Means Test Question: 2nd Home?

[moneyprob]

I have a second home in Minnesota (my prior primary residence) that is nearing foreclosure. I have a primary mortgage and a HELOC on that property. I don't want to own the home in Minnesota.

I also own a home here in California.

Can I use both homes (and all three mortgages) in the Chapter 7 means test? I'm guessing not...

[Tbornetun]

aah, no. Sorry. Only your primary residence where you currently live.

[aljohnson007]

[MSbklawyer]

Which case is that AlJ? That might be useful one day.

Thanks.

[aljohnson007]

[justbroke]

Can I use both homes (and all three mortgages) in the Chapter 7 means test? I'm guessing not...

For the Means Test, you absolutely can use both homes.

The real problem is, can you use both on Schedule J, and the answer is no. The problem will come if you actually need the payment on the second home to pass the Means Test. If so, the Trustee will quickly see that you're intentions are to surrender the Minnesota (2nd home), and will file an 11 USC 707(b)(3)(B) motion to dismiss for "totality of circumstances".

Which case is that AlJ? That might be useful one day.

I've just reviewed about 100 cases on 707(b) Motions to Dismiss from all Districts within Florida, and then some in Georgia (11th Circuit). (That Labruno case was one of them.) If you look at that particular case, it was a 11 USC 707(b)(2) and (b)(1) motion, not on 707(b)(3)(A) or (B).

As usual, and luckily for the debtor, the UST attacked them on what was included in the Means Test when the UST probably should have attacked the petition under the "totality of circumstances" 707(b)(3)(B).

In Re. LABRUNO

For MSbklawyer, the landmark cases for the 11th Circuit are In re Parada, 391 B.R. 492 (Bankr. S.D. Fla. 2008) from Judge Isicoff who is a most excellent Judge. Parada is based on In re Henebury, 361 B.R. 595, 603-04 (Bankr. S.D. Fla. 2007).

Also, for MSbklawyer, if you're into it, there's a spreadsheet from the NACBA, that contains around 500 different case citations and tells you how the means test was basically pulled apart and the outcome.

http://www.ctbankruptcy.com/nacba09/files/MeansTestCases.xls

[sjcmCA]

FYI

I am living in California - Central Valley.

Recently I met several attorneys for BK.
This is my situation.

1. Area 1: I am renting a house.
2. Area 2: There is a rental property (a primary house in the past)
3. Student Loans

Except one attorney who pushed me to file ch13, other two attorneys told me that I absolutely can claim above all expenses, e.g., my rental expense, all mortgages related expesnes (1st, HELOC, HOA, tax), and student loans then I am qualified for chapter 7 even though my income is $5k higher than the state median.

I am 5 days behind the mortgages but attorney said that I don't have to be current on the mortgages.

Does this depend on the Disctricts?

Anyway, the attorney would put an intention to keep the rental property first and then surrender the renatal property later unless there is really good mortgage modification by the lenders.

It sounds weird but they insisted (!) that we should put ALL EXPENSES and ALL INCOMES for the means test.
One attorney even emailed me that the mortgage related expenses for the rental property can be claimed as expenses even 15 days after repossession / foreclosure.

[justbroke]

Except one attorney who pushed me to file ch13, other two attorneys told me that I absolutely can claim above all expenses, e.g., my rental expense, all mortgages related expesnes (1st, HELOC, HOA, tax), and student loans then I am qualified for chapter 7 even though my income is $5k higher than the state median.
.
.
Does this depend on the Disctricts?

For the Means Test, the overwhelming majority of Districts allow you to claim all secured debt on the means test, whether you're surrending it or not.

Your real problem comes about if the Trustee decides to dismiss under a "totality of circumstances" case. While I have gone back and forth with one poster on this forum concerning being over or under the median income doesn't matter for receiving a Chapter 7, the overwhelming majority of cases dismissed for totality of circumstances, are in fact under-the-median income cases.

Anyway, the attorney would put an intention to keep the rental property first and then surrender the renatal property later unless there is really good mortgage modification by the lenders.

This may work. Since your intentions aren't to surrender, the UST may not pull the "totality of circumstances" Ace card.

It sounds weird but they insisted (!) that we should put ALL EXPENSES and ALL INCOMES for the means test. The attoneys were wrong?

