Means test and future income

[Logan]

Hello,

I am deep in Credit Card debt 100K mostly due to a failed career especially after september 11th and I've decided that chapter 7 is the answer.

I have virtually no income over the past 6 months and was hired today by a company that will pay well above the 'means test'. Even with this pay and living within my means I will not be able to pay my bills and since I'm out of credit my cards are beginning to adjust from low interest rates to rates I cannot afford.

I am trying to get myself very lean and when I file my expenses will be low since I will be in training and living in a hotel for a few months. I will also own nothing except a car that I'm upside down on (which I will keep), and a few personal items--clothes, computer, dog etc. No furniture and no rent.

If you look back 6 months from the time I plan to file my income will be about 9K.

My question is will the trustee consider my future income?

Also, I have not been late on a single payment but if I am the interest rates will go sky high and I certainly can't afford 100K at 15, 20 or even 30%.

Thanks,

Logan

[SinkingFast]

Your future income will be considered.

The Means Test looks back over the past 6 months.

Schedule I is current earned Income. Schedule J is current expenses. Sched I will be compared to Sched J. If you show disposable income in I vs J, the Trustee could well Object that you filing a Ch 7 would constitute Substantial Abuse.

Sounds like, with your new job, no rent, no utilities, no other regular, on going expenses, you might have significant disposable income to devote to a Ch 13 Payment Plan.

[Logan]

Thanks for your response. This could get interesting then. I will most likely be transferring to New York so I will need to pay rent, utilities and so forth. I will also need a bed and other furniture and will need my income to buy necessities.


Logan

[Logan]

Another thought is I could file just before my new job starts....Then Schedule I would be 0.

[SinkingFast]

Logically, then, the thing you might want to consider is waiting to file.

It will be MUCH easier for you to file after you have your life situated the way you'll be living on a regular basis, than to try and amend a plan down the road. Plus, with a move in the wings, you'd have to transfer your Case and hire a new attny in the new location. And, as you've already said, you'll need to be able to afford to move and set up a new home.

Just a few things for you to consider.

[SinkingFast]

Another thought is I could file just before my new job starts....Then Schedule I would be 0.

You're gonna be asked, under oath, by the Trustee, at your 341, if you've had any change in circumstance. Any substantial or significant increase in income.

If you start working the new job after you file and before your 341, you'll have to fess up to the Trustee at your 341 or commit perjury.

If you tell about the new job at your 341, the Trustee can Object then too.

Can you delay starting the new job for 2-3 months?? Until you jump thru all the hoops, pee in the cup, and punch the clock for your first day of work, a new job is just a possibility. It's not a reality.

[Logan]

Sinking fast,

I found the definition of Current Monthly Income from the US Code of definitions:

(10A) The term "current monthly income"--

(A) means the average monthly income from all sources that the debtor receives (or in a joint case the debtor and the debtor's spouse receive) without regard to whether such income is taxable income, derived during the 6-month period ending on--

(i) the last day of the calendar month immediately preceding the date of the commencement of the case if the debtor files the schedule of current income required by section 521(a)(1)(B)(ii); or

(ii) the date on which current income is determined by the court for purposes of this title if the debtor does not file the schedule of current income required by section 521(a)(1)(B)(ii); and

(B) includes any amount paid by any entity other than the debtor (or in a joint case the debtor and the debtor's spouse), on a regular basis for the household expenses of the debtor or the debtor's dependents (and in a joint case the debtor's spouse if not otherwise a dependent), but excludes benefits received under the Social Security Act, payments to victims of war crimes or crimes against humanity on account of their status as victims of such crimes, and payments to victims of international terrorism (as defined in section 2331 of title 18) or domestic terrorism (as defined in section 2331 of title 18) on account of their status as victims of such terrorism.

I interpret this as preceding 6 months from the end of the month you filed.

What do you think?

[SinkingFast]

There's the Code. And then there's how it's applied. And that varies from Court to Court.

The Code says 6 months of income statements or "pay advices" I believe is how it's worded. In our Court,......... Say you're filing in June. You have to produce pay stubs for all pay earned prior to filing in June, plus May, April, March, February, January, and December. So the look back is really more like 7 months instead of 6 in our Court here.

A different Court might have a different interpretation/application.

You really need to chat with a few BK attnys in your area to get the scoop on what might happen in your Court.

[Logan]

Thanks for your help.

