Bad 341, presumption of abuse

[jcbutta]

Just had my 341 meeting and it did not go as good as the majority of the posters here advise. The US Trustee sat in on the meeting and gave me a difficult time with my car payment ($900/month). I know the payment is high but I only have
20k left to pay off. The US Trustee was asking me why I needed a car with that high of a monthly payment. I advised her that I didn't. I told her at the time of purchase my income was much higher (30% higher), so the monthly payment was manageable. I also advised her that even though the monthly payment was high, If I had to purchase another SUV (need an SUV because of my 4 dogs), It would cost me at least 20k. My question is: Has anyone had success refinancing their auto loan to get a lower monthly payment? Keep in mind that my credit is shot (fico of 530) due to the fact that I have not made any credit card payments for the last year.

My attorney advised me that the US Trustee will either make me sell the vehicle or dismiss the chapter 7 bankruptcy due to the Presumption of abuse. I really do not want to sell the vehicle because it is close to being paid off.

Any suggestions are greatly appreciated.

[TXskyblue]

$900/month is pretty high. I can see why the UST has concerns. To be honest, I don't believe a $900 a month car payment is realistic for someone filing bakruptcy.

You said you "only" owe 20k on it. What is the value of the car? Sounds like there is equity, which the trustee is allowed to go after if you can't find a suitable exemption.

My advice is not to be married to your vehicle. It is expensive and you're bankrupt. If you have to get another vehicle, get another vehicle.

[LadyInTheRed]

I'm sorry things didn't go well for you.

Just had my 341 meeting and it did not go as good as the majority of the posters here advise.

What you read here is based on the experiences of the people posting. I bet very few of them had $900 a month car payments.

[frogger]

I bet very few of them had $900 a month car payments.

My 2 car payments do not even come up to $900.00 per month......

[justbroke]

I also advised her that even though the monthly payment was high, If I had to purchase another SUV (need an SUV because of my 4 dogs), It would cost me at least 20k. My question is: Has anyone had success refinancing their auto loan to get a lower monthly payment? Keep in mind that my credit is shot (fico of 530) due to the fact that I have not made any credit card payments for the last year.

This is very typical in over-the-median income cases where your vehicle loans exceed the monthly limit by almost 100% (even when it's 10% over, the UST may get involved). This is because the high payment (higher than $517/month -- IRS collection standards) take money away from funding a Chapter 13. The UST says... $900-$517 = $383. Then $383 x 60 = $22,000+. So you could provide a "meaningful" dividend to the unsecured creditors, just on that vehicle alone.

My attorney advised me that the US Trustee will either make me sell the vehicle or dismiss the chapter 7 bankruptcy due to the Presumption of abuse. I really do not want to sell the vehicle because it is close to being paid off.

Do you even have equity in the vehicle? Otherwise, it makes no sense to sell it. The Trustee will seek to dismiss or convert to Chapter 13. I can clearly see the problem with the $900/month payment.

Unless your DMI is at least $-183, you have an abuse issue. The UST will only allow you a payment of $517 and since you are $383 over, they will add that back to your DMI. If your DMI is already positive (> $0.00), then you could provide a really meaningful dividend to unsecured creditors in a Chapter 13.

You should work with your attorney. I'm actually surprised that your attorney thought this would get past the UST, but I can also say that sometimes the UST lets certain things go (if you already had a really negative DMI).

When did you purchase the vehicle? You could possibly redeem the vehicle for its present market value. There is a company that does redemption loans and approves nearly every single one. It's called 722 Redemption Funding and it's part of US Bank. I did this for one of my vehicles and saved $11K in negative equity.

This may allow you to preserve a payment near $517/month. (I did the math. If you redeemed for its value and the value was $20K, then at 19% interest (likely with 722 Redemption), the payment would be $518.81 over 60 months. At least that would preserve a good payment, but you'd still need to make sure that your DMI takes care of the residual $383/month.)

