analysis of the means test

[StaciMM]

LostOne-

From everything I've EVER heard, the reporting time (regarding the credit report) starts with the file date, so saying the BK is reported for 10 years after discharge makes no sense.

Beyond that-one thing to keep in mind... A BK court could see your wanting to keep a $223/mo payment for a boat as a luxury. That $223, plus whatever expenses go into maintaining & storing it, could be a problem. Since you mentioned you ARE below the median for your state now (and likely the income guidelines will rise slightly in the next few weeks) it might be a good idea to build your budget without that expense.

Also-if the $690 is for 1 vehicle, that might be an issue. (If its 2, different story.)

[SinkingFast]

I don't know if I'll ever want to buy another house. We've let 3 own us.

But I'm curious about something with the Means Test.

If you fall below the Median Income,........ I thought that was kind of a "Get ouf of Jail Free" card. Go direct to Ch 7. Do not pass Go. Do not collect $200. So I went to PACER to look at some post 10/17 filings. I've seen a couple of BK's on PACER where the filers were below the Median but the people wound up in Ch 13 anyway. The attnys stopped at the top section, once the people were below the Median, and didn't complete anything else on the Means Test.

When I looked at Sched J on those cases, those people had some really low monthly expenses. Like one only paid $300/mo for rent and they had 3 dependents. Where did they find a place big enough for 5 people for that low rent. When we were looking, the cheapest one we saw was $900/month. One didn't have a trash collection allotment or water softener rental expense. There were lots of small routine expenses, that really add up, that were missing. So even tho the people only made $30K, they got pushed in Ch 13 with a small monthly payment for 3 years.

[StaciMM]

Ch 7 is not for anyone w/ available income. The changes in bk laws were not designed to convert people who would have filed 13 under the old into a 7. It was designed to limit what expenses can be claimed, and to urge more people to a 13, rather than 7.

Some expenses may have been overlooked-or they may not have had them. The family w/ $300 in rent, for example, may stay with family and only pay a little each month to help out.

[SinkingFast]

I hadn't thought of that, Staci.

Our allowable for rent/mortgage is $931/month for the Means Test. Our actual rent payment is $1400/month. The cheapest, biggest apt we could find ran $1300/month and we woulda had to rent a storage unit for stuff that wouldn't fit in the apt. At that, the apts were 3 BR, which wouldn't have been a problem, if they had had 2 larger BR's and one smaller one. Mom coulda bunked in with the girls. But all the apts, and lots of the houses we looked at had one decent sized BR, and 2 really dinky BR's. That was the most depressing house hunt I think we've ever been on. Trying to keep the rent reasonable, knowing we wouldn't fit in this place and that place, and finally relenting that, "Yes, we do have to spend a house payment in rent just for a place to live." Rental property is outrageous here.

[LostOne0069]

This stuff just gets more and more confusing...

First a couple details that you mentioned... yes, the car payment of $690 is for one car... high I know, but it was purchased 1.5 years ago before we had a problem (or at least before we tipped over the edge). Now it is our only transportation and if we give it back how do I get to work or how do we haul the family around?

As for the boat.. yeah, well, I know it's luxury... if I have to give it back, I have to give it back.

Quite honestly, if it would get me into chapter 7 instead of chapter 13 I'd give up the boat, the truck (if I can figure out how to get to work and haul the family around) and certain select body parts. I know this is my fault and I deserve whatever happens... but I REALLY want to get this over with and behind me.

Now... as to my current state of confusion. I was reading another post on here and found a link to an explanation of the new laws and who gets ch7 vs who gets ch13.

here's the link: http://bankruptcy.findlaw.com/new-bankruptcy-law/

Now, if you read that... it sound like those below the median income get that "get out of jail free" card and don't even have to fill out anything about what their expenses are, they just get chapter 7 and move on with their lives.

