Chapter 7 means test, question on mortgage payment

[ld2366eh]

I have an interest only mortgage payment that is reamortizing end of 2014. The payment will jump by 1,100. For purposes of the chapter 7 means test, shouldn't this be factored in to the average monthly payment (since they look over the next 60 months?). The person working my case said that in our district, you can only look forward a year for the means test so they are using my current payment. Am I really misinterpreting the way the means test does this calculation? Has anyone ever encountered this? We are above median chapter 7 and I want to be as negative on the means test as possible! Ant thoughts would be appreciated! Thanks!

[LadyInTheRed]

The instructions on Line 42 of the means test where you list your secured debt payments say:

The Average Monthly Payment is the total of all amounts scheduled as contractually due to each Secured Creditor in the 60 months following the filing of the bankruptcy case, divided by 60. If necessary, list additional entries on a separate page. Enter the total of the Average Monthly Payments on Line 42.

I interept it the same way you do. http://www.uscourts.gov/uscourts/Rul...B_22A_1210.pdf

Is this person the same paralegal who said you could discharge your tax debt if you waited until January to file? You need to talk to your attorney about these issues. The paralegal needs to be corrected and told to stop giving legal advice, especially incorrect advice.

[ld2366eh]

Yes, any advice in how to approach this? I don't want to make anyone upset.

[LadyInTheRed]

Yes, any advice in how to approach this? I don't want to make anyone upset.

Call your attorney and tell him that you have some questions on a couple of issues. Because the tax issue is not your main concern, start with the mortgage issue. Tell him that the paralegal told you that you can't use the anticipated increase in mortgage on the means test, but you would like him to explain to you why since that conflicts with the clear instructions on the form. Have the form in front of you to read to him in case you need to. After the discussion of that issue, tell him what the paralegal told you about the discharge of taxes. Tell him it isn't really an issue for you because you don't want to wait to file anyway, but that another BK attorney told you that the tax would not be dischargeable unless you wait until April to file. If the paralegal is giving incorrect information, he needs to know so he can correct the paralegal.

I am a paralegal in another area of law and would much rather be told I was wrong than have a client get incorrect information. I encourage clients to go over my head if I sense they have any doubts about anything I do or say. If the paralegal gets upset because you want to talk to your attorney, that's his/her problem, and the attorney's too.

[ld2366eh]

Thank you for your advice! I will call him today and let you know how that goes!

[HHM]

But keep in mind, you only take the DIFFERENCE from the work on line 20B and enter in line 42, if applicable.

[ld2366eh]

They have 20B as zero because the sum of all my mortgage payments is greater than the standard. Then, on line 42, they have the sum of my mortgages, but my first mortgage amount is the current amount, not the true average over 60 months. I'm in an interest only loan (and I've always paid interest only) that is set to reset end of 2014 to be principal plus interest. If they used the average rather than the current mortgage payment, the difference would be an additional expense of $607. When I questioned them about it originally, they said we already passed and they didn't want to raise too many red flags. (I minus J is negative as well but this is because of 401K loans that end in 2015). Also said something about going the conservative route, and clearly mentioned having checked with someone else when I questioned it a second time (not the lawyer I don't think) who agreed that in our district, they interpret the means test to only use the current payment since it doesn't increase for 2 years.

I just don't want to rock any boats. We are a complicated case, above median Chapter 7 with priority tax debt, most likely an asset case due to non-exempt equity in cars. We clearly can't fund a 13 now or anytime (IMO) over the next 5 years even factoring in step payments. No anticipated substantial increase in income and the only expenses I can see that will change will be the following:

one car paid in full May 2013
mortgage payment set to increase Dec 2014
2 401K loans will be paid in full Sept 2015
1 401K loan will be paid in full Dec 2015
Day care will decrease a bit June 2014 then again Sept 2015 and Sept 2016.

And I didn't even mention the FICA tax holiday that is set to expire at the end of this year. My and my husband's expenses will go up because of that as well.

Even when I factor in all of these increases/decreases in expense, we still can't fund a plan. We would have to find a way to reduce about $1200 in expenses a month.

[SMinGA2]

Being over median & having an almost paid for car loan + 401k loans could make a ch. 7 tough for you. Last I heard, 401k loans were not an expense for purposes of 7 but they are for 13.

If there is a push for a ch. 13, one way I see it working for you: the car would be paid in the plan. So instead of paying $X to the car payment until May 2013, you'd pay $X as the chapter 13 payment and that would pay off your car and then go toward priority tax debts, and help handle your non-exempt asset situation.

How does your schedule I vs. J look? Is it negative by more than the sum of car loan payments?

[ld2366eh]

We didn't use the 401k loans anywhere on the chapter 7 means test. We pass without them being anywhere there. I would think they are still included on schedule I as an ongoing deduction? Can someone please confirm? It's not like I have the option to stop paying them.

The one car loan that ends in May is zero percent interest (I had decent credit at one point, I guess. LOL). Even if I took out the car loans from schedule J and assumed they would be a part of the plan, I have barely anything left. It doesn't cover the mortgage arrearages, taxes, car payments, unsecured creditors, lawyer fees and trustee payment. Even when I factor in "a step payment" for when the loans are paid off, it still doesn't cover everything.

For hypothetical purposes, if schedule I shows $10,000 per month net (which is real net, including 401K loans) and schedule J shows expenses of $9,500 in theory, the $500 per month would be the initial plan payment?, then steps up or down based on loans being paid off, mortgage payment increasing, etc. What I'm saying is the $500 x 60 plus the steps still doesn't cover everything that would be included in the plan. I'm not sure if I am explaining this properly, or maybe my understanding is wrong.

Right now, it's my understanding that the means test is negative and Schedule I - J which includes the 401K loans and every other expense we have (reasonable and necessary) is also very negative. I can see where the trustee may look into everything with a fine tooth comb, but we honestly can't afford a C13 plan payment.

Like I said. Complicated.

I am not going to worry about the "what ifs". We will file as a 7, and if it has to get converted, I'll cross that bridge when I come to it.

[HHM]

Hmmm, I don't know about you, but I have a sinking feeling you are not going to be a chapter 7. At least not initially.

Having said that, what your attorney needs to do is also complete a chapter 13 means test (it is a bit different than the 7) and see what happens. If the chap 13 means test shows no DMI, then he will want to have that available to give to the UST when the UST objects (which they will in your case).

[ld2366eh]

I know. He's already done it. He did a 13 with and without a lien strip and they are both WAY negative. I also think there are going to be objections, but hopefully we'll be able to get past them. The numbers are the numbers. None of them are artificially inflated and all can be supported. Like I said. Complicated. I keep trying to think of how we could possibly be able to fund a 13 and there is no way unless they took my house and car. I will definitely keep everyone posted. We aren't filing until mid October, and the signing/review appointment will be at the beginning of October. I'll know then what I and J officially look like unless I manage to see them sooner. Wish me luck! I'll need it!

[ld2366eh]

At least not initially. .

What do you mean "not initially"? I'm not sure I understand what that means...

[keepsmiling]

I'm guessing HHM is referring to the fact that your mortgage payment hasn't actually jumped yet.
You may have to start as a 13 and convert when the jump actually happens.