Am I understanding correctly?

[reallynervous]

Okay, we had to reschedule our appt with the second BK attorney consult due to this storm so I have to wait until next week.

I wanted to see if my current understanding is correct r/t qualifying for a Chapter 7. We are under the median income so we MAY qualify for a Chapter 7 however we may still need to file a Chapter 13 if our income & expense schedules show we have more than $100 of excess income after expenses.

Is that correct?

For the expense schedule, you are to use actual expenses right? These are kind of hard to track as we haven't always kept receipts, etc. and in recent months we have only purchased real essentials. We need new tires on both cars (dh has been using the spare tire for a couple of weeks now) and we haven't spent any money on home repairs, dh temporarily stopped two of his meds, etc. Are the numbers used for the means test usually accepted for the expenses schedules? If what we will be allowed for expenses is only what we have been spending recently, we will really be sunk. These things we need have been piling up, but we don't know exactly how much the BK will cost to file so we are trying to save every bit that we can.

BTW, I ran our numbers thru on the Means Test using the local standards just to see where we came out on that and it came out that we had a negative $850 per month, so using the numbers allowed for that it would seem that a Chapter 7 should be allowable for us, but our expense schedule doesn't show as much in expenses as the means test did due to basing it our expenses in recent months.

Thanks for any help you can offer in helping me understand this better.
reallynervous

[BKTango]

If you are under the state's median, then you AUTOMATICALLY qualify for a CH7 especially if you know you do not need to catch up on arrears in secured debts or protect property that would not be exempt, which you would consider a CH13 for. Even though there is no presumption of abuse, and there is no need for the full means test, you will still have to do the schedules of the income and expenses. If in fact you show you do have a significant amount of disposable income there can be a "totality of circumstances" where it could be looked at as you can afford a plan payment.

This is the way I understood it, someone else might come along and chime in here, that has a little more knowledge of it though.

Onto the expenses...use the figures you normally would be spending if you never had the cc's or debt to pay on to begin with. For example, if you were normally spending $60 a month on home supplies (light bulbs, trash bags etc.) and while paying on your cc's you slacked off a bit and was only spending $30...put the $60 on that line. These figures are of course just an example. Just remember to calculate for everything, stamps, check reorder for your bank account, medication....EVERYTHING.

What I did was make a seperate list, with all of our expenses into categories I was familiar with, then handed it to our lawyer who then moved them around into the appropriate expense categories on the schedule. Be aware there are no categories for some of your expenses this is where a good lawyer comes in handy, they will "bump" up an area to cover that needed expense.

The good news is you are doing a good thing by seeing more than just one attorney. Try not to worry so much, we have all been there, believe me I was in the same boat, under the median, but still freaked out somehow I would end up pushed into a 13. We were just discharged, so the best advice I can give is simply...relax, review, research and breathe. It's going to be a whole lot more "easier" than you are thinking it will be.

[anonymuse]

If you are under the state's median, then you AUTOMATICALLY qualify for a CH7 especially if you know you do not need to catch up on arrears in secured debts or protect property that would not be exempt, which you would consider a CH13 for.

This is NOT AUTOMATIC!

Just because your income is low doesn't mean you're home free. If you have a house, car, and other assets they must be under the state exemptions. The amount of equity you can have in your house varies greatly state by state so that needs to be checked also.

[SinkingFast]

If you're under the Median, you'd fill out Form B22A of the Means Test. Compare actual earned income to the Median on Lines 13 and 14. On Line 15, you'd check the box, "Presumption of Abuse does not Arise".

But then, qualifying for Ch 7 would come down to a comparison of Schedule I, Income, to Schedule J, Expenses. Actual earned income vs your actual living expenses.

Start saving your receipts. Every time you shop, get gas, whatever,...... Stash the receipts in your wallet, checkbook, or purse. Tell Hubby to do the same. Stack up your routine bills as you pay them. Start keeping records.

If your Hubby isn't filling 2 scripts, add in that cost on your medical. Look back at your check book and CC statements for times you've gone to the doctor. Think about how many times a year you buy band-aids, tylenol, ibuprophen, vitamins, other OTC's,........ Add that up and divide by 12. Add that to your medicals.

Price new tires for the car and divide by 12. Add that to your costs for gasoline and other repairs.

We were the same as you. I couldn't tell you how much we spent on food because I'd swipe a CC to pay for groceries. It took us a couple of months of saving receipts and looking back at what we'd spent in the previous year to get a decent idea of our real living expenses.

[BKTango]

This is NOT AUTOMATIC!

Just because your income is low doesn't mean you're home free. If you have a house, car, and other assets they must be under the state exemptions. The amount of equity you can have in your house varies greatly state by state so that needs to be checked also.

I was speaking strictly of the "income" portion....as in ... income wise being under the median you would automatically qualify for CH7......THEN other factors come into play, which is what I stated in my post regarding assets/property that is not exempt or you are in arrears or have a good portion of income that can be disposable. I believe I stated that clearly in my post that in a case such as that a CH 13 would be looked into. Sorry for any confusion to the OP I may have caused by wording my post a different way, either way the same thing was said.

