Chapter 7 - Presumption of abuse arises

[Taxed]

Has anyone here successfully filed Chapter 7 when their means test resulted in the presumption of abuse?

Due to a bonus that I received in January, my income is artificially inflated for the 6 month look-back period. Due to the economy, the likelihood of my getting an annual bonus in future years is bleak (I work in the investment industry, and annual bonuses are based on company performance); in fact, my employer recently laid-off 10% of it's workforce and suspended all raises, including cost of living increases.

My lawyer is of the opinion that he can argue that my recent bonus is a one-time "special circumstance", as there is no guaranteed annual bonus amount (there is a maximum that I can receive, but even the bonus I got this year was less than the max) or even a guaranteed annual bonus , especially in light of the current economy. If fact, my lawyer already spoke to the UST assigned to my district regarding this circumstance and the UST agreed that, as long as the bonus was the only item that instigated my failing the means test, that he would not pursue a presumption of abuse claim.

Anyway, when filing my paperwork, it will be filed as a Chapter 7 with the presumption of abuse box checked, and I was curious if anyone else filed similarly and what their experience was. Before anyone asks, due to other circumstances, I can not wait until the bonus drops off to file. I just wanted to clarify that in the event someone makes the suggestion, or asks why I'm not waiting. I'm more interested in the experience of others, and I was unable to locate similar experiences in my search of the forums.

[kathy4530050]

Taxed,

I had several clients who were seriously late on payments to me all submit payments in February, which REALLY distorted my income. All of the expenses related to these payments were accrued earlier than the 6 month look back period, so this further inflates my income. My lawyer told me that he could make the argument to the trustee that this is in no way typical of the way $$ typically comes into my business , and that this is a one-time event. However, he said that while I could still file Ch 7, it was entirely likely that the trustee would seize most of the money in my business account if I filed too soon.

So I am waiting and doing my best to wrack up as many business expenses as possible to reduce my net. It sounds like you are salaried--is there anything you can do to reduce your net or increase your living expenses?

Kathy

[StartingOver08]

Well, as I understand it, if you are filing with the presumption of abuse box already checked, then the Trustee only has to either dismiss your case or convert it to a 13.

You said your attorney will fight the presumption by arguing the 'special circumstances' of your bonus. Haven't you received bonus' before? Remember the Trustee looks to the past to see if this is a regular event. They do not take into account future events. Your filing is a snap shot in time.

Is your attorney charging you extra for the special circumstances arguement? Many do charge extra for everything on top of a 'normal filing' (read that to be fill out paperwork and attend 341). How many attorney's did you interview before selecting this one? Not all BK attorney's are the same. Getting a good one is not easy - and the fee does not always tell you whether they are good or not.

I only bring this up, because it seems to me that by starting off with the presumption of abuse box already checked, you are hurting yourself right in your petition before it even gets to the Trustee.

[Taxed]

Actually, this is the first and only bonus I have received from my employer to date. Also, the trustee is free to look back as far as he/she likes - I have never received regular bonuses. I really have nothing to hide.

As for the statement that the Trustee "only has to dismiss or convert my case or conver it to a 13", while I agree that the trustee could take this tack, it certainly isn't automatic (which is what I felt you response implied). I feel confident that my lawyer knows what he is doing (as I had mentioned, he has been in contact with the UST's office about my situation; additionally, he was a former trustee and has been a bankruptcy lawyer for a very long time). I believe the intention is to be clear that I am not hiding anything and we are being upfront about the fact that I do not pass the means test based on including income that is not regular and artificially inflates my income.

I really do not beleive that increasing my expenses would really help me in the long run, as going over anything on the means test invites additional scrutiny. I don't want to inflate those items just to pass the means, and then have to attempt to prove them (in my state, the means test determines everything, the schedules are practically irrelevant). I really just want to be honest about the situation. I'm well aware that I could get converted to a 13, but I prefer to try for a 7 if my lawyer believes that it is feasible.

