Income too high for Chapter 7... means test?

[JLM0706]

Hello, my income is above the line to file for Chapter 7. Has anyone successfully passed the long-form means test and been able to file 7 even with the higher income? Any tips or tricks?

[justbroke]

Yes, many people have. There are no tricks. It all comes down to your allowable expenses. I can tell you that having a mortgage with a sizeable payment (above the USTP's "local" allowance for rent/mortgage), along with one or two cars, and a family, will usually get you to a point where you have enough expenses to overcome the presumption of abuse. (The presumption of aubse, of Chapter 13, arises where a debtor is above the median. The presumption can be overcome if the debtor shows expenses that shows disposable monthly income (DMI) less than a certain amount. That certain DMI amount is around $225-250/month.)

If you are single, have one car, and are renting, it's not likely to overcome that presumption of abuse.

There are two other ways to overcome the presumption and to, actually, avoid the means test. That's having a certain disability rating as a veteran or having primarily non-consumer debt (e.g. investment real estate or personally-guaranteed business debt).

[JLM0706]

I'm single, one kid, one car, and a HELOC/mortgage.

[justbroke]

Have you tried the Means Test simulator? There's one on Legal Consumer's website. Search Google for "legal consumer free means test calculator". It is not super accurate, but it could give you an idea.

[JLM0706]

No, I have not. I will thought! Thank you!

[flashoflight]

OP, I just reread one of your earlier posts. The 401k loan repayment may make it very difficult or impossible to squeeze into a 7. 401k repayment doesn't count in a 7. Right now, that loan repayment money can't be used for an expense that will help you squeeze into a 7. You might want to think about defaulting on the 401k, spending it on charitable contributions or whatever, and increase your tax withholdings (another expense item that counts in ch7) to recognize the extra income and any penalties. But if you keep paying that 401k instead of an expense that counts, I don't think you can squeeze into a 7. I could even make a case that it's worth defaulting the 401k even in a 13 if the 401k loan is not pretty new.

[JLM0706]

OP, I just reread one of your earlier posts. The 401k loan repayment may make it very difficult or impossible to squeeze into a 7. 401k repayment doesn't count in a 7. Right now, that loan repayment money can't be used for an expense that will help you squeeze into a 7. You might want to think about defaulting on the 401k, spending it on charitable contributions or whatever, and increase your tax withholdings (another expense item that counts in ch7) to recognize the extra income and any penalties. But if you keep paying that 401k instead of an expense that counts, I don't think you can squeeze into a 7. I could even make a case that it's worth defaulting the 401k even in a 13 if the 401k loan is not pretty new.

The 401K is my employer savings plan and the payments are withheld from my paychecks. The only way to stop those would be to quit my job and default, in which case they become taxable income. I know I don't know much about BK but I am confused on what difference they make? I don't understand why I would want to default those?
I actually did the calculator, and am closer than I thought. I have a LOT of out of pocket medical expenses (if averaging last years).

[flashoflight]

JLM0706 If you spent $1500 on food and the lawyer says the trustee won't accept anything more than $800, then you'd need to put down $800 in food on your budget and find an expense that counts on the 7 means test to spend the rest such as charitable contributions for the next couple of months prior to filing the 7. So what I'm saying is that it's better if the 401k loan payment was zero so you could use that money on something that counts on the 7 means test. If the 401k payment is a large chunk of your paycheck, it's going to be hard to squeeze into a 7. You get dinged for the income that's used to pay for the 401k, but you get no credit for the 401k repayment. I suppose you could try to rebut the presumption of abuse if the 401k payment is the only reason abuse arises, but the trustee can always argue you can go into a 13 step plan when each 401k loan is paid off to achieve a dividend for the unsecureds and throw you out of the 7. The trustee can throw you out of 7 for totality of the circumstances too for trying to turn so much potential disposable income into an exempt asset, especially if the loans were made recently on the eve of BK.

[JLM0706]

Oh I get it now! Yeah they’re definitely eating up a chunk of my pay. Im playing with the means calculator and seeing what I can tweak to make this work. I hate to retain my attorney and pay just to find out I’m a lost cause. Argh! Whyyyyyyyy did I mess up so bad?! How do I overcomes this self-loathing?!