Getting Started

[MayorMills]

This is my first post here. My husband and I are looking at bankruptcy to get out from under what seems like a never ending run of bad luck. Long story short, job loss a couple years ago was followed by a serious near death illness that placed him in the hospital for about a month. He went most of that year without income. He worked all of 2015 and lost his job again at the start of this year. He has just started working again so only had unemployment for nearly the first 3 months of this year.

We are hoping for a chapter 7 but afraid we will fail the means test. By my math with the first 3 months of this year and the last 3 months of last year, or the first three months of this year and any other combination of 3 months on either side, we seem to just come over the limit. (We are in Texas.) We have a home that is owner financed, so it is not in our name. We both have one vehicle we still make payments on (and we are current) and I feel we would be able to keep all our personal possessions based on the exemptions I have read about online.

Any advice for someone just getting started? I don't want to rush it but at the same time I'm afraid if I spend too much time putting all the information together (I'm collecting the information on all our debts as I write this) we will definitely miss the opportunity - as ironic as that sounds - of his 3 months of having very little income.

Does it matter at all what the debt to income ratio is for bankruptcy? I'm mostly afraid of being pushed into chapter 13 and having the courts say we have too much disposable interest and then having to live on basically nothing for the next 3-5 years. After the last fews years of "most anything that can go wrong will go wrong" I'd like to have something positive come out of this. Like being granted a chapter 7 to get a much needed fresh start.

Any and all advice is greatly appreciated.

[LadyInTheRed]

You are right not to want to rush. You want to learn all you can before you file instead of being surprised during the process. The 6 month look back is based on the 6 months before the month in which you file. If you file in April, your means test will be based on your October through March income. If you start learning and gathering information now, filing before the end of April seems realistic. Would cutting off the 6 month look back period at February make a huge difference in the total 6 month income? If so, you probably could manage to file before the end of March.

It is true that having an income increase could make a difference in your case, but that could still be an issue if you filed today. Even if you qualify for discharge based on the 6-month income look back, the US Trustee can object to a Chap 7 discharge based on "the totality of circumstances".

Make appointments to consult with a few bankruptcy attorneys. If any tell you that you can't qualify for Chap 7 just because your income is over median, move on. Median income is the first step in the means test. If you are over the median, you complete the rest of the means test to see if your disposable income is low enough to qualify for discharge. Many over median filers easily get Chap 7 discharges.

To get an idea of whether you pass the means test, use the calculator at https://www.legalconsumer.com/bankruptcy/means-test/.

If you do end up in Chap 13, it will not be the end of the world. Most people who file a Chap 13 end up with more money to spend after they file than before they filed if you don't include the things they were charging on credit cards before filing. Bankruptcy is not about luck. It is about the numbers and having an attorney who will work to make sure you get a Chap 7 discharge if you qualify or to get a manageable Chap 13 plan.

[MayorMills]

Thank you for the reply!

For our lowest income in 6 months we would have to include Jan, Feb and March. Last year my husband was employed full time and he has just gone back to work and will get his first paycheck this Friday. Of all the irony, starting his new job just one week later and we would have passed. According to what I see online - Texas being 5220 monthly, adding up the previous 6 months (Oct 2015 - March 2016) and dividing by 6 to average. His new job pays more than the old job, but it's contract so there is no vacation or sick time, and we will have to buy our own insurance. Even factoring that in I'm afraid we will still fail the test. We have a lot of debt spread out over a lot of creditors, but it's not super unreasonable when I add up the dollar amount. Which then makes me doubt bankruptcy and wonder about some sort of debt consolidation or something of that sort.

Is there an online resource that lays out how a budget is created for chapter 13? Meaning what is allowed to get an idea what kind of things/amounts are allowable in figuring out how much you are likely to have to pay monthly?

[LadyInTheRed]

Like I said, whether your income is below or above median is only the first step. If you are only slightly over median, you very well may still pass the means test. Did you try using the means test calculator I linked to?

[MayorMills]

I started going through it but quite honestly it's going to take some time. I'm a bit confused. We are in Texas and according to Texas law, each adult with a driver's license gets to keep their car. But on the form it's asking me about car expenses and it's greyed out and doesn't seem to give us credit that we have 2 vehicles and 2 car payments.

[LadyInTheRed]

That form has nothing to do with exemptions. The means test has to do with income and expenses, not the value of assets or whether you can keep them.

The areas you aren't allowed to fill in are based on national or local standards or on data you fill in later. Fill in the white squares and the program completes the gray squares. Make sure you select the number of cars on line 11 of section 2. Your monthly payment for the first car goes in the white box at line 13b. If you have a second car, the payment goes in white box online 13e. If your car payment exceeds the allowed ownership cost, then your net vehicle expense for that car will be zero.

The form is a little tricky. If you get caught up on anything else, let me know and I'll try to help when I have the time.