Calculating DMI: Means test or Schedules I & J???

[Fedor]

HHM posted:

The 6 month look back ONLY applies to whether you qualify for chapter 7 BK. The actual chapter 13 payment is based on your "current" monthly income and expenses (schedules I & J).

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Is this true? I was told by my lawyer that the means test determines the monthly payment. Schedules I & J are used to determine if you can afford the payment determined by the means test. Because of this, we're in 100% payback, and need to know if I'm getting the right info.



Also, although this was posted previously (sorry), is there a way to dismiss the current filing (a couple of weeks ago), and refile in 4-5 months when my lookback is much more realistic (profit sharing will fall off the 6 month lookback).

Really hating this position, and need to know if my lawyer is giving me correct info, and if I have reasonable options to get into a more manageable payment plan (current 100% plan is seeming impossible).

-- Fedor

[SMinGA]

Yes you can dismiss - inform your atty. But make sure this is really what you want to do! Any filing fees, atty fees already paid will NOT be refunded - and you'll have to pay them all over again when you refile.

[catleg]

When your means test income is above median, or shows positive DMI, the trustee will attempt to limit your budget (schedule I&J) to use the same figures (IRS limits) used by the means test. While it's true that Schedule I&J should trump the B22C form, try telling that to a trustee's paralegal who has their teeth sunk into you.

If you're below median or your means test results in negative DMI but your budget (schedule I&J) has positive DMI (shows an ability to fund a plan), then you have the flexibility to use schedule I&J. (This scenario is usually for people trying to save a house or recover from tax problems.)

There is the weird (probably common) scenario where your ch13 means test (B22C form) can show negative DMI because of 401k-related stuff, but your ch7 means test (B22A form) shows positive DMI ... then it comes down to horse trading. It depends on the trustee at that point. It varies by district.

In any event you may want to hang out in ch13 for a while and make a good faith effort to go through with a plan, and then dismiss later on and refile as a ch7.

[justbroke]

Suffice it to say that in most Districts, the Chapter 13 Trustee will use whatever combination of forms, whether that's Schedule I&J, or Form B22C (Means Test), or Form B22C and Schedule J... against you. While many Districts will tell you that for an over-the-median filer, in a Chapter 13, they use the DMI calculated on Form B22C (as the starting point to your DMI), they also will look to Schedule J.

[LadyInTheRed]

There is the weird (probably common) scenario where your ch13 means test (B22C form) can show negative DMI because of 401k-related stuff, but your ch7 means test (B22A form) shows positive DMI ... then it comes down to horse trading. It depends on the trustee at that point. It varies by district.

Just a little clarification here. If a 401k loan is the reason your DMI differs on your means test, and there are no other issues, there should be no horse trading in determining the plan payment. Bankruptcy Code Section 1322(f) makes it clear that a 401k loan is deducted from your DMI for purposes of determining your plan payment. Where you run into trouble with a 401k loan is trying to deduct it to qualify for a Chap 7.

[NoTomatoCan]

LadyintheRed - That is EXACTLY what I am working through with our trustee right now! (Our attorney is making the same argument that you make). The amount is fairly small ($50/month), but the trustee is not counting our 401k loan in the Means Test and claims that our payback to unsecured should be about $3k more than what we are proposing using Schedules I/J.

[justbroke]

Just a little clarification here. If a 401k loan is the reason your DMI differs on your means test, and there are no other issues, there should be no horse trading in determining the plan payment...

Where you run into trouble with a 401k loan is trying to deduct it to qualify for a Chap 7.

That is exactly what catleg was trying to say. For a Chapter 7, the 401(k) payments and/or contributions are not allowed. However, in the "hypothetical" Chapter 13 Means Test, which must be performed in order for the United States Trustee to win on their motion to dismiss, the 401(k) payments are allowed. This puts you in a precarious position.

NoTomatoCan, if you case is a Chapter 13, then all you do is have your Attorney challenge the Trustee's objection. The 401(k) deductions and payments are allowed, even if they are "relatively" new.

