I mentioned in another thread that I would be happy to share what I've learned as an above-median filer with a worst-case scenario case. This is really long, so feel free to ignore this thread (many of you know most of the story anyway or can follow my earliest posts in the Members List).
We were about $40K above median and had an attorney who told us everything would be just fine. We went to our 341 meeting absolutely clueless about our petition, answered the case Trustee's general questions and were feeling quite relieved until the attorney for the UST sat down to ask us some questions. We had no idea what the UST program was, why this attorney was there, why they were asking questions or why they would have any doubt that we would be entitled to a Ch. 7 discharge.
We were not at all prepared to answer their questions and we fumbled around trying to figure out what part of our petition they were talking about. A good attorney would have told us that our petition was likely to draw the UST's attention and that we should come prepared to answer in-depth questions about our finances (including the six month period before filing). It was impossible to recall what we did four, five, six months earlier and it did not go well.
There were so many things we didn't understand when we filed, too many to put into one post, but here are the big mistakes we (or our attorney) made:
(1) The first thing we did when we could no longer tread water was to empty out DH's 401K. The money would have been safe where it was but as soon as it was taken out it became an asset for liquidation.
(2) The paralegal that prepared our documents asked for estimates of expenses for our petition. The amounts should have been taken from actual receipts for payments over the six month period preceding filing. As a result, nearly every number on our means test had to be corrected (and excessive errors on a petition can be enough to get a case dismissed).
(3) Attorney told us one time payments (such as our relocation reimbursement) didn't count as income on the means test. All money that came into our possession, regardless of its source, was counted as income by the UST. This made our means test look like we had a ridiculous amount of disposable income. It didn't matter that we were $1500 negative on Schedules I & J.
(4) Income went down about 35% in January, but we filed in April instead of waiting until the higher income and relocation bonus dropped off. We mistakenly thought our case depended on the big picture (e.g., Schedules I & J, medical bills, etc), but the big picture is irrelevant when the UST is able to adjust the means test numbers to give a presumptively abusive result. You have to get past that hurdle first before the rest of your petition will even be considered. There are no exceptions to the means test, at least not until the case is presented to a judge *after* you object to a motion to dismiss/convert to ask for consideration of special circumstances (and that requires additional attorney fees... a huge expense).
(5) Attorney advised us to spend the 401K money on cars that could later be exempted. "Yes, new cars are just fine... you'll just have to pay the Trustee back if we can't fully exempt them" he told us. Nothing gets the attention of the case Trustee and UST like a couple attempting to discharge a total of $470K of debt while exempting two brand new cars owned outright! Should have trusted my gut feeling on that one... what the attorney told me sounded too good to be true. Both cars are now gone. DUH!
(6) We thought our job as debtors was to provide the attorney/paralegal with the numbers and they would do the rest. Didn't realize that *we* were the ones who would have to explain the calculations at our 341 hearing or that *we* could be held responsible for a number the attorney came up with. If we had known that a misstatement on our petition could be considered perjury, we would have made sure our petition was 100% accurate.
(7) We trusted our lawyer to take care of everything associated with our case (at a minimum, taking care of the required forms) and didn't check PACER. I won't go into the details here, but let's just say that our attorney has dropped the ball over and over and that we teeter-tottered on the edge of dismissal since the day our petition was filed.
(8) You cannot easily get out of a Ch. 7 case once you've filed. Filing Ch. 7 has the same impact on your credit as getting the discharge, even if your case gets dismissed/converted. You do not have the ability to change your mind once you file, and if you file a motion to dismiss your own case you are required to appear at a hearing to explain your reasons (and they had better be good!!). Note: lawyer said, "sure thing... I'll file the motion and it'll be dismissed within 72 hrs.".
(9) Attorney told us our tuition payment of $700/mo. for the kids was perfectly reasonable and wouldn't be questioned. We had to write an explanation as to why this expense was "reasonable and necessary" at all, and why it was necessary to exceed the IRS Standards. After doing some reading, private school tuition has been the subject of a lot of debate in various districts. It is not safe to assume that it is an allowed expense. Note: UST did not disallow ours, probably because all that was needed to dismiss our case was the income recalculation.
10) A UST statement of presumed abuse is not the end of a Ch. 7 case. It does not mean anyone believes you committed fraud, are trying to cheat the system, etc. It is simply a statement required to be filed when the numbers on the means test give a result above a certain threshold. In order to have "special circumstances rebutting abuse" considered, the case has to go before a judge. Otherwise, the options are to allow conversion or to demonstrate that a Ch. 7 liquidation would generate more repayment to creditors than a Ch. 13 plan. We did the latter and the UST filed a declination, a statement that allows a Ch. 7 case to proceed after a statement of presumed abuse.
And the most important thing I've learned is that this forum is absolutely the most reliable source for information about BK. There seems to always be someone who has "been there, done that" and can provide good advice. There are some very, very smart people here who would have made far better BK attorneys than the one I had.