[jcbutta]

Do you even have equity in the vehicle? Otherwise, it makes no sense to sell it. The Trustee will seek to dismiss or convert to Chapter 13. I can clearly see the problem with the $900/month payment.

Unless your DMI is at least $-183, you have an abuse issue. The UST will only allow you a payment of $517 and since you are $383 over, they will add that back to your DMI. If your DMI is already positive (> $0.00), then you could provide a really meaningful dividend to unsecured creditors in a Chapter 13.

You should work with your attorney. I'm actually surprised that your attorney thought this would get past the UST, but I can also say that sometimes the UST lets certain things go (if you already had a really negative DMI).

When did you purchase the vehicle? If you purchased it more than 910-days before filing, then you could redeem the vehicle for its present value. There is a company that does redemption loans and approves nearly every single one. It's called 722 Redemption Funding and it's part of US Bank. I did this for one of my vheicles and saved $11K in negative equity.

This may allow you to preserve a payment near $517/month. (I did the math. If you redeemed for its value and the value was $20K, then at 19% interest (likely with 722 Redemption), the payment would be $518.81 over 60 months. At least that would preserve a good payment, but you'd still need to make sure that your DMI takes care of the residual $383/month.)

Wow. Thanks for all your informative information. It seems like you are more knowledgeable than my attorney. Before the 341 by attorney told me that my vehicle would not be a problem. As a matter of fact, he told me he needed my vehicle for the means test. Yes, I do have equity in my vehicle (approximately 10k) and I purchased the vehicle in October of 2010. What do you mean when you say I could redeem the vehicle for its present value?

[justbroke]

Wow. Thanks for all your informative information. It seems like you are more knowledgeable than my attorney. Before the 341 by attorney told me that my vehicle would not be a problem. As a matter of fact, he told me he needed my vehicle for the means test.

Bingo. That's why you needed that payment in order to pass the means test. Technically, you would pass the means test because the UST really can't argue over "secured" debt in the actual Means Test (Form B22C). However, the UST may see it as an abuse since it exceeds the National Standard (IRS Collection Standards) which is set at $517 (for cases filed after 5/1/2014). You are probably over the median income and hence the UST is prone to "poke" at your expenses.

Yes, I do have equity in my vehicle (approximately 10k) and I purchased the vehicle in October of 2010. What do you mean when you say I could redeem the vehicle for its present value?

If you were to actually obtain a 722 Redemption loan and redeem the vehicle under 11 USC 722 (the redemption part of the bankruptcy code!). (I correct myself from earlier. I don't think redemption requires that you owned the vehicle for 910-days. I accidentally included the Chapter 13 part of the code!)

You write and tell me that your attorney says that "he needed that [payment] for the means test". It is likely you needed the expense in order to pass the means test. However, for over the median income filers, Schedules I and J are going to be important. While the UST can't technically attack your Form B22C (Means Test) because you are allowed to include secured debt payments contractually due after filing, the UST can collaterally (pun intended) attack those expenses on Schedule J.

Your attorney will know more about the particular habits of your UST and should have good information on any precedence in your District. I only write generically about the issues surrounding expensive car payments (above the national standard - $517/car as of 5/1/2014) and a presumption of abuse.

Note: the UST is likely to file some sort of Statement of Presumption of Abuse which they typically do within 10 days of the 341 Meeting. The UST will then have 30 days to file a Motion to Dismiss for Abuse. (Also, the UST could take the entire 60 days, following the 341 Meeting, and file a Motion to Dismiss for Totality of Circumstances.) I'm not trying to cause you any angst but you should speak with your attorney about the next steps.) During this period, your attorney will likely contact the UST to see if there is anything which could be done to satisfy the UST.

[jcbutta]

Thanks justbroke, you have been a great help.

[keepmine]

Another problem is, that $10K equity in the vechicle well exceeds the equity Fl. allows.

[justbroke]

Another problem is, that $10K equity in the vechicle well exceeds the equity Fl. allows.

