Presumed abuse letter

[Freddy03]

Rjmwx81 - here take a look at my expenses. These expenses go on schedule J.
This should give you an idea -

Expenses:
Gas (cars)- Montly $150.00
Food/Cleaning/Personal - Montly $1,200.00
Clothing - Monthly $140.00
Medical - Monthly $100.00
Utilities - Monthly (Electric/Water) $335.00
Cable/internet - Monthly $120.00
Phone (3 cell phones only)- Monthly $120.00
Home - Tax/Ins $216.00
HOA $25.00
Mortgage $1,650.00
HELC - Mortgage $230.00
Car $385.00
Misc - Car/Home Repairs $150.00
Tolls/Parking $130.00
Auto Ins $145.00
Entertainment $100.00
Misc - Pet Care $50.00
School Lunches/supplies $150.00

Total: $5,396.00

[rjmwx81]

Ok that makes me feel better then. I was thinking that, even if you passed the means test by being under the median, the only "allowable" expenses for figuring DMI were the IRS ones.

[ccsjoe]

We included ALL our discretionary as well as necessary expenses, including a "modest" recreation budget. I honestly doubt a trustee would expect you to live in total austerity with no means of entertainment or recreation, it does not seem realistic. Actually, on Schedule J line 9 calls for recreation, otherwise there would not be a line item for this. I am not reading jb's post right now, but I think you may be taking it to an unnecessary extreme.

[rjmwx81]

Right, I get that. But my concern is actually qualifying for a Ch. 7 based on schedule J. I pass the means test by default because I'm under the median. But, from what I gathered from Justbroke's post and from further reading, the trustee is still going to look at schedule J and say, "oh, you're claiming $100 in entertainment expenses, that's not one of the 'necessary expenses' according to the IRS" and then dismiss. My true expenses would have my disposable income around or $150, but if I can only count the IRS expenses (food, rent, electricity, car payment, taxes, and insurance) then my disposable income would, obviously, be higher.

[ccsjoe]

Stop a second. Schedule J is made using actual expenses, not IRS guidelines. Those are ONLY for means test and as benchmarks as to whether you're claiming too much on an expense on J. In Schedule J you actually can put down a 100 or 150 recreational spending budget.

[rjmwx81]

That $300.
Is that using actually expenses, or what you are allowed to use for expenses.

That's using the IRS allowed expenses only. My understanding is, in determining eligibility for Chapter 7, that's all the trustee can consider, right? For example, the IRS totals don't allow for things like entertainment expenses or car repair, whereas in a Chapter 13 those can at least be considered when establishing the payment plan. Correct?

[justbroke]

That's why I advocate using an attorney if you're disposable income is "high". You want to make sure that you include EVERY expense category that you are allowed -- based on your District and precedence -- as well as making sure you're not undercutting yourself! Your expenses on Schedule J should be reasonable but they should also be ACTUAL. I say, don't scrimp on Schedule J.

[tay666]

Right, but I'm *not* over the median income. It's kind of an odd situation. My state has a fairly high median and I'm below it by nearly 10,000 a year, but when I do schedule I and J I have a disposable income of almost 300 a month. So even though, at first glance, I pass the "means test", it seems to me that if I file Ch 7 I'm just going to get dismissed or converted to a 13 anyway.

That $300.
Is that using actually expenses, or what you are allowed to use for expenses.
The reason I ask, is because many people who are struggling with money issues scrimp on things. That makes their expenses low.
But there are certain allowances that you are allowed to use, that would more fairly show true expenses if you had that money to spend, instead of sending it to the CC companies.

[justbroke]

Right, but I'm *not* over the median income.

Which is why I will keep saying that the means test doesn't really mean anything for "under the median" income filers either. It only allows them to "not" complete the whole thing.

It's kind of an odd situation. My state has a fairly high median and I'm below it by nearly 10,000 a year, but when I do schedule I and J I have a disposable income of almost 300 a month.

If you have positive $300 (or even $185.00) a month in disposable income (on Schedule J) and are under the median, it is highly likely that the UST will move to have your case dismissed or converted.

