What is a bigger factor in determining ch.7 Means test or schedules?

[mickseven]

While looking at this site, my knowledge about Chapter 7 has increased (I think). I'm going to try and simplify and see if my understanding chapter 7 qualification is correct. I know there are many variable - want to make sure I have the concept correct. Please let me know if I'm looking at it the right way.

Ok. The means test uses prior 6 months income versus expense to determine if you can file ch. 7 or 13 on paper. Regardless of what the test says the schedules you file in bankruptcy really determine what happens - whether 7 or 13. Main reason is means tests uses backward looking data and some expenses and income you use may not relevant coming out of BK. While schedules use today's numbers which may tell a different story.

I'll just try one example.

Doing means test - you are determined to file ch.13. Let say there is a loss of job -so making less income. When filing schedules after calculating income vs expenses there is no funds left to pay any creditors via ch. 13. Your case would then be converted to ch.7. Correct?

In this scenario would you have to do 13 first to prove no extra funds for creditors or can your lawyer file the 7 out of the gate -since the numbers prove it out anyways?


Let me know if I'm in the ballpark.

[DebtStinks]

Sounds familiar… I’ve been working on getting my mind around this whole bankruptcy thing as well. This is my understanding on the means test.

If you have assets that greatly exceed the allowed exemptions for your state then you would be forced into a chapter 13 if you don’t want to lose those assets. Now if you don’t care about losing your assets or they fit into the exemption system for your state then you would try to shoot for a chapter 7.

Now the means test will serve to provide the presumption of abuse for your case. If your income is below the mean income for your state and family size then the “presumption” is that you are not trying to abuse the system. Now this doesn’t mean you are 100% clear as from what I’ve gathered a tough trustee can still run the numbers and determine if you have enough disposable income to fund a chapter 13. If you can fund a chapter 13 then the option of a chapter 7 goes out the window (short of any direct petitions to the court).

If your income is OVER the mean income for your state and family size then you must complete next part of the means test to find your monthly disposable income. My guess is that if you’re under the mean income then the vast majority of people will pass this section and be allowed a chapter 7 (which is why the automatic presumption is no abuse). If you wanted to be sure you could just run the numbers in this section with your “under mean” income level to see if you have the disposable income to fund a chapter 13. If you are under $100 a month in disposable income you are in good shape. However if you have between $100 and $165 in disposable income then another test is required to see if your amount of disposable will be sufficient to pay on the chapter 13. If it won’t pay then you pass, otherwise you fail. If you have over $165 in monthly disposable income then chapter 7 is again out the window and you will have to do a chapter 13.

Many people that are over the mean income will still pass the test. The test does a pretty good job of trying to figure out exactly what it should cost for you live in your area per month. This will not include any unsecured payments to credit cards, trips to starbucks, or any other non-essential expenses. You just subtract what the test determines it costs you to live from your income and you’ll have your disposable income value.

Doing means test - you are determined to file ch.13. Let say there is a loss of job -so making less income. When filing schedules after calculating income vs expenses there is no funds left to pay any creditors via ch. 13. Your case would then be converted to ch.7. Correct?

The date you file is very important since it creates a “snapshot” of your financial situation that will be used for the means test calculations. Whatever day you file the means test will use the data from the previous 6 full months. You should already know if you can do a chapter 7 when you file. The only thing that could change this is if you made a mistake on your calculations or any fraud or abuse is discovered. Most people will be going in for the chapter 7 and for whatever reason get forced into a chapter 13. It’s typically not the other way around.

I believe the schedules just hold the raw data regarding your financial situation and the means test pulls from that data as needed.

Hope that helps some…

[TEW]

It all boils down the how much disposable income you have. If you have low income but you don't have a car and maybe someone is letting to live somewhere rent free. You may have a problem filing chapter 7. You can be making 200K a year but have 2 new cars 6 kids house Ect. and be able to file chapter 7.

[floridian]

i guess i should have bought an expensive house....i was going to let my house go and rent a more expensive one... the lawyer said i would fit a 7...
i didnt leave my home which has lower payments and the lawyer says that im 13 bait..

excess disposable income, shell game...

[SubPrimeME]

i guess i should have bought an expensive house....i was going to let my house go and rent a more expensive one... the lawyer said i would fit a 7...
i didnt leave my home which has lower payments and the lawyer says that im 13 bait..

excess disposable income, shell game...

In MN there is a cap on what a 'rental' will allow for- I believe it's 1300.00. So the mortgage would have been a much deal. Anyway you can do a contract-for-deed? That way you can claim the entire amount of what you are paying on your schedules. For example if you have a 2000 rental, you claim only 1300 of, but with a CD you can claim all 2000. Just a thought...