Will my fam pass the means test? HELP!

[grant]

Hi. First time poster here. Glad I found this site. I'm going to ask a long question, but please bear with me. I am freaking out and need some straight up answers that my lawyer won't give me.

Okay, my question. I just did an emergency chapter 7 filing last week and am just now completing my required stuff like Schedule I, J, etc. I'm freaking out though about whether my family will actually pass the means test because of our disposable income. Can someone give me an honest answer. My lawyer has me freaking out that we won't pass and be kicked into 13.

Here's our situation. I have a family of 7 (me, wife, five minor kids). Total debts of $115,000 (all non-priority, all unsecured, mostly consumer debts). The median income for a family our size in our state is $90,690. I run a small home based business and my total income (even before any business expenses) is $77,820 for the last year (with an annualized income of $75,281 used on the means test). So we are well below the median.

From what I read before I filed, our case was a slam dunk Chapter 7 because we were below the median. However, as I am filling out our expenses on Schedule J, we show about $1200/month dollars in disposable income. I looked at the IRS standards and my family is in fact living waaay more meagerly than the amounts allowed there (for example we fully own our one car - worth $4850) so we don't have a car payment, and we are renting a tiny 2 bedroom house for $700 a month and utilities are low. And we don't have health insurance.

So the gap between what we could be claiming if we went by the IRS expense standards and our ACTUAL expenses is pretty big. Therefore, we show a lot of disposable income. Most of this disposable income is eaten up by my small business expenses, but I'm nervous about including all my business expenses on Schedule J to offset this gap because I don't feel like getting my business audited. However I could report them if I absolutely need to.

So as it stands now, I am showing a disposable income of about $1200 per month between Schedule I and J, which would lead me to believe we'll be kicked into Chapter 13 (and my lawyer is also telling me I could be made to go 13). Is this true? Or does the fact that we are so far below median on form 22A mean that the trustee won't really look at the disposable income gap on Schedule I and J?

It doesn't seem fair that I would be kicked into a Chapter 13 when we're so far below median on form 22a and I basically have my family living in third-world conditions. Instead of my family being able to use our disposable income to improve our conditions (i.e. rent a bigger house, have a newer financed car, have health insurance), we would be forced to hand over all our disposable income money to our creditors each month when people with the same income, but living far fancier than us, are able to get away with Chapter 7.

So can someone please give me a straight up answer. Is there a chance that we will be forced into Chapter 13 when we are so far below the median on form 22a, but are living in squalor thus showing that we have $1200 disposable income on schedule I and J? And once again, I was thinking before we filed that when one passes the means test on form 22a that one was a guaranteed Chapter 7. If I knew there was any question of being forced into 13 anyway, I probably wouldn't have filed.

Someone help me out here. Thanks. And BTW, is it okay to just plug in the allowed IRS expense numbers for food, health care etc., on Schedule J? If I do, will I be busted and made to put my actual expenses? I'm freaking out. Also, if I do plug in my business expenses to offset my disposable income, will this automatiaclly trigger a busness audit and if so, is this audit as brutal as an IRS audit?

[jdcat]

I think it might be helpful if you post what amount you are claiming for each expense. For instance medical expenses, since they are all out of pocket for you, will be much higher for you versus someone who has insurance. So you may not be figuring in an amount that is reasonably high enough. If any of you wear glasses or take prescription meds that will up the cost even more. How much are you claiming for food, clothing, recreation, transportation, school lunches, personal care, and expenses that fall into the "other" category? You can get away with higher expense numbers, as long as they are reasonable, because your family is so large.

[grant]

Thanks for replying. So far I've put 700 rent, 290 utilities, 100 home maint, 1850 food, 250 clothes, 415 out of pocket medical, 210 transportation, 25 recreation (is recreation considered acceptable, I was told it could be thrown out), 500 charitable, 55 auto insurance. Total of $4395 leaving my disposable income at around $1600 month. But you're thinking I could go higher on some of these family expenses (above IRS standards) and not have them thrown out?

However, if I do just include my avg business expenses of of $1700/month, it wipes out the disposable income to the tune of -$100/month, but I am worried about triggering an audit. If I do get an audit of my business, how deep do they go? My books are a little unorganized and I can't find some receipts from some business expenses I paid with cash?

One last thing. When initially filing I just put that my debts were primarily consumer debts. I just did this for convenience. The fact is the majority of my debts are probably business related debts and I wouldn't be subject to the means test. If I do elect to just say my debts are primarily business debts, what documentation do I have to show to prove this? Most of the purchases were made with personal credit cards 3-4 years ago and coming up with receipts, etc will be next to impossible.

Thanks in advance for any replies.

[mtbc]

I am no expert and can't help with most of your query, but at a glance it looks to me like you might be low-balling recreation. You're typically allowed some! That high of charitable, can you substantiate it with past receipts? $1600-ish is a big hole to cover with things that perhaps don't accurately reflect your real expected expenses going forward. If you want to do chapter 7 I don't see how you're going to sail through without making your business a bit more explicit in the filing.

[grant]

Thanks. I agree on the recreation expense. What would you say is a reasonable recreation expense amount for a family of 7?

And yes, my charitable is well documented.

I'm thinking I am going to have to add my business expenses to plug the hole. Does anyone know how deep they will dig into my business? Do they just examine my books, or are they looking for every single receipt, etc? And BTW, I obviously haven't filed 2009's tax returns yet, but my business expense numbers from 2009 are about the same as my past two tax returns.

Plus, on the line that asks about expected increases in expenses, could I put that we are probably going to have to rent a bigger house and buy health insurance? Does this carry any weight with the trustee?

[jdcat]

Hi Grant-

I was assuming you had been shorting yourself on expenses but I see that you haven't. Can you afford to move to a larger place in the near future? A family of 7 living in a two bedroom house is just not very typical at all. Also, a family of 7 with one car? And no health insurance? I don't know if these issues will have any weight with your trustee but I sure hope so. It's not like moving to a bigger home and buying health insurance are unreasonable in your situation, not in the least. Let us know how it goes and I wish you well.

I hope someone here with knowledge of the business side of your issue can give you some helpful input soon.

[ChaseDidThis]

only 415 for health? I had 200 in health and that was just out of pocket cost with health insurance. A family of 7 needs health insurance or you'll eventually find yourself more than 115,00 in debt. I paid almost 7,000 last year for employer sponsored insurance, and that was only 38% of the cost of the policy so I would think you could close that DMI gap quickly by getting some decent insurance.

Wish you and your family luck with all of this.