[rjmwx81]

If you're over the median income, the means test was never the "test" that you had to pass in order to receive a discharge in a Chapter 7.

Right, but I'm *not* over the median income. It's kind of an odd situation. My state has a fairly high median and I'm below it by nearly 10,000 a year, but when I do schedule I and J I have a disposable income of almost 300 a month. So even though, at first glance, I pass the "means test", it seems to me that if I file Ch 7 I'm just going to get dismissed or converted to a 13 anyway.

Sorry to the OP for taking over your thread, by the way....

[justbroke]

Great. There goes my chapter 7 then.

If you're over the median income, the means test was never the "test" that you had to pass in order to receive a discharge in a Chapter 7. That's why I don't understand the fascination with passing the means test. Yes, it is required that you pass it (actually, you fail it because you don't have the means to afford a Chapter 13), but it is but one hurdle.

Astute attorney knows this and concentrate on Schedule I and Schedule J. In a Chapter 13 context, however, the Means Test is more important because the disposable monthly income calculated there is used in many Districts as "the" DMI contribution/payment for the plan. However, in a Chapter 7 context, the means test is just the "first" test to see if you could qualify to receive a Chapter 7 discharge.

I just want people to concentrate on their expenses (and income). The means test is what it is... just a quick "test" of your income to determine your initial qualification. I "passed" the means test (having negative disposable income) with a DMI of around $-2,700/month. The reality was, on my Schedule J, that his was "really" only $-200/month or so... and is precisely why Schedule I/J is more important.

Think of the means test like this. It gets you in the door, but it alone doesn't get guarantee you a discharge.

[rjmwx81]

Great. There goes my chapter 7 then.

[justbroke]

Does that apply even if your schedule I & J prove you're below the median, but would have some positive disposable income?

The problem is the Means Test itself. Many judges have declared it an arbitrary set of numbers, having no basis in "current' reality, meant as a bright line test to determine if a case is abusive. The real problem is the calculation of "current monthly income" (CMI) and how they use a six month lookback regardless of the source of the money or your "current" situation. As one Judge put it... CMI is neither "Current" nor monthly! That makes the means test... rather "Mean" to the debtor, if you ask me.

(In any event, if you're under the median, sure... you don't need to complete the entire means test... you get a "pass" on it.)

In the end, the real test is whether Schedule I less Schedule J (expenses) yields a number that is greater than either $109.58 or $182.50/month.

So, to really answer your question, yes... Schedule I and J do apply if you're below the median! Even the bankruptcy code states that the court can "(find) that the granting of relief would be an abuse of the provisions of this chapter." The Means Test only determines if there is a presumption of abuse in a case. Nothing more. It is not the "end all".

I don't know why I'm getting so sensitive to the Means Test, but with all the litigation over the Means Test in the past 5 years (since the BAPCPA was enacted), much of how it operates is grounded in solid caselaw. (Mostly around whether secured debts that you're surrendering are allowed on the Means Test. They are! )

[tay666]

Does that apply even if your schedule I & J prove you're below the median, but would have some positive disposable income?

Below the median really doesn't mean anything either.
Disposable income is where the problems come in.
You could only be making half the median income, but if you show $100 disposable income between I and J, you are going to have problems.

You can be over the median, and fail the means test, but prove no disposable income and get a CH7.
So the reverse is also true. IF you are under the median, and pass the means test but have disposable income, you can have your case dismissed or be forced into a CH13.

[rjmwx81]

T
(Not to get off on a long tangent, but I have been constantly telling people lately, that the Means Test means nothing, really, in the calculation as to whether your case is an abuse. It's only the "first" test (a so-called bright line test). The real test is the Income (Schedule I) less Expenses (Schedule J) determination of your disposable income. This is why I say the means test means nothing. Almost all USTs look to Schedule I and Schedule J for the "truth". If you show positive disposable income on Schedule J, then that's where you get into trouble.

Does that apply even if your schedule I & J prove you're below the median, but would have some positive disposable income?