Means Test - Have Questions

[HipHop]

Okay...quick numbers here:

Monthly Gross: $6994
Monthly Payroll Taxes: $2120
401 Loan: $88 (total outstanding / 60 months)
Federal Taxes Owed: $133 (total outstanding / 60 months)
Unsecured Debt: $117,584
Auto Loan: $47,000 balance (payments of $770/month)
Rent: $750 (plus utilities, etc...)

Total Deduction Allowed (according to means test): $5276
Projected Average Monthly Chapter 13 Plan Payment: $1013
Ohio Multiplier (7.1%): $72
Total Deductions for Debt Payment: $1085

$1085 is supposed to be my total monthly payment to the trustee, right?

Here are some numbers the Means test spit out:

Monthly Disposable income: $1718
60-month disposable income: $103,085

"Because the amount on line 51 is more than $10950, the presumption of abuse arises. You fail the means test. Do not complete the remainder of Part 6."

So, I guess I'm confused why I failed. Does that just mean that I fail and don't qualify for Chapter 7?

Also, how does the calculator come up with a payment of $1085 if it says my monthly disposable income is $1718?

Is it possible for me to get into a 3 or 4 year plan, or will I be forced into a 5 year plan?

[road warrior]

There is basically no way will you qualify for a chapter 7 making that kind of money. If I remember correctly, there is a cut-off range somewhere around $60K/yr - if you make more than that, it will be almost impossible for you to file a 7.

Why are your payroll taxes so high?? Do you always get a big refund??

[deadbroke99]

There is basically no way will you qualify for a chapter 7 making that kind of money. If I remember correctly, there is a cut-off range somewhere around $60K/yr - if you make more than that, it will be almost impossible for you to file a 7.

Why are your payroll taxes so high?? Do you always get a big refund??

I don't believe that is true. It's not how much you make, it's how much you have left over.

[road warrior]

I don't believe that is true. It's not how much you make, it's how much you have left over.

Here's some plain talk about the means test.

http://www.buzzle.com/editorials/1-10-2006-85999.asp

To apply the means test, the courts will look at the debtor's average income for the 6 months prior to filing and compare it to the median income for that state. For example, the median annual income for a single wage-earner in California is $42,012. If the income is below the median, then Chapter 7 remains open as an option. If the income exceeds the median, the remaining parts of the means test will be applied.

This is where it gets a little bit trickier. The next step in the calculation takes income less living expenses (excluding payments on the debts included in the bankruptcy), and multiplies that figure times 60. This represents the amount of income available over a 5-year period for repayment of the debt obligations.

If the income available for debt repayment over that 5-year period is $10,000 or more, then Chapter 13 will be required. In other words, anyone earning above the state median, and with at least $166.67 per month of available income, will automatically be denied Chapter 7. So for example, if the court determines that you have $200 per month income above living expenses, $200 times 60 is $12,000. Since $12,000 is above $10,000, you're stuck with Chapter 13.

What happens if you are above the median income but do NOT have at least $166.67 per month to pay toward your debts? Then the final part of the means test is applied. If the available income is less than $100 per month, then Chapter 7 again becomes an option. If the available income is between $100 and $166.66, then it is measured against the debt as a percentage, with 25% being the benchmark.

In other words, let's say your income is above the median, your debt is $50,000, and you only have $125 of available monthly income. We take $125 times 60 months (5 years), which equals $7,500 total. Since $7,500 is less than 25% of your $50,000 debt, Chapter 7 is still a possible option for you. If your debt was only $25,000, then your $7,500 of available income would exceed 25% of your debt and you would be required to file under Chapter 13.

[AtWitsEnd]

Auto loan balance $47,000??

[catleg]

If you have not included 401k contributions, you should. They are allowed in the ch13 means test/DMI calculation per the wonderful BAPCPA 2005 law.

[HipHop]

If you have not included 401k contributions, you should. They are allowed in the ch13 means test/DMI calculation per the wonderful BAPCPA 2005 law.

Really? So I can continue to invest in my 401K during Ch13?

[HipHop]

Auto loan balance $47,000??

Yes...why the ???

[justbroke]

The question for the automobile will be that your car is way out of the acceptable range for a car payment... by almost $300/month. The national ownership allowance is only $489 for a car.

Your other issues will probably be that you're single... so $750/month for rent may actually be too much (depending on where you live). I say this because you are over the median and you are required to complete the entire Form B22A because there's a presumption of abuse.

It would be quite hard for a single person to find enough allowable expenses to justify a Chapter 7 discharge. Let me tell you up front... with greater than $100K in unsecured debt, you are going to be put through the ringer by the U.S. Trustee himself (not the "Acting" Trustee with whom most people deal with).

[catleg]

Yes it has been pretty well established by court cases in the past year or two in most districts that 401k contributions are exempt income. Only the most uptight trustees and/or judges might give you a hard time.

As far as the car is concerned, as long as this is a chapter 13 I don't think you'll have any problem at all. It's designed to protect secured creditors and assets, the only caveat being you have to pay out as much to the unsecureds as they would receive in a Chapter 7 case, by implication that means an asset case, if you have no assets (beyond exemptions) this is a non-issue.

If you need to reduce your disposable income further I would apply for some more term life insurance. You can always drop it later.

[justbroke]

As far as the car is concerned, as long as this is a chapter 13 I don't think you'll have any problem at all. It's designed to protect secured creditors and assets, the only caveat being you have to pay out as much to the unsecureds as they would receive in a Chapter 7 case, by implication that means an asset case, if you have no assets (beyond exemptions) this is a non-issue.

Not so fast. This is an issue. The unsecured creditor (and/or Trustee) will complain that you aren't contributing enough. If you have a $770/month car you will get a bad faith objection, unless you're in a 100% plan.

However, if you're in a less than 100% plan, and you're spending $300 extra a month on a car, which would yield $18K (over 60 months) into the plan... be sure that the Trustee or an unsecured creditor or interested party, will object to your confirmation.

If I were the Trustee, or even a creditor, I'd be filing a bad faith objection to confirmation unless you're paying 100% to unsecured creditors over the applicable commitment period.

My simple calculation, is... as is (if no one objects to that car payment and not a 100% plan), the OPs monthly payment would be $3.083.90. This includes 10% to the Trustee (they put 10% in plan although their fee is less).

At 100% the OP would need to pay $2,155.71/month just to unsecured creditors (with the Trustee 10% added). This is if all unsecured creditors file a claim.