Means Test

[Mike473]

Hi everyone, great forum!

I am just starting my research into the Chapter 7 & 13 process. We have a family of 3 and have been trying to work through credit card debt for a while, with little luck. I am self employed, my wife works a regular 9-5 job. My income varies a lot. More in the spring and summer, less in the fall and winter. I work as a consultant, so I have no inventory or anything like that. I have a home office with a computer set up, desk, printer and filing cabinets. Here is what I have come up with so far after just recently completing my 2014 taxes.

Our income for 2014 is about $15,000 over the median income.

Our average income over the past 6 months figures to about $12,000 below the median income.

I don't know what my income will be over the next 6 months. If I guess using last years, it would be over the median, but it can vary year to year.

We have a house and 2 leased cars and no other major assets. We have about 15K in equity in our home based on a recent refinance appraisal. That appears to be well within what is allowed for the exemptions. 80K in unsecured CC debt and loans.

Of course, I think most would like go Chapter 7 and get fresh start right away. But, if I can manage a 13 plan, I believe we have learned enough from our experiences to do it. We were both laid off from work right after the financial collapse in 2008 and have since added a baby to the mix. Kicking the can down the road got us here.

I know they use the forward looking approach as well in this process. So, here are my questions.

If we pass the first part of the means test based on the last 6 months of income, but there could possibly be some disposable income based on my actual yearly income going back the past couple years and looking forward with those figures, would we more likely end up in a 3 year plan or a 5 year plan? I am guessing if that forward looking income does not materialize, we could then move to Chapter 7?

I am just at the very start of looking at our situation. I am quite ready to see an attorney yet. I just wanted to kind of get a feel for this from those who have successfully worked through the process.

[BKAttyMI]

As an attorney, the means test is usually an afterthought to most bankruptcy cases. Rather than fixating on the means test and what you think the internet is telling you, visit with a few attorneys and get their thoughts on your case. There's nothing to lose but a lot of time and worry by meeting with an attorney right away.

[LadyInTheRed]

If we pass the first part of the means test based on the last 6 months of income, but there could possibly be some disposable income based on my actual yearly income going back the past couple years and looking forward with those figures, would we more likely end up in a 3 year plan or a 5 year plan? I am guessing if that forward looking income does not materialize, we could then move to Chapter 7?

Whether the minimum length of a Chap 13 plan is 3 years or 5 years depends on your income in the 6 months before the month in which you file.

MKAttyMI is right. Don't waste a lot of time trying to figure out what your options might be and whether or not you will pass the means test. It is much more efficient to consult with some attorneys who can look at your complete financial picture and make recommendations. If you are considering BK as a solution, then you are ready to consult with an attorney. The fact that your income in the last six months may be on the low end is a good reason to not delay meeting with attorneys.

[keepsmiling]

Speaking as a self employed family, you would be wiser to take the 7.
With such wildly fluctuating income, there is ZERO guarantee that you will be able to keep up with any 13 payments. Why court trouble? So often it seems like our ship is finally about to come in...and then... it doesn't.

If I had to bet, I'd say... the lawyer will tell you the same.
Good luck, welcome to the forum, and do keep us posted.

[Mike473]

Speaking as a self employed family, you would be wiser to take the 7.
With such wildly fluctuating income, there is ZERO guarantee that you will be able to keep up with any 13 payments. Why court trouble? So often it seems like our ship is finally about to come in...and then... it doesn't.

If I had to bet, I'd say... the lawyer will tell you the same.
Good luck, welcome to the forum, and do keep us posted.

I am going to make some calls this week and set up appointments with a couple of attorneys. I have my taxes done and also have my profit & loss ready to go. My accounting software made those pretty easy to produce, plus my bank statements.

I guess I was just overthinking things. I figured the trustees might have a problem using my last 6 months, knowing that I traditionally make less money over the winter. But, you are right. Some summers are great while others are not so good. It would be tough to speculate on how business will go over a 3-5 year period.

One thing I would look forward to should I qualify for the chapter 7 is the possibility of leaving behind the world of self employment. It has been brutal in so many ways. It is tough to imagine doing this for 5 more years. If I got the chapter 7, I think that I would move back to a regular job and not look back.