Above Ave Income vs. Means Test

[mhman]

I will get additional 6% pay cut from this October. It makes me $500-600 above the median income in California.

Does this mean I can not be qualified for Chapter 7? Or I still have a chance for Ch7 through the means test. I scheduled a meeting with an attorney this Friday but I would like to know this before I meet the att.

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Another question:
I am going to stop mortgage payments from the next months but I will keep paying CCs couple of months to make sure 6-months income range. Otherwise I would be sued by CCs before filing and rush to file Ch 13.

In this case, is it not good to use billpayer through a new checking account which will be remained after BK? My concern is that CC companies would take out the money from my Checking account since they know the account information before default.

Or they simply cannot take the money from my checking account. (There is not debt with this new checking account.)

What is the best time to open a new checking account for this case?

Any advice would be helpful and appreciated.

Thanks!

[destitute]

If you're above the median income you take the means test to see if you qualify for a chapter 7. It's possible to be way above the median and still qualify based on your expenses. You can find online means tests by searching these forums to get an idea where you stand.

I don't believe they can take the money from your checking account unless you owe a debt to the bank your account is located but I'm sure others will chime in on this one.

You can open a new checking account whenever it is convenient for you. Just make sure you save all of the bank statements from both the old and new account in case they are needed for the bk.

[justbroke]

First, it's not your income (over or under the median income) that qualifies you to receive a Chapter 7 discharge. It's how much money you have left over from your income, after allowed expenses -- also known as your disposable income!

I don't know why you'd continue to pay your credit cards at all. When are you filing? Usually -- and there are some caveats and assumptions -- paying credit cards are just throwing money away. The only time to pay them is when you've made a recent large purchase and are trying to at least attempt to pay the debt (so they can't accuse you of never intending to pay it).

What are you really trying to do? and when?

[klandsb]

Just my opinion but I would much rather pay my mortgage then pay the credit card companies..... Doesnt make any sense to me...

[mhman]

This is my situation.

I had a rental property which has negative cash-flow and I want to surrender through BK.
Because of this, I can't be qualified for ch7 due to 6-month ave income rule.

As such, I might be able to file BK in min 5 months.

My biggest concern is to be sued by CC companies before I qualified. If I am sued by CC, I would file Ch13 to avoid "Wage Garnishment". Am I too sensitive for this?

I saw that some people even can be sued 3-4 after stopping payments. This is my biggest concern.

If I am sure that CC will never sue me within 6 month, I will stop all payments.

Any advice?

[mhman]

Hi klandsb, Thanks for your comment.

The reason I stop paying mortgage first is that it would take much longer for foreclosre.
I mean that it is much safer than CCs in terms of "Sue". I really want to surrender the rental property which has HELOC.

If I know I am qualifed after 3 - 4 month from now (since I stop receiving a rent), I will stop all CC payments as well.

[LuciluS]

This is my situation.

I had a rental property which has negative cash-flow and I want to surrender through BK.
Because of this, I can't be qualified for ch7 due to 6-month ave income rule.

As such, I might be able to file BK in min 5 months.

My biggest concern is to be sued by CC companies before I qualified. If I am sued by CC, I would file Ch13 to avoid "Wage Garnishment". Am I too sensitive for this?

I saw that some people even can be sued 3-4 after stopping payments. This is my biggest concern.

If I am sure that CC will never sue me within 6 month, I will stop all payments.

Any advice?

Well, I'll tell you our Story. After obtaining our BK Attorney with a retainer fee late last Sept. We quit paying on all Credit Cards except One (had a $3,500 balance transfer in Aug., Attorney said pay 3 monthly minimums and add $25 to each month, so we did). Some of our accounts have been turned over more than once to different collection agencies. Bank of America just continues to send us a monthly statement.

In the beginning, we though we would be filing in Dec.08 or Jan. 09 & when CC's would call, that's what I told them. Well, things happened, possible Breast Cancer (biopsy needed), Skin Cancer Surgery in March and hubby was hospitalized for a week in the hospital & off work most of the month of April. So during all this time, I would say I don't know when we would be filing becase of 1,2 or all 3 of the above. Was advised by our CK Attorney to quit answering the phone. So We don't.

Have received many collection agency notices, 2 Law Firm notices & many dunning letters from the CCs. Have not answered a single one, either by phone or mail. As our Attorney said, your Credit Card Companies are aware you will be filing BK, why would they go out and try to get a court order to garnish your hubby's wages? (I'm on Social Security Disability, which is exempt)

Soo, gathering paperwork, completing spreadsheets, waiting on Hubby's last paycheck & will drop all the stacks of paperwork to the Paralegal who will input it & call us with our appt. date with the Attorney to go over the schedules. He knows we want to be filed by 9/30/09.

So don't waste your hard earned money on Credit Cards who don't give a darn if you starve to death. So no monthly mortgage payment, no credit cards to be paid (which is NEVER included in the means tests) monthly utilities, possible cell phone bill. Hope you have a car payment so you can include that in your Means Tests along with the auto insurance.