No, they are not wrong!!! This is absolutely the way the Means Test works. The Means Test is backwards looking.

One attorney even emailed me that the mortgage related expenses for the rental property can be claimed as expenses even 15 days after repossession / foreclosure.

Now that doesn't even sound right. I'm sure a UST could actually win a case -- if they did their homework -- in that case. When they hold a hearing for the Dismissal, the Trustee only need say that the "amount is not contractually due". That is the key phrase in why the expenses are allowed on the Means Test -- contractually due. There's another recent case where they determined that foreclosure, even if there's a redemption period, removes the "contractual" nature of the Mortgage/Note, so even with a 1 year redemption, doesn't make it "contractually due".

(Yes, I've been studying this for months.)

[sjcmCA]

Thanks for your quick response, justbroke. I have read all your threads (since I joined this forum) and found that all are very helpful. I really appreciate that.

Anyway, it sounds like it depends on Trustee and/or District. Then the answer for the first question on the first and second home expenses is "depends on". Am I understanding correctly?

"the overwhelming majority of cases dismissed for totality of circumstances, are in fact under-the-median income cases" --> It is very scary fact. I saw some articles that even over $100,000 incomers were qualified for ch 7 due to a lot of expenses. That's why "over-or-under median income doesn't matter...."

Anyway, I am always feeling that I learn something in this forum everyday. Thanks!

[justbroke]

Anyway, it sounds like it depends on Trustee and/or District. Then the answer for the first question on the first and second home expenses is "depends on". Am I understanding correctly?

How much grief you get, is almost always Trustee/UST dependent! That's for sure as personalities and perceived godliness seems to prevail. LOL. I would include the expenses on the Means Test regardless of the Trustee/UST. If they don't like it, you'll find out about it.

Looking back to your original question, however, gives me pause that the attorneys stated that you could include SL repayments in a Chapter 7. Now that would need to be a special case in which the loans wouldn't/couldn't go into forbearance. If the loans can go into forbearance, they can't be included. Generally speaking, SL debt is never allowed as an expense in Chapter 7.

"the overwhelming majority of cases dismissed for totality of circumstances, are in fact under-the-median income cases" --> It is very scary fact. I saw some articles that even over $100,000 incomers were qualified for ch 7 due to a lot of expenses. That's why "over-or-under median income doesn't matter...."

Forget the $100K folks, there are millionaires who do Chapter 7. It's called bankruptcy pre-planning! There's a good movie on a millionaire Chapter 7 called "What's the Worst That Could Happen (2001)" with Danny DeVito and Martin Lawrence. That's where I got the phrase... "it's a technical process".

Anyway, I am always feeling that I learn something in this forum everyday. Thanks!

We all do... we all do.

[sjcmCA]

Even a millionaires can be qualified Chapter 7? It's amazing...But I think it's very possible considering all expenses.

In terms of Student Loans (SL), I think it really depends on the District. My attorney confirmed twcie that SL will be put in the means test automatically since it's not dischargable. She would be annoyed by my same questions about SL.

I am lucky to be in Central Valley California because SL is one of the critical factors put me into Chapter 7.

[justbroke]

In terms of Student Loans (SL), I think it really depends on the District. My attorney confirmed twcie that SL will be put in the means test automatically since it's not dischargable. She would be annoyed by my same questions about SL.

Good luck with the SL stuff. We have another poster from California battling a 707(b)(3) motion to dismiss... specifically on SL debt not being allowed. I believe she is in the Inland Empire though.

If you are able to include the SL debt, please let us know why it was allowed (e.g. no forbearance available).

[sjcmCA]

Yes, I will keep updating on Student Loans.

I checked several threads in this forum. Some could put SL but some couldn't. It made me very confused. But the last two attorneys told me that there were no problems to put SL at all.

One attorney even told me that "sjcmCA, if we pass it here in house, there will be no problem with UST. We don't pray or beg for this stuff to pass if UST objects them or not. It's very straight forward. We pass means test with all expenses here, there should be no problem with UST".

I know that every case is different. Anyway, I WILL share all my BK processes someday.
As I got a lot of help here, I would like to share my experiences with others in the future.

Have a wonderful day.

[justbroke]

As I got a lot of help here, I would like to share my experiences with others in the future.

The nice thing here... we all learn by sharing.