[reallynervous]

Thank you all!

Thanks for your replies. I think I do understand it pretty well, then. I just need to do some work on figuring our expense numbers. Two questions r/t that - am I correct that you do not need to provide receipts supporting those numbers with your original filing, but at some point if they seem questionable, you may be asked to supply them as proof? If we don't have the individual receipts for all of it, would our bank statements or credit card statements work to use?

BKTango, I did understand that if one has assets above what they have exemptions for, then they may prefer to do a 13 to keep those assets. You didn't confuse me any there.

Anonymuse, the first attorney we spoke to thinks we likely do have equity in our house, which I was assuming that we do not since we just did a 125% LTV 2nd mortgage in 9/2005. We will be scheduling a new appraisal so we have a better idea on that. Our cars should be covered by the exemptions (we will be using Federal).

SinkingFast, Thanks for letting me know how you handled calculating your expenses. If you all haven't figured it out yet, I am a total worry wort! I don't want to do anything wrong that would look like fraud or something. So, I tend to obsess about these things. There also seems to be a lot of grey in this process in the leeway the local trustees have, etc. so that makes me nervous. I prefer really clearly spelled out numbers, etc.. I know when we select an attorney, they should have a good idea of what is acceptable in our area.

I guess in this situation with the preliminary qualification for CH 7 met and the 13 depending upon the Schedules I & J comparison, having a car payment would help us (not that I am planning to get one) vs the scenario from the other thread as a car payment r/t the means test.

Okay, one last question (for now =] )... my dh stopped his 401K deduction a few months back to try to help us manage the credit card bills. His company just had a meeting and told everyone they will be starting everybody out at 2% deductions starting May 1st (they said the company is now allowed to automatically sign everyone up). There is an option to decline after they take the first deduction. I know a 401K balance is protected. Are 401K deductions allowed as monthly expenses? Any limit on the percentage? Prior to him stopping his deductions, he was having 6% taken out as that is what his company will match. Now they will match up to 10%.

Thanks again for your help! I appreciate it.
reallynervous

[lrprn]

Okay, one last question (for now =] )... Are 401K deductions allowed as monthly expenses? Any limit on the percentage? Prior to him stopping his deductions, he was having 6% taken out as that is what his company will match. Now they will match up to 10%.

Retirement contributions during bankruptcy to a 401K are allowed by most trustees, but the amount and % depends on local practices. For example, in our district a Ch 13 filer is allowed to contribute 5% of gross income to a 401K retirement account, but no more. Your local bk lawyers should be able to tell you what % (if any) is allowed in your district. Definitely tell your husband to contribute the maximum % allowed until your Ch 7 bankruptcy is discharged and closed - that money can't be touched by the trustee.

[gak555]

If you contribute to a 401K monthly is that is considered an expense ? Also, I heard that you can use up to 15% of your income for charitable contributions as long as you have proof. Does anyone know ?
Thanks

[SinkingFast]

If you contribute to a 401K monthly is that is considered an expense ? Also, I heard that you can use up to 15% of your income for charitable contributions as long as you have proof. Does anyone know ?
Thanks

In the case of 401K contributions, those are listed on Schedule I as a payroll deduction. Like taxes, SSI, medicare, any insurances and such. Our attny put the 401K on Line 4d, Other, listed 401K, and put in the amount.

Your total Net from Schedule I is then transferred to Schedule J for comparison with your Expenses.

Charitable contributions would be listed on Schedule J, Line 10.

I don't know if there's a set %'age allowed for Charitable contributions. I do know the Court likes people who give on a regular basis. Your Trustee and Local Rules may decide what % is acceptable.

[reallynervous]

Thanks for the additional info!

Thank you again for the info. Seems like a lot of my questions will be things a local attorney we choose will need to answer, but it really does help to have some idea in general. If we can, we will get dh's 401K deduction started back up again.

Do you think it is acceptable to ask an attorney at our initial consultation about these type issues r/t what is acceptable to our trustee in our area, etc.? I am thinking that it is maybe not something to ask until we have chosen an attorney, given that the initial consult is free. The attorney we are meeting with this week asked us to bring a list of our monthly expenses and paystubs, etc with us to meet with him, so maybe he will comment on if our expenses seem acceptable.

Thanks again - you are terrific!
reallynervous

[SinkingFast]

It's really gonna vary attny by attny, what you learn in Consults.

One attny was pushing hard for a Ch 13 for us. The attny kept referring to the Trustee,......... "He doesn't like this." and "He doesn't allow that." Like the Trustee was some wicked old man.

A couple of other attnys told us about the one Ch 7 Trustee. She's a younger, unmarried woman who doesn't know how much things cost for families. That families with small children have one set of expenses. Families with teenaged drivers have higher insurance costs. That type of stuff.

So you may learn a lot about the different Trustees in your area just during the course of chit chat in Consults.