The best advice... never, ever give up!
We were about $40K above median and had an attorney who told us everything would be just fine. We went to our 341 meeting absolutely clueless about our petition, answered the case Trustee's general questions and were feeling quite relieved until the attorney for the UST sat down to ask us some questions. We had no idea what the UST program was, why this attorney was there, why they were asking questions or why they would have any doubt that we would be entitled to a Ch. 7 discharge.
We were not at all prepared to answer their questions and we fumbled around trying to figure out what part of our petition they were talking about. A good attorney would have told us that our petition was likely to draw the UST's attention and that we should come prepared to answer in-depth questions about our finances (including the six month period before filing). It was impossible to recall what we did four, five, six months earlier and it did not go well.
There were so many things we didn't understand when we filed, too many to put into one post, but here are the big mistakes we (or our attorney) made:
(1) The first thing we did when we could no longer tread water was to empty out DH's 401K. The money would have been safe where it was but as soon as it was taken out it became an asset for liquidation.
(2) The paralegal that prepared our documents asked for estimates of expenses for our petition. The amounts should have been taken from actual receipts for payments over the six month period preceding filing. As a result, nearly every number on our means test had to be corrected (and excessive errors on a petition can be enough to get a case dismissed).
(3) Attorney told us one time payments (such as our relocation reimbursement) didn't count as income on the means test. All money that came into our possession, regardless of its source, was counted as income by the UST. This made our means test look like we had a ridiculous amount of disposable income. It didn't matter that we were $1500 negative on Schedules I & J.
(4) Income went down about 35% in January, but we filed in April instead of waiting until the higher income and relocation bonus dropped off. We mistakenly thought our case depended on the big picture (e.g., Schedules I & J, medical bills, etc), but the big picture is irrelevant when the UST is able to adjust the means test numbers to give a presumptively abusive result. You have to get past that hurdle first before the rest of your petition will even be considered. There are no exceptions to the means test, at least not until the case is presented to a judge *after* you object to a motion to dismiss/convert to ask for consideration of special circumstances (and that requires additional attorney fees... a huge expense).
(5) Attorney advised us to spend the 401K money on cars that could later be exempted. "Yes, new cars are just fine... you'll just have to pay the Trustee back if we can't fully exempt them" he told us. Nothing gets the attention of the case Trustee and UST like a couple attempting to discharge a total of $470K of debt while exempting two brand new cars owned outright! Should have trusted my gut feeling on that one... what the attorney told me sounded too good to be true. Both cars are now gone. DUH!
(6) We thought our job as debtors was to provide the attorney/paralegal with the numbers and they would do the rest. Didn't realize that *we* were the ones who would have to explain the calculations at our 341 hearing or that *we* could be held responsible for a number the attorney came up with. If we had known that a misstatement on our petition could be considered perjury, we would have made sure our petition was 100% accurate.
(7) We trusted our lawyer to take care of everything associated with our case (at a minimum, taking care of the required forms) and didn't check PACER. I won't go into the details here, but let's just say that our attorney has dropped the ball over and over and that we teeter-tottered on the edge of dismissal since the day our petition was filed.
(8) You cannot easily get out of a Ch. 7 case once you've filed. Filing Ch. 7 has the same impact on your credit as getting the discharge, even if your case gets dismissed/converted. You do not have the ability to change your mind once you file, and if you file a motion to dismiss your own case you are required to appear at a hearing to explain your reasons (and they had better be good!!). Note: lawyer said, "sure thing... I'll file the motion and it'll be dismissed within 72 hrs.".
(9) Attorney told us our tuition payment of $700/mo. for the kids was perfectly reasonable and wouldn't be questioned. We had to write an explanation as to why this expense was "reasonable and necessary" at all, and why it was necessary to exceed the IRS Standards. After doing some reading, private school tuition has been the subject of a lot of debate in various districts. It is not safe to assume that it is an allowed expense. Note: UST did not disallow ours, probably because all that was needed to dismiss our case was the income recalculation.
10) A UST statement of presumed abuse is not the end of a Ch. 7 case. It does not mean anyone believes you committed fraud, are trying to cheat the system, etc. It is simply a statement required to be filed when the numbers on the means test give a result above a certain threshold. In order to have "special circumstances rebutting abuse" considered, the case has to go before a judge. Otherwise, the options are to allow conversion or to demonstrate that a Ch. 7 liquidation would generate more repayment to creditors than a Ch. 13 plan. We did the latter and the UST filed a declination, a statement that allows a Ch. 7 case to proceed after a statement of presumed abuse.
And the most important thing I've learned is that this forum is absolutely the most reliable source for information about BK. There seems to always be someone who has "been there, done that" and can provide good advice. There are some very, very smart people here who would have made far better BK attorneys than the one I had.
The best advice... never, ever give up!
Converted to asset case 5/26/2008 [X]
I'd rather be mad at myself for not researching or not knowing something than be furious with a supposed professional who got paid more money than I've had to rub together in 4 years.
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