Question Pass the means test and *STILL* have to file Chapter 13?!?

[stephenm]

I, like many people, made the mistake of jumping into real estate. I now have a full time job with the state that I really enjoy and plan on being with for a while even though it is a $7,000 pay cut from my last job.

It has been more then 6 months since I used any of my credit cards/lines and still have 2 houses on the market (been there for over a year and my business partner is now making the payments (the title is in the S corps name but mortgage is in his)). I was using the credit lines to make payments on the houses and other business credit cards. Since houses haven't sold in a year for what is owned on the houses and I only get half of that, my lawyer has them listed as 0 equity.

When my lawyer and I did a first blush means test, it shows me having a disposable income of less then $140 a month however (she is putting in the hard numbers this week), but she is warning me I could still be kicked into a Chapter 13 by the judge.

$140 a month wouldn't come close to covering 25% of my debts. Would the payment plan have to cover 25% of the debt? Would it be a 3 or 5 year since I did pass (or fail depending on how you look at it).

Also, I have a spend thrift trust that I get the interest on quarterly. The last year, it was 5% so I got $500. Because it is bonds, I'm told it will be more like 3% and $300 this coming year. Can this be argued in court?

Thanks,
Stephen - Who hasn't had a good night sleep in over 6 months!

[stephenm]

Oh, and I've been at my new job for 9 months. My last job the stock was down to a dollar so I figured it was time to go.

[laurannm]

I believe the way it works is that if your disposable income on the means test is between and $110 and $166 (or $187, I forget what the current # is), they look at how much unsecured, non-priority debt you are looking to discharge. If your disposable income will not pay at least 25% of your unsecured debt over the life of a Ch 13 plan (5 years), then you pass the means.

If you do get stuck in a 13 and you are above-median, then your plan will most likely be for 5 years.

What makes your lawyer think you may still get pushed into a Ch 13?

[stephenm]

I am about $25K over the median income. I'm required to give 5% to my pension plan for the state and I give 10% to my church. I also have a few professional subscriptions that I use daily for my job. "For purposes of justice," the judge can put me in a 13.

Oh and I have a thousand dollars in priority debts for taxes.

[laurannm]

So is your lawyer saying that they may or may not allow you to include your subscriptions on the means test?

I too work for the state and am required to pay 9% into the pension plan (plus 2% for everything above $30k), and as far as I know that's an allowable expense on the means. Same thing for the church donations (as long as the donations have been ongoing and you can document them).

Not sure on the taxes though

[stephenm]

Thanks laurannm.

From my lawyer, who is also a trustee, says that me having all the debt isn't a problem since I was in real estate but when she saw my income...... Well she'd start digging.

Even with passing the means test, a chapter 13 plan still has to filed. There are somethings I can list on the 13 plan that I can't use on the means test so my 13 plan shows me having even less money then the means test!

One issue we are having is I only live 2 miles from work so my expense for gas is low and so are my utilities since I'm in a condo. Since I'm moving but don't know where yet, we are guessing on what my future expenses might be on a payment plan. EI, my chapter 13 repayment plan has very little to do with what my current expenses are currently even though it is suppose to be based on the last 6 months. I might be totally wrong and just exhausted from this.

Her words, "we might be able to slip you into a Chapter 7 if the trustee doesn't look closely at the numbers."

[laurannm]

I think I follow now. When you say you have to file a Ch 13 plan along with your Ch 7, I think you are referring to Schedules I & J, which show current income and actual expenses. The means test uses primarily IRS standards for expenses (such as transportation, utilities, etc), but sounds like your actuals are lower (like gas, since you live so close to work).

If you already haven't check this link out. It will help you remember all of the little expenses that you might not have included on your Schedule J.

http://www.ca-bankruptcy-attorneys.c...alculator.html/

[stephenm]

Thank you! I hadn't connected the Schedule I & J as the Ch 13. I was getting a little scared that I was talking in circles. That makes a little more sense. Off to do more research.

Thanks again! I'll keep you posted.

[Help!]

I am about $25K over the median income. I'm required to give 5% to my pension plan for the state and I give 10% to my church. I also have a few professional subscriptions that I use daily for my job. "For purposes of justice," the judge can put me in a 13.

Oh and I have a thousand dollars in priority debts for taxes.