Very good point and that is a liquidation and exemption issue. This is probably why the Panel Trustee (not the UST) would want the vehicle sold or the non-exempt portion of the $10K. I think there are going to be issues from both the Panel Trustee (liquidation/equity) and the UST (abuse).

[jcbutta]

Ok, well things have gone from bad to worse. I just received an email from my attorney:

Dear "My Attorney",

We are reviewing the above referenced Chapter 7 petition and schedules in light of 11 U.S.C. §727(a) and §707(b) which provides for the dismissal of a Chapter 7 proceeding if the granting of a discharge would be an abuse of the system or a presumption of abuse has arisen. Pursuant to Local Rule 9073-D, this letter is being sent in an attempt to resolve any issues that may result in the U.S. Trustee’s Office filing a motion under 11 U.S.C. §707. Your response will determine whether a motion will or will not be filed, therefore, we ask that you timely provide our office with all of the requested information, and any other information you believe we should consider in our determination.

In order to complete our review, please respond in writing and provide our office with documentation to explain and support the following:

1. In order to verify the debtor’s calculation of monthly income as indicated on the Statement of Current Monthly Income and Means Test Calculation (SCMI) and Schedule I, please provide copies of pay stubs for debtor indicating gross income, deductions and net income for the period of one year (May 2013 through June 2014) and joint tax return (individual and business) for 2012 and 2013 (with 1099 and W-2 forms attached).
2. Please provide bank statements and canceled checks for period of one year from filing date for following accounts: Chase and Credit Union (Savings, and Checking).
3. Provide copy of lease agreement for 2012 Vehicle.
4. Provide proof of insurance payment for both vehicles.
5. Provide proof of mortgage payments for last year.
6. Schedule “F” lists a total of $421,639 in unsecured debts. Please provide our office with an explanation as to the nature of the debts (how incurred). Also provide
three (3) years of credit card statements.

Be reminded that the Debtor has an affirmative duty to provide information to the U.S. Trustee, and to keep and preserve recorded information regarding the Debtor's financial transactions. Failure to do so is grounds for denial of the Debtor's discharge pursuant to 11 U.S.C. § 727(a)(4)(D) and § 727(a)(3). See Goldberg v. Lawrence (In re Lawrence), 227 B.R. 907, 915 (Bankr.S.D.Fla. 1998).

Please be advised that our office cannot make a determination as to whether this case is presumed abusive under 707(b) until all requested documents are submitted.

What do you think I should do?

[justbroke]

Comply. This hasn't gone from bad to worse. It was already the worse case scenario as soon as you wrote "presumption of abuse". This is typical for high-income or over-the-median income filers with high expenses (such as an "expensive" vehicle payment). Those circumstances invite scrutiny. In these cases, it is typical that you would need to "prove" expenses and show that your case is not an abuse.

If you want to see if you can still obtain the discharge under Chapter 7, you have no choice but to comply with requests for production of records. Are you self-employed or something? They are asking for a lot that I don't normally see for W-2 employees. While the production of records for 3 years of credit card statements would be difficult if not impossible to obtain, you would still obtain as many of the records and submit a statement regarding any records you couldn't recover (such as bank only keeps 6/12/18 months of credit card statements).

I think they are attacking both the calculation of your current monthly income (CMI) and your disposable monthly income (DMI). They want to make sure your expenses are "real" and that your leases don't expire 1 year after filing. If they are asking for mortgage payments, they are wondering if you're paying because maybe you didn't list "reaffirm" on your Statement of Intentions (SOI). It appears, to me, that the UST is attempting to find a reason to allow you to proceed to a Chapter 7 discharge. Otherwise, the UST's position appears to be that this case is an abuse and should be dismissed or converted.

[frogger]

Comply. This hasn't gone from bad to worse. It was already the worse case scenario as soon as you wrote "presumption of abuse".

Exactly. Comply.

There is nothing that can't be worked out in bankruptcy, however you just need to understand that you may not be happy about how it gets worked out.

[lucielulu209]

how did it end up? I hope everything worked out for you