                            • #15
                              Be aware that USAA may restrict you to the mobile site as the full one could be interpreted as an attempt to collect a dent. They vary widely on what they do with insurance products. I’ll soon find out.


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