You're fine on the pension and charitable giving for the means test and Schedules I/J. You will likely have to produce documentation that shows your 5% pension contribution is involuntary and you will definitely have to produce documentation to substantiate your charitable contributions.

[Help!]

Thanks laurannm.
Her words, "we might be able to slip you into a Chapter 7 if the trustee doesn't look closely at the numbers."

If you are $25K over the median, the local trustee my not look closely at the numbers on the means test but I can guarantee that the UST will. When they do, they will look for means test expenses they can reduce or, if your expenses are reasonable, other things to call income (e.g., income tax refund, bonus, eBay proceeds, etc.).

[Help!]

One last thought... it sounds like there is a great disparity between what the means test shows for disposable income and your *real* current disposable income on Schedules I & J. Your lawyer should have advised you to time your filing so that the six months prior to your filing (ending on the last day of the month before filing) reflects the lowest income possible. If your income was much higher in the past six months than it is right now, you'll be penalizing yourself for income you no longer have on the means test.

[stephenm]

Thanks help.

What scares me now is what you said about the tax refunds. Since I have a failed S corp, I got back $16K in tax refunds for the last two years that I filled last month.

What expenses can they reduce? It is stupid that I'm doing everything I can to save money (like not driving much or having low utility bills). Perhaps I should sign up for more IT classes or join more expensive networking groups.

[Help!]

Assuming you are seeking discharge of primarily consumer debt (in other words, there is more personal debt to discharge than business debt) and you have received or will receive those tax refunds before you file, the UST will add that $16K in the calculation of your 6 month CMI on the means test. In addition, the UST will likely recalculate your actual tax liability because of the large refund and reduce your tax expense on the means test. Other expenses they can reduce/eliminate include student loan payments, 401K contributions, other voluntary deductions from paychecks, utility bills in excess of the IRS standard, you name it. The expenses that stick are the ones for which there are no "reasonable alternatives". In the UST's eyes, you can live without your professional subscriptions and the expense for them should be zero. Yes, you can make your case to a judge... but not until the UST files a motion to dismiss and you file an objection. If the UST is able to mold your numbers into a result that causes the presumption of abuse to arise, it becomes your uphill battle to prove it does not.

The means test encourages people to do a lot of things that are counter-intuitive prior to filing. The logical things people do when treading water financially (reduce expenses, cash in 401Ks/IRAs to pay bills, get help from parents, etc.) tend to work against them on the means test.

Any money that came into your hands in that six month period is counted as income, but only certain expenses are allowed. For example, our entire relocation bonus went to relocation expenses. None of it was available for any other use. On the means test, however, the UST included this as income as if it was there to cover living expenses and bills. Unfair? Absolutely, but the UST was doing their job and interpreting the law as it is written.

The best you can do is to learn all you can about the means test and to time your filing to accurately represent how dire your financial situation is. It may mean delaying filing if your income decreased recently, if you received a large bonus, if someone gifted you money, etc. This is where a really good lawyer can make a difference - keeping you from having to learn all of this the hard way.

[stephenm]

Thanks again.

My lawyer is also a trustee, teaches business law at the university and we are Georgia, which seems to make difference from a case law standpoint. She was telling me she wanted to wait until all of my refund money came in and was put in the bank and that it wouldn't count as income. I have a call with her next Tuesday to go over my dozen or so questions that I emailed to her since we meet last Tuesday :-)

As long as I don't get sued, I can wait another 6 months if need be.

Stephen

[Scott50]

I believe the way it works is that if your disposable income on the means test is between and $110 and $166 (or $187, I forget what the current # is), they look at how much unsecured, non-priority debt you are looking to discharge. If your disposable income will not pay at least 25% of your unsecured debt over the life of a Ch 13 plan (5 years), then you pass the means.

If you do get stuck in a 13 and you are above-median, then your plan will most likely be for 5 years.

What makes your lawyer think you may still get pushed into a Ch 13?

to quote HHM on the 25% issue

I think you guys are misunderstanding the 25% requirement.

Debtor's are NOT required to payback 25% of their unsecured debt in a chapter 13. The 25% issue arises under 707(b)(2)(A)(i)(I), which presumes a chapter 7 filing is abusive (and therefore not subject to discharge) IF the debtor can pay "at least" $6,000 OR 25% of the debtor's non-priority unsecured claims in 60 months.