Below the median income = higher payment?

[nceguyfromne]

Hello, all. For those of you who recognize my name, it's because I already filed my own Chapter 7 (three years ago) and everything went flawlessly. I have reestablished credit and my score is climbing rapidly. Sadly, it's my wife's turn now. It's a long story, but some old things came up from her past (her ex recently dumped some divorce-related debt in his own Chapter 7), and now we are left to deal with the ****storm. However, my salary has increased to the point that we can no longer pass the Chapter 7 Means Test. Therefore, it's looking like a 13 will be the only option. We are, by the way, going to be hiring a lawyer for this (she just had a consult with my Chapter 7 attorney yesterday, in fact), but right now we are just trying to get a firm grasp on things and make sure we understand it. A couple things are really confusing me...

First... on Form 22C (the "Means Test"), I am calculating our income to be below the median. I have read the form very carefully and it instructs me to subtract my Marital Adjustment (taxes, my student loans and a car payment in my name) prior to comparing our income to the median. These deductions bring our total income below the median. Am I doing this correctly?

This leads to my second question. As a result of being below the median, I understand that we would use our budget (from Schedule J?), instead of using the standard IRS deductions via Form 22C, to compute our "disposable income." The problem with this is, I am coming up with a higher disposable income when I compute it this way because there is nowhere to deduct the child support my wife receives like there is on 22C. Is this correct? By falling below the median income, we wouldn't get to deduct child support payments whereas we could if above the median?

If that's truly the case, should I just not claim the Marital Adjustment to keep us above the median and and compute our disposable income on 22C instead?

[LadyInTheRed]

It sounds to me like you are doing the 22c correctly. I don't know about the child support question. The beauty of hiring an attorney is that the attorney will know how to handle these things.

[HHM]

Don't get to mixed up on the language, you really "ARE NOT" below median income.

I think you are confusing the "goals" of the form from Part I to Part II. Your actual income is line 11. Part II is there only to determine if you will be in a 36 or 60 month plan. It might make more sense, in the bigger picture, to realize that on Form B22A, the means test for chapter 7, there is no marital adjustment in calculating your income. You are above median income for BK purposes, but you might be below median for determining how long your wife might need to be in chapter 13 BK.

As LITR points out, you really shouldn't be getting to involved at that level of the chapter 13, that is for your attorney. A chapter 13 is miles and miles more difficult then a chapter 7.

For schedule I, if she is receiving child support, it goes on there and NO, you don't get to back it out. The only source of income the debtor can back out on schedule I is SSI/SSDI. How you do it though is you deduct the exempt income, SSI, as an expense on Schedule J. So, on line 17 of schedule J (Other), you would say something like. Exempt Social Security Income, and enter the amount.

[nceguyfromne]

Don't get to mixed up on the language, you really "ARE NOT" below median income.

I think you are confusing the "goals" of the form from Part I to Part II. Your actual income is line 11. Part II is there only to determine if you will be in a 36 or 60 month plan. It might make more sense, in the bigger picture, to realize that on Form B22A, the means test for chapter 7, there is no marital adjustment in calculating your income. You are above median income for BK purposes, but you might be below median for determining how long your wife might need to be in chapter 13 BK.

As LITR points out, you really shouldn't be getting to involved at that level of the chapter 13, that is for your attorney. A chapter 13 is miles and miles more difficult then a chapter 7.

For schedule I, if she is receiving child support, it goes on there and NO, you don't get to back it out. The only source of income the debtor can back out on schedule I is SSI/SSDI. How you do it though is you deduct the exempt income, SSI, as an expense on Schedule J. So, on line 17 of schedule J (Other), you would say something like. Exempt Social Security Income, and enter the amount.

I do understand that we are not truly "below the median." Were that the case, my wife could file a Chapter 7 rather than getting stuck in this Chapter 13 mess. I am not mixed up by Part II of B22C so much as Part III (Application of 1325(b)(3) for determining disposable income). If using my "true" Marital Adjustment here, it "technically" brings our disposable income "below the median" (for the purposes of determining our disposable income, at least), which means we would not use B22C to compute our disposable income at all and would instead, to the best of my understanding, rely solely on Schedules I and J to compute our disposable income for a payment plan. I am struggling to understand why a family "above the median" (for Chapter 13 disposable income purposes) could exclude child support income on B22C and potentially confirm a much lower payment plan while that option does not exist on Schedules I and J. Is the point of this exercise to take that "extra", non-exempt income on Schedule I and offset it in every way possible on Schedule J? I would appreciate some acceptable examples of child-related expenses we might claim on Schedule J. She plays sports, buys school lunch, goes to camp in the summer, etc.

[Charlie777]

You really need to consult an attorney with a lot of experience in your local BK court.

First, being above the median doesn't mean she can't file BK7, it just triggers the more complete means test.

Second, A lawyer with a significant BK practice will have the software to work this out very quickly, and will know what you can do in your jurisdiction. Local practices by the court and US Trustee are not standardized.