[LadyInTheRed]

LadyintheRed - That is EXACTLY what I am working through with our trustee right now! (Our attorney is making the same argument that you make). The amount is fairly small ($50/month), but the trustee is not counting our 401k loan in the Means Test and claims that our payback to unsecured should be about $3k more than what we are proposing using Schedules I/J.

I sure hope your attorney doesn't back down and is willing to take that argument to the judge if necessary, even if the amount is fairly small. I don't see how a judge could rule against you on this. If the 401k loan will be paid off before the end of your plan, I could see how they might say your payments should include the extra DMI at the end of your plan (by spreading it over the life a the plan or increasing the plan payment at the end). But my attorney says that when the loan is paid off, I can just start contributing the same amount to my 401k, in addition to the very small amount I'm already contributing. My loan payment is about $350 a month, so it makes a big difference. How much the trustee will allow as contributions to your 401k will vary.

Good luck on your case, and please keep us updated on what happens.

[LadyInTheRed]

That is exactly what catleg was trying to say.

That may be true, but I didn't read it that way. He said that "401k stuff" can make DMI differ on the schedules and that the resolution depends on the trustee and varies by district. I wanted to clarify what the law is re 401k loans. While it may depend on the trustee whether to object to deducting the 401k loan payment from DMI, that objection is contrary to the clear language of the bankruptcy code.

[justbroke]

While it may depend on the trustee whether to object to deducting the 401k loan payment from DMI, that objection is contrary to the clear language of the bankruptcy code.

It absolutely is contrary, and I despise Trustees who strong-arm debtors.

[LadyInTheRed]

It absolutely is contrary, and I despise Trustees who strong-arm debtors.

It's disgusting! It's up to our attorneys to fight for us and up to us to make sure our attorneys do!

[justbroke]

But what about the whimpy attorneys who don't want to fight with the Trustee. I think I despise them even more because they advise their clients and the clients believe that it's the best or only option (to kowtow).

[LadyInTheRed]

But what about the whimpy attorneys who don't want to fight with the Trustee. I think I despise them even more because they advise their clients and the clients believe that it's the best or only option (to kowtow).

I can't think of anyone I despise more than an attorney who does not adequately advise clients of ALL options, counsel them on their choices and fight for the option that the attorney and client agree is best for the client. It's the lousy, lazy and whimpy attorneys who give all attorneys a bad rep.


Edited to add: The problem is that a lot of people filing for bankruptcy are dealing with attorneys for the first time. They are often intimidated by attorneys and don't get that the client is the the boss and has the ultimate say in what happens. They will do what the attorney says without question and believe everything they are told, even if it doesn't make sense. They don't always realize they have a lousy attorney. Anyone who hires an attorney for any reason needs to get educated the best they can on the issue they are dealing with so they know when to second guess the attorney. This forum is a great way to do that as long as you realize every situation is different. One of these days, I'm going to write a thread on how to work with attorneys in hopes of empowering people to take control of their own cases when necessary.

[justbroke]

I think in the Bankruptcy context, it's much more prevalent. I don't 100% attribute it to being a poor attorney. I attribute it to the "mill" mentality. Just churn them out, and treat each case almost cookie-cutter.

It always surprises me, well maybe not anymore, when a debtor comes on this Forum and complains that the Attorney doesn't want to fight. Only to learn that they retained the "cheap" mill attorney who only does simple cookie-cutter "no-look" cases.

[catleg]

I was very disappointed with the representation I had for ch13, the guy just folded like a cheap camera whenever an issue arose with the trustee. I didn't feel like he fought for me at all. My conclusion is that it's no surprise that so few ch13's go full term; the ones which succeed are probably heavily weighted to the $100 x 36 month plans. It just seems cruel and unrealistic to apply those IRS standards to debtors for 60 months. Some kind of crisis always develops and there is no slack in the plans to allow for a new appliance, major car or home repairs, whatever. Income surprises rarely occur to the upside. And I feel like I'm in a district with a lenient truste!