Considering Chapter 7 with temporary decrease in income

[osprey]

We have about 90k in credit card debt which we stopped paying on 3 years ago. We currently make above the Missouri limit for chapter 7. We are going to be having a son in October and my wife is going to take the full 12 weeks of FMLA after he is born. This 3 month period would cause us to below the income threshold for the si month period either before or after. Would we be able to file chapter 7 base on this or would they use our typical income?

[daylate]

If it causes you to pass the Means Test yes but there is a second piece that has to be dealt with and that is Schedules I & J which compare your post-bk income and expenses. If you have too much excess income then you still may not file a 7. Do a search on the schedules also DMI (disposable monthly income) to learn more about how this would work.

[osprey]

Thanks for the help. If it puts us below the income threshold would we even have to do the means test?

[daylate]

If you are below the median you pass the Means Test automatically BUT you still have to deal with the I & J issue. Especially in your case where the expectation is that your wife will go back to work and your income will rise above the median. There are some here (I think) who will tell you that nothing is definite and until your wife is actually working again then you may be all right. I'm not so sure. Best advice is to discuss your issues and circumstances with a few attorneys in your area.
Good luck.

[keepmine]

Here's alink to a to a good means test that will also allow you to fill out schedules I and J.

http://www.legalconsumer.com/bankruptcy/means-test/index.php

What we're trying to tell you is, even if your income is above the median if you don't have sufficent monthly disposable income to fund a Chapter 13 then, you may proceed with a Chapter 7.
Also, with an addition to the family and the resulting increase in expenses it may not matter for means testing purposes if your wife returns to work after thendelivery.
Not trying to be a downer but, I'd wait until after the baby is born to file just in case there are some unforseen medical bills that insurance won't cover and include those as well.
Best bet is schedule some consultations with bk lawyers. Most will give free or lowcost initial consultations. Visit with 2 or 3 and get all of your options explained.

[osprey]

Just did the means test and our disposable income with my wife even just taking one month off (instead of 3) was -165. That means after he is born we should be able to get Chapter 7, correct?

[daylate]

Again, you need to make sure that after your wife returns to work your income doesn't exceed your expenses by a certain amount. The means test is only step one. If after your wife returns to work and your debt is discharged if you have "too much" income you still might not qualify.

[TShoot]

Why does he have to say he wife is going to be returning to work? They won't know that, heck even he might not know that due to unforseen circumstances. If you are below the median income, proceed with Chapter 7, have your debts discharged and then his wife goes back to work (let's say if and when), how can they come after you if all of your debts have been discharged?

[sunshinepa]

Why does he have to say he wife is going to be returning to work? They won't know that, heck even he might not know that due to unforseen circumstances. If you are below the median income, proceed with Chapter 7, have your debts discharged and then his wife goes back to work (let's say if and when), how can they come after you if all of your debts have been discharged?

Tax returns still have to be submitted so the trustee is likely to ask why the decrease in income and are there going to be any expected changes in income. Honesty is alway the best policy.

[TShoot]

How long do your tax returns have to be submitted after your debt is discharged from a Chapt. 7. I thought once you were discharged, you were done with everything I&J, tax returns, etc.

[sunshinepa]

How long do your tax returns have to be submitted after your debt is discharged from a Chapt. 7. I thought once you were discharged, you were done with everything I&J, tax returns, etc.

The OP was asking questions about filing and income. I think the question was related to the timing of the filing. You suggested they file, then the wife return to work and they would not know. I was simply responding that the tax returns could raise questions.

Yes, once discharged, you are done with it all for a non-asset CH 7 but the OP has not yet filed and seems to be up in the air as to when to do so.

Sorry if my answer caused confusion!!!!

[TShoot]

The OP was asking questions about filing and income. I think the question was related to the timing of the filing. You suggested they file, then the wife return to work and they would not know. I was simply responding that the tax returns could raise questions.

Yes, once discharged, you are done with it all for a non-asset CH 7 but the OP has not yet filed and seems to be up in the air as to when to do so.

Sorry if my answer caused confusion!!!!

Thanks for the clarification. I am going through a similar situation now and trying to convert from a Chapt. 13 to a Chapt. 7 and wife is quitting her job due to health reasons (documented). I was just wondering that, if she decided to go back to work later once she felt healthy again, would they keep checking our tax returns for a certain period of time (years) after? Sounds like the answer is a resounding no.

I completely understand where you were responding to a timimg issue when the OP filed versus when they might have a new tax return. Guess that all depends when the baby is due and when they file relative to tax filing.

[daylate]

I think the difference in your case and OP is that in OP's the wife is definitely planning on going back . If so and that is not disclosed IMHO that would be fraud and could cause undue problems down the line if discovered. One of the questions on Schedule I and J is do you expect any changes in the next year? Failure to answer Yes my wife is going back to work in 8 weeks and start making X dollars a month would be something that would get a case dismissed faster than a speeding bullet. Now if the plan, like yours, is if my spouse gets better and can resume work and if she gets her job back and if she makes the same dollars, etc. all those if's probably make it unlikely that you should answer yes to will things change. See the diff?

[TShoot]

Absolutely. Thanks daylate. Makes perfect sense. Didn't remember the Sched I and J having those statements.

[dman]

#1. Know what time period the six-month lookback covers. If you file any time between August 1st and August 31st, the lookback will be months February through July. It's not...file in mid-August, and lookback will be mid-February to mid-August.

#2. You and your wife should seriously consider having her be a stay at home mother. There'll be a reduction in income, but a reduction in debt as well (due to bankruptcy). Don't make a final decision until her leave is nearly up.

#3. If the trustee specifically asks if you expect a change in income, answer honestly. Your wife is seriously considering not returning to work and becoming a stay-at-home mom. Of course...this is only if she's still out of work during your 341 meeting (which is typically 30 days after you file).

I think you're already aware...but you're allowed more income with a household of 3 vs 2. I believe if you wait until your new baby is born, and are under the median income, you'll probably be fine. If the trustee takes a closer look....he/she will see a family with lots of debt with a new child and a drop in income. But being under the median income...you probably won't be scrutinized as much vs filing over median.