This is further reinforced if you go to the DOJ web site and look at the form B22A... which asks about all your income and then compares it to the state median... and if you're below that median it says, skip all the rest of this form and sign it and file it... the rest of the form being where you fill in your expenses.

so, what gives? Can someone point me to a website that explains the law where you have to show your expenses and prove that you can't afford to pay back your debt even when you're below the state median income?

[SinkingFast]

The Means Test is a new, additional step that was added in the BK reform. You still have to do all the other paperwork that was part of BK filing before. Which includes the Schedule J. That's where you list your "actual"* detailed expenses vs your income.

* I said actual because that's really arbitrary. One attny went thru and summarily lopped off $$ amounts here and there to bring us in line with what he thought the Court would expect to see. Another attny said she may have to adjust some of our expenses to bring them in line with what the Court wants to see. How you actually live and how the Court expects you to live are not necessarily one and the same thing.

So, you could be below the Median on the Means Test and still get Ch 13 based on the expenses listed on Schedule J. It's really gonna depend on the attny, what will be allowed and what won't.

The first attny we went to said we couldn't deduct the $130/mo we pay for our cell phone bill. The Court would not allow it. The Court was used to seeing $95 so that's all he put in that line. Another attny we've seen has processed a couple with a $400/mo cell phone bill and others with monthly cell phone bills higher than ours. Not business use either. Personal use.

You really need to chat with more attnys. See what they have to say.

Others that have posted here are prolly right about the boat, tho. The Court will prolly view that as a luxury, unless you make a living as a fisherman. Then the boat would be reasonable and understandable.

[StaciMM]

The means test does not indicate you don't have to fill out the BK petition. Schedules I & J, income & expenses, are part of every petition. That won't change.

Some thoughts for you LostOne-

If you are able to file a ch. 7, you can probably get a replacement vehicle thru 722 redemption w/ a pyment about 1/2 of what you have now. It would be on a lease turnin, so 2-3 years old. I purchased a vehicle that way, have made our 3rd payment on an 02 Taurus and are very happy with it.

On the other hand, if you budget is even right now, and you do get a lesser car payment & the court makes you give up the boat, then there is suddently ~$450 available for a monthly plan payment. (Taking $690 down to $475, and removing the $223 for the boat = $438.) There is a good chance they will object to the $690. They won't care that your options are limited once you are in a ch. 7, they'll just say you can't count it all and therefore your budget works for a 13. If that happens, turning to 722 redemption.com might be a way to make the ch. 13 doable.

How are your expenses now? (Not counting the boat, but counting all living expenses, and any IRS/Student Loan/etc. things that would remain after a ch. 7.) And, how do your actual expenses compare to the IRS standards? That is the real question.

[StaciMM]

My best 'analysis' of the means test & new bankruptcy laws...

If you are below the median income, you don't need to take the means test meaning your actual expenses won't get as much scrutiny. What chapter you file is determined by schedules J & I, basically, the new laws don't affect you other than extra requirements like credit counseling, etc.

If you are above the median income, you ARE subject to the means so that if your real expenses are higher than the 'standard' its just too bad. THe court figures that you make a good income, and that you should be able to keep your expenses under the 'reasonable' amounts for your area. Your real expenses don't matter. You should be able to cut back on unnecessary items in order to make a 13 payment. Its a matter of want vs. need, and wants are subject to be cut.

Even with being above the median income, things like student loan payment, IRS payments, and medical expenses/insurance will count in your budget as long as nothing odd is going on. (So taking out a life insurance policy the day before you file so that you have no disposable income may be questioned.) The court could question your expenses under either scenario, ask for documentation, etc. but it is more likely to happen if your income is above the median.

If you are close on the budget, doing things like buying life insurance is likely a good idea, as long as you don't do it right before you file. (And if you're going to list charitable donations, be prepared to back them up.) 6-12 months of documented expenses is likely a good idea.

[SinkingFast]

You have far more experience than I do, Staci, about BK and the Court. But I wonder about his car payment.