BTW, I didn't pick him because of his fees structure, or because of a friend's recommendation. I interviewed a number of lawyers, and the one I selected was most knowledgable and seemed to honeslty want to help. Additionally, he has always been incredibly prompt with returning phone calls and answering my questions honestly (even after he was paid in full). I prefer to pay a little more, if it is necessary, for him to argue a Chapter 7 that he believes has a good chance of happening. I do not feel that I am being taken for a ride - he has been very honest about the situation, and, if he believes that this is the best approach, I'm going to trust him in this, as he is certainly more familiar with bankruptcy law than I am.

I just thought I'd to share my experience, and see if others have had anything similar happen. I will certainly share my experience as I go. Maybe I will get converted to a 13, but I don't think filing the means test with the presumption of abuse checked makes that result automatic. I just prefer that the tone of the conversations do not become negative. I have found this forum very helpful, and everyone is typically very supportive; however, I have also noticed that there can be a some negativity when someone recommends or takes a different approach. Anyway, I have confidence in my lawyer, or I wouldn't have hired him. I didn't go to a mill, nor did I think my case would be easy, as I knew I would be borderline. Maybe the way my case is being filed is unconventional is some states, but my lawyer did not seemed overly concerned about it. I honestly believe he would have recommended the 13 had he thought it was the best and only option.

[StartingOver08]

I'm sorry. I did not mean to sound negative in my response to you. Also, I misunderstood when you said you got a bonus; I thought it was an annual event because many in the investment industry receive an annual bonus.

I am glad you are confident in your attorney. The reasons you chose him certainly make sense.

[Taxed]

You are correct in your assumption that there are often annual bonuses in the investment industry, however, they are never a guarantee. Additionally, the amounts can vary widely, especially when based on company performance. Given the state of the economy, the chance of seeing a bonus in the next few years are very slim. In my instance, the max I can bonus is rather small in the grander scheme of things, however, the bonus I received this year (which happens to be the only time I have received one), was enough to push me over on the means test.

The fact is that a 13 payment based on numbers that include my bonus could put me into a plan that is not sustainable. It is my understanding that the trustee is looking for assets and making sure that you aren't abusing the system - I don't think they are out to push people into plans that they can't afford (at least that isn't what they are supposed to be doing ).

[bkadvisor]

Your atty seems to be well plugged into the local legal culture. His ex parte convos with the US Trustee regarding the nature of this one time bonus event is definitely a sign of a competent bk advocate.

These types of one time hits are not uncommon. A case on point I recall is a debtor who received a payout for moving expenses. The trustee subtracted it as non-income for means testing purposes.

So your atty is advising you correctly. You seem more than pleased with his efforts on your behalf. You should do just fine.

GL!

[Taxed]

Update

I just wanted to update this thread for those who may wonder what happens when you file with the presumption of abuse boxed checked on your means test when there are facts as stated in my original post.

I had my 341 earlier this month, and there was never any involvement by the US Trustee beyond the communications between them and my lawyer regarding the siutation with my bonus (all occuring before the actual filing of the petition). The 341 was short and sweet, and the next day the trustee entered their report of no distribution. About 9 days later, I received the dreaded notification that, since the presumption of abuse arises, the US Trustee has 30 days to make the decision to dismiss, convert, or not dismiss. The next day, there was a statement by the US Trustee that dismissal/conversion was not appropriate due to the fact that my bonus was not guarateed and unlikely to be received in 2009.

Here's to a smooth ride for the remaining portion of the 60 day period!

[StartingOver08]

Congratulations on your successful 341 and no involvment with the UST! Thank you for posting the result to your filing too.

Welcome to the 60 day club!

[BnkrptcyLwyr]

Yes, you can argue that bonuses are a "special circumstance" and deduct it back out - done it many times. There is case law on it (which I cite) and I haven't had the U.S. Trustee complain.

[indigoblue]

I'm so glad to read this. My atty secretary just sent me an email stating presumption of abuse, probably due to the fact that we filed a 13 and 5 days later my hubby lost his job and thereby converted to a 7. Does it sound like this should be fine? He has been out of work for 2 months now, and I am disabled.

[CH33 Paralegal]

here's a thought....what did you spend your bonus on? how much was it?

[CH33 Paralegal]

any time you want to do anything substantial to the case before confirmation, it raises a red flag. It makes the court ask the question "why"