[Logan]

SinkingFast:

FYI: I spoke with an attorney this morning and this is what I was told:

The law now uses a standard mathematical formula to determine whether you can file for Chapter 7 — or, to put it in legal terms, whether filing for Chapter 7 would be an 'abuse' of the bankruptcy system. (Those who fail the means test, are left with a Chapter 13 repayment plan as their only bankruptcy option.)

The means test is actually a two-part test and you only need to pass one of them to qualify for Chapter 7.
Test 1. "Median Income"

This is a very simple test that compares your average household income for the past six calendar months to the median income for your state, If your income is below the median, you qualify for Chapter 7. If it is above the median, you must pass Test 2.
Test 2. "Disposable Income"

This test deducts expenses from your income to determine how much you can pay your unsecured creditors over the next five years: for example if you lived in Harris county;

* If you can pay at least $10,000 ($167 per month), you can't file for Chapter 7.
* If you can pay at least $6,000 ($100 per month) and that is at least 25% of what you currently owe your unsecured creditors, you can't file for Chapter 7.
* If your disposable income is less than $100 per month, you can file for Chapter 7.

Certain deductions are standard allowances based on the number of vehicles you operate, the number of people in your household, and the cost of living in in your County. Depending on which county you live in the amounts may change but the method of calculation will not.

In addition, to these standard deductions, you can also deduct the full amount of certain actual expenses such as mortgage and vehicle loan payments.


Logan

[DeadManCrawling]

That is my understanding, as well, ont he means test.

However, there is a question that the trustee will ask you:

Do you foresee a change in your financial situation? Meaning, usually, is your income going to go up (in a chapter 7) or drop (in a chapter 13). If the answer is an increase or decrease of more than 10% of your 6 month lookback period, the trustee may give you some trouble and try to force you to a 13 or dismiss the case.

The definitions of "reasonable" and "foresee" are tricky and can be interpreted many ways. Not all of them good.

For instance, you will be acquiring much higher expenses if you are talking about NYC, which could be good or bad. I would sure hate to get all set, have all these expenses and then have the trustee breathing down my neck over newly acquired debt immediately prior to filing. I odubt they could do much though, except ask questions. We all need a place to lay our head, and a job transfer isn't something we can excercise a ton of control over.

On the other hand, the new expenses of a NYC apartment and general living costs could weigh in your favor. I would think that if you move and then file, the trustee (who would be a NYC trustee) might be more understanding. You will still have to use exemptions for where you resided prior to the move, though.

We have a mortgage payment that is 4k. It is our single largest expense other than unsecured cards. It is WAY over the limit, and we will probably have to explain it, which we can, but it will be acceptable, given the circumstances, and our state (Florida), where we have been in the home for 6 years.

Oh, if only you could see one single instance of the future, eh? The 341 meeting, so you would know what the trustee was going to say. Whether or not they were having a good day. If the coffee they just drank was great or garbage.

best wishes,

-dmc

[Logan]

DeadManCrawling,

It will be interesting because if I went into Chapter 13 I would not have the money for a bed, tv, silverware let alone 1st and last for rent. All things I would think are essential. My first paycheck will not arrive until 2 months after employment and I may be living in my car and on sofas (after training) until then so even with the new income I will need to buy some necessities.

The lawyer I spoke with wasn't concerned with my future income so maybe here in CA they don't look at it. I'm also considering making CT my home which has the highest median income requirement in the country. That could help....

Logan

[SinkingFast]

As DMC pointed out,..............

We aren't talking about you qualifying for a Ch 7 based on the Means Test. It's gonna be your Schedule I vs Schedule J with the new job. And the Trustee asking about changes in status at the 341. That's where you may get snared if you take the job and file or file and then immediately take the job.

That's why I asked, could you delay starting the new job for 2-3 months. A new job is only a possibility until you actually punch the clock for the first day of work. Or in some cases, make it thru the probationary period of 90 days to 6 months.

Go do some face to face Consults with several attnys. Tell them you are looking at taking a new job. Ask what will happen if you take the job prior to filing. What will happen if you file and then take the job. See what reaction you get.

[Logan]

I spoke with a couple of lawyers and it may be a concern. I'm going to get this filed ASAP so my hearing is before I start a new job which would keep my first paycheck 2 months out. If it is an issue I'll have to estimate my expenses and deal with it.

An apartment in New York City is quite expensive along with parking etc. I wonder if they'll except dog sitting expenses since I will be traveling for a living and will need a regular dog sitter?

Thanks,

Logan

[DeadManCrawling]

Doubtful on the dog expense, but there should be a way to"sneak" it in under other categories. Not sure it matters, at least in a 7. In a 13, it could become very important to you. You obviously cannot leave the dog home alone to fend for himself.