For the means test you start at the IRS guidelines but have some ability to reflect actuals. I was over median, filed CH7, no questions from US Trustee, discharged 90 days after filing.

[nceguyfromne]

You really need to consult an attorney with a lot of experience in your local BK court.

First, being above the median doesn't mean she can't file BK7, it just triggers the more complete means test.

Second, A lawyer with a significant BK practice will have the software to work this out very quickly, and will know what you can do in your jurisdiction. Local practices by the court and US Trustee are not standardized.

For the means test you start at the IRS guidelines but have some ability to reflect actuals. I was over median, filed CH7, no questions from US Trustee, discharged 90 days after filing.

It sounds like we may want to talk to some other attorneys before making any further assumptions. We consulted with the attorney who did my Chapter 7 a few years ago and when he heard our current income, he would not even entertain the thought of trying for a Chapter 7. He also expressed no desire to discuss possible Chapter 13 payment plan figures without committing to retaining him. I understand they don't want to give their services away, but how can we make an informed decision about Chapter 13 if we don't know a best/worst-case scenario on how much it will cost us in the end? If we're looking at a 100% payment plan on my wife's unsecured debts, why bother? We will just deal with the one bad debt that is making us consider this option in the first place (an old timeshare).

I ran through the Chapter 7 means test (B22A) myself but was not able to get it anywhere close to the <$166(?)/month disposable income to avoid the presumption of abuse. Our main issue is our almost complete lack of secured debts. The one and only secured debt we do have (a car) is in my name only, so that severely limits what we can do on the IRS vehicle ownership expense. I applied the auto loan to the Marital Adjustment, but it was only half the amount of a single vehicle ownership deduction. Were it not for the vehicle situation, I think we might have a shot at passing the means test.

[keepsmiling]

Some people find it makes sense to buy a new car.
No idea if that applies in your complicated situation though. Try re-running the numbers with another car payment?

[Charlie777]

It sounds like we may want to talk to some other attorneys before making any further assumptions. We consulted with the attorney who did my Chapter 7 a few years ago and when he heard our current income, he would not even entertain the thought of trying for a Chapter 7. He also expressed no desire to discuss possible Chapter 13 payment plan figures without committing to retaining him. I understand they don't want to give their services away, but how can we make an informed decision about Chapter 13 if we don't know a best/worst-case scenario on how much it will cost us in the end? If we're looking at a 100% payment plan on my wife's unsecured debts, why bother? We will just deal with the one bad debt that is making us consider this option in the first place (an old timeshare).

I ran through the Chapter 7 means test (B22A) myself but was not able to get it anywhere close to the <$166(?)/month disposable income to avoid the presumption of abuse. Our main issue is our almost complete lack of secured debts. The one and only secured debt we do have (a car) is in my name only, so that severely limits what we can do on the IRS vehicle ownership expense. I applied the auto loan to the Marital Adjustment, but it was only half the amount of a single vehicle ownership deduction. Were it not for the vehicle situation, I think we might have a shot at passing the means test.

My attorney initially thought I would have to file BK13 but because I had done the sort of research you've done and asked some questions re-ran the simulation and found we could do it.

BK13 will be more expensive than BK7 because of the ongoing involvement of the attorney. And remember, you're not just asking for an initial consult to find out very generally what BK is, you're asking him to do work and provide expertise so to me it's not reasonable to expect that for free. My BK attorney didn't do anything for free, his "first meeting" was $200 and included having all my data entered into his software and a meaningful review. Obviously was worth it to me, as was his fee overall given the result. So if you had a good experience with this attorney, and can get him to agree to review the 13 vs 7 option for an amount to apply to your total fee, I would use him. I sort of sense you may have reservations (and I've heard that some attorneys seem to favor 13 over 7 because the fees are larger and work is easier in some ways). If so I'd check with another.

[TheBajan]

I'm in a 13. We had no trouble at all finding several attorney's willing to give free consultations that included running our numbers as a part of every one of them. You do sound like you have reservations about your chap 7 attorney and it sounds like he has reservations about representing you in a ch 13. I would definately go to SEVERAL free consultations. You need help with this and going to several will give you answers and also help you know what questions you need to ask.

A ch 13 (I'm sure you know) is more expensive and more complicated. I have heard of several people here that have been over medium and filed a 7. I wouldn't give up on that route until you are completely certain that it's a dead end.

Best wishes,

The Bajan

[nceguyfromne]

You are correct, Charlie777 and TheBajan. Based on this particular consultation, my wife and I did both have some reservations about using my previous BK attorney for this particular case. I think he did a fine job with my Chapter 7, but on the other hand it was a very open and shut case. Our income was well below the median at the time and there were no asset exemption concerns to speak of. His job was to basically just generate acceptable paperwork and walk me through the 341 meeting, both of which he did to my satisfaction. I wouldn't have a problem paying a reasonable amount to obtain the information we need to make an informed decision for my wife (basically, a best/worst-case scenario for a Chapter 13 payment plan), but quite honestly I don't think it had anything to do with the money; I think he just wanted to get us out of there so he could go home.