We have a family of 6 and I know how it is to find a vehicle that will seat everyone and allow you to haul stuff too. Groceries home from the store. Luggage for a trip to Grandma's. That kind of thing. Mini-vans are the only "reasonably" priced vehicles that are available for larger families. If I hadn't had a paid off trade-in and cash to boot, my truck payment could easily be in that range. I have a quad cab pick-up. Seats 6 and I went truck for the move. I knew I'd be hauling lots of stuff. Up east, they have a lot of snow. I'm guessing from the payment range, he has a SUV?? 4x4 may not be unreasonable due to weather. That level of car payment may not be unreasonable for his area as well.

It would be interesting to see what other attnys and/or the Court's views are on that one.

[StaciMM]

Unfortunately, vehicle payments do not vary by region. (Vehicle maintenance does.) I'm referring to the IRS standards here!

My guess is that the $690 car payment will catch less attention if the boat is surrendered in the petition. Listing a $223 boat payment and a high car payment is an invitation for an inquisition. (And the boat will need to be listed-though it might be possible to list surrender on the statement of intentions, and then keep paying it. If there is no equity in it, most likely the lender will be happy with that!)

[LostOne0069]

You have far more experience than I do, Staci, about BK and the Court. But I wonder about his car payment.

We have a family of 6 and I know how it is to find a vehicle that will seat everyone and allow you to haul stuff too. Groceries home from the store. Luggage for a trip to Grandma's. That kind of thing. Mini-vans are the only "reasonably" priced vehicles that are available for larger families. If I hadn't had a paid off trade-in and cash to boot, my truck payment could easily be in that range. I have a quad cab pick-up. Seats 6 and I went truck for the move. I knew I'd be hauling lots of stuff. Up east, they have a lot of snow. I'm guessing from the payment range, he has a SUV?? 4x4 may not be unreasonable due to weather. That level of car payment may not be unreasonable for his area as well.

It would be interesting to see what other attnys and/or the Court's views are on that one.

You hit the nail on the head for the vehicle... It's an '04 Yukon XL, seats 7 and allows us to haul the kids "stuff" as well as the kids. We had a mini van prior to this and it really wasn't big enough for all the kids and their stuff. Also it's AWD for the snow and ice and we also use it for towing a small utility trailer we have when we need to haul something that won't fit inside the SUV.

Mind you, this is an expensive truck... made more expensive by being upside down in the trade in vehicles (we traded in 2 on the one SUV). The original loan was about $48k... we now owe about $38k and nada says it's worth $31k... (it's value has dropped massively since gas prices jumped). We would have gotten something cheaper if we'd have known we were going to have financial difficulties when we bought it 2 years ago.

If we get rid of this... then we're going to end up needing to get something just as big to replace it with. I don't mind that... if we have to give it up then that's fine... as long as we can get something to replace it... something reliable as it would still be our only transportation and I commute 37 miles one way to work (we live out in the sticks).

I don't want to get rid of a vehicle that's been very reliable, dependable and safe... that has a 5.45% interest rate... and replace it with a piece of crap that I can't depend on with an interest rate of 15% or more.

[bkfiler]

my guess if you cant keep the boat period. trustee is going to enjoy that one.

[LostOne0069]

my guess if you cant keep the boat period. trustee is going to enjoy that one.

That's fine with me. I expected that I'd have to give it up. I mean, I'd love to keep it but hey, you can't have your cake and eat it too. Besides... I owe $18k on it and it's only worth about $19k. ... we bought it in July of last year (05)... just before our fateful move to NJ which caused the house of cards to come tumbling down.

[bkfiler]

well in that case trustee cant keep that boat either lol

[StaciMM]

Lost One-

Where did you live before, and how long did you live there? One gray area for the new laws-the time frame for living in a state to use its exemptions has been extended to 2 years, but I don't know if that will be true for the median income.

I am not trying to be negative, just mentioning things that occur to me so you can discuss when you interview attorneys!