If you are waiting to file in 6 months, make sure you have health insurance coverage. Go buy a Life Insurance policy, maybe a Cancer policy & an accidential death insurance policy.

One of our members DebtStinks wrote an excellent easy Means Test. Here is the link

http://www.johnfire.com/meanstest/wizard.php

[Pizza]

Justbroke's paragraph says it perfectly as far as the means test. Believe it or not, the means test is not particularly tough unless you are leaps and bounds above the median income.

[frmrdwn]

I'm in a similiar situation. It will be nine months before I can file for Ch. 7 and during those months I am stopping payments on all credit cards. I'm a basket case anticipating garnishments and lawsuits after passing the six month mark, but here's my thinking. My state says that creditors can only garnish 25 percent of my salary. Everyone has to get in a looooong line because it's first come, first served. I keep 75 percent of my pay and I can comfortably live on that, it's still better than life in the credit card lane.

Also, filing for Ch. 13 costs several thousand dollars and then there's a cost to convert Ch. 7 (if still possible), plus additional attorney fees. In my situation, it's more cost effective to wait it out and hope my attorney can help keep the creditors at bay before I file. But, even if my wages are garnished for a few months I am better off in the long run than filing a ch. 13 (and I am only assuming that my atty is right that I qualify for the ch. 7 route- you never know until you know!).

Also, will develop a strategy as to when to stop paying my mortgages before filing bk. I plan to surrender the house. Want to be able to save money to move before surrendering the house.

[mhman]

I ran Means Test from Nolo.
Even though it's a rough result (I was not sure some items), I will be able to pass Measn Test from February 2010. (This is based on 6-month average income)

I have a HELOC account with a current rental property. Am I correct that this HELOC amount should be included in unsecured debt item since it won't be wiped out even after foreclosure?

Thanks for all your comments above.

[aljohnson007]

HELOC is considered secured debt as it is nothing less than a second mortgage. I have a second home HELOC that will be surrendered and it is listed as secured. Also, although you will surrender the house, you can still claim the payment on the means test even though you stopped paying as it is a contractual obligation in effect on the day you file. Stop paying mortgages as it will take a year for them to get you out and you can stall the ccs for a long, long time. Just be patient.

[klandsb]

Here is how it went for me... Stopped paying CC Sept 2008 and didn't get sued until July 2009..... I am sure every case is different but I think they are so backlogged with people not paying that it takes longer then you may think... Plus after you get served you have 20 days to respond then you can strech it out another 30 days....

[mhman]

Thanks for your comments - aljohnson007

How can I claim the mortgages payment in the means test as a expense which I will surrender through Ch7?

I checked the NOLO means test. But it shows that

"If you are claiming deductions for payments on property that you plan to surrender to the trustee during bankrupcty, note that many courts will not allow that deduction."


I am confused now. Did you claim both 1st and HELOC as deductions for "secured debt payments"?

If I can claim 1st and HELOC as debt payments, I can file ch7 today without waiting 6-month!

FYI, I am in California.

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klandsb,

You mean that I can still have 50 days (=20+30 days) even after I am sued, I mean before the wage garnishment? If your comment is true, I would stop all CCs payments and be safe since I am filing in 6-month.

I think the time frame works then. Am I understanding correctly?

[aljohnson007]

Look up bk case 8:08-bk-06339-KRM,(LABRUNO, GERALD D & KAY F) Middle District of Florida. The UST objected to debtor claiming mortgage payment on property he had already vacated and intended to surrender but lost the argument.

[Pizza]

I'm in a similiar situation. It will be nine months before I can file for Ch. 7 and during those months I am stopping payments on all credit cards. I'm a basket case anticipating garnishments and lawsuits after passing the six month mark, but here's my thinking. My state says that creditors can only garnish 25 percent of my salary. Everyone has to get in a looooong line because it's first come, first served. I keep 75 percent of my pay and I can comfortably live on that, it's still better than life in the credit card lane.

That's a common thought process, since so many people are paying 50% or more on minimum credit card payments and getting nowhere on the principle. 25% may sound like a bargain.

However, there are underlying consequences to go along with that. First, your credit will suffer terribly, and for a longer duration with all the judgments appearing. Also, the attorney fees will be even more expensive when you do decide to file because of those judgments. You may have other assets taken than wages alone, and you may lose time at work tied up in court hearings.

If you took the same 25% of your wages and put it towards an attorney retainer, wouldn't that be more cost-effective in the long run? You can save your assets, avoid the judgments and the garnishments that come with them, and initial consultations are often free. If you aren't filing for 9 months (why 9?) then you have some time to save up. Generally, your originating creditors will be 'reminding' you about your debt and making 'offers', then turn them over to collections who might even turn them over to other collectors, so it's not likely that a judgment would happen overnight. If you communicate with the creditors properly (and in writing only) you may even be able to stall them some more.

Go for keeping 100% of your wages and removing this problem from your life.