UST issues Motion to Dismiss

[LJoutWest]

Well, we received it this afternoon and to be honest, I was not surprised. I wasn't surprised at not allowing the 401K though our attorney put it on there, nor on loan my wife has which is secured by her mother. What did shock me and has our attorney in a roar are the other items they denied. The first one is that the UST is wanting to deny our house payment because we surrendered the home and because we are over the median. So that took $3361.81 out of the means according to the UST.

Our attorney has gone through the motion and says that he knows that the US Trustee Office takes the position that you can't claim secured debt for property that you're surrendering, but the courts have shot that down time and time again. That alone makes us fall easily and safely on the side of passing the means test.

He also states to us that the UST also argue, though, that the "totality of the circumstances" show that you could afford to fund a Chapter 13 Plan. Yet, he went through each of the items that the US Trustee's Office would like to exclude from the calculation -- each of which is listed on your Schedule J -- and I still come out with a negative number.

Bottom line he feels we have a good case to defend and should defend it. He charges a flat fee of $250/hour but will do this for $1000 as a flat fee and if unsuccessful he will apply it to his chapter 13 fee if we convert.

We want to defend, especially on the house payment issue even though we have surrendered the house. If we end up unsuccessful that is ok, as the $450 or so a month is less than our student loan payments etc. anyway. Thoughts, should we defend? If you need information let me know, I live in Utah and am in the 10th Circuit Court of Appeals.

[mhman]

"Surrendered" means that the title has been changed to the bank?

As far as I know (based on attorneys' consultations), all the mortgage related payments can be listed in the means test and regarded as "official" expenses in schedule J even though the accounts are not current. I am in Northern California....it would be different in other districts?

I hope everything goes well. I am crossing my fingers for you.

[Meatstick]

Well that sucks and I hope it turns better if you do decide to fight.

Are you current on the mortgage that your surrendering ? We are filing in April and are current on mortgage but will surrender. Our attorney advised us to only claim the allowed allowance for housing even though out mortgage is higher. Told us that being over the median it would just add to the items the UST would scrutinize.

I wish you good luck !


Meatstick

[LJoutWest]

No we are not current. I think now I understand better what the UST is stating. Under 707 (b) 3 we have sufficient income left after expenses to pay back a significant part of our debt over 5 years. Thus the mortgage won't matter (based on this thread found on this board.

If you deduct the items the UST wants off on the schedule I and the schedule J our income goes to $6447.10 while our expenses drop to $6020.21 or we are over 426.89 in the positive and thus can pay back our debtors. If that is the case then we are going to have to move to a 13 and make sure our lawyer fights hard for the ending budget.

So my question again is, under 707 (b)3 and 707 (?) 2 do we have an honest chance at the chapter 7 and is it worth the fight or should we just do the chapter 13 and be done with it? If all the debts are paid by the UST except for our car which we reaffirmed then I don't mind a chapter 13. However, if the UST is trying to strong arm us and we could win with a fight like our lawyer thinks, what would you advise? Opens a new can of worms though. Any advice would be appreciated at this point.

On the house a motion was filed by the loan servicer to allow them to proceed with the foreclosure about 3 weeks after we filed. We did not contest and the motion was granted. No movement on the house though.

[DeadManCrawling]

An important distinction is that SOME or MOST courts have followed the method you describle. That is, payments due, "as under contract", are calculated under the means test, even if surrendering.

There ARE cases where the trustee won under the "totality" clause. You will have to search by district to see if yours is one.

In all the cases I remember, the debtor indicated an intent to surrender the property, was behind on payments at time to filing, or had even moved to another home, whether it was a rental or mortgaged property. In those cases, the debtor was dismissed or forced into a 13.

[albacore44]

Exactly what other items was he objecting to besides the mortgage payment ??

[justbroke]

Well, we received it this afternoon and to be honest, I was not surprised. I wasn't surprised at not allowing the 401K though our attorney put it on there, nor on loan my wife has which is secured by her mother. What did shock me and has our attorney in a roar are the other items they denied. The first one is that the UST is wanting to deny our house payment because we surrendered the home and because we are over the median. So that took $3361.81 out of the means according to the UST.

This is perfectly normal in many jurisdictions, and is the hidden "totality of circumstances" (11 USC 707(b)(3)(B)) motion that I have posted about many many times.

Our attorney has gone through the motion and says that he knows that the US Trustee Office takes the position that you can't claim secured debt for property that you're surrendering, but the courts have shot that down time and time again. That alone makes us fall easily and safely on the side of passing the means test.

This is where Bankruptcy practitioners seem to diverge (and I've read at least 100+ cases on this subject). It is absolutely true and caselaw supports that the UST cannot bring an 11 USC 707(b) or 11 USC 707(b)(2) motion under the Means Test. It has been found time and time again that you can actually claim your mortgage payment on your Means Test.

However, this is not the same in the Totality of Circumstances under 11 USC 707(b)(3) where the UST can look at your circumstances post-petition! So, the fact that you are surrendering a home can be taken into consideration while creating what they call a hypothetical Chapter 13.

He also states to us that the UST also argue, though, that the "totality of the circumstances" show that you could afford to fund a Chapter 13 Plan. Yet, he went through each of the items that the US Trustee's Office would like to exclude from the calculation -- each of which is listed on your Schedule J -- and I still come out with a negative number.

Excatly!

Bottom line he feels we have a good case to defend and should defend it. He charges a flat fee of $250/hour but will do this for $1000 as a flat fee and if unsuccessful he will apply it to his chapter 13 fee if we convert.

That is a very nice Attorney to do that.

We want to defend, especially on the house payment issue even though we have surrendered the house. If we end up unsuccessful that is ok, as the $450 or so a month is less than our student loan payments etc. anyway. Thoughts, should we defend? If you need information let me know, I live in Utah and am in the 10th Circuit Court of Appeals.

As I posted, most of the courts are starting to side that for the purposes of the 707(b)(3) Totality of Circumstances test, the UST can say that you can afford a Chapter 13 due to the surrendering of property.

However, the Courts seem to agree that when you go to the hearing on the matter, the Court can only include things that have actually occurred before the hearing. So, if the Bank hasn't actually foreclosed upon you at that time... then the payment can't be used by the Trustee under their 707(b)(3) motion. See In re. Parada, 391 BR 500 and In re Henebury, 361 BR 611. (Those are both Florida cases, but reference others).

[Meatstick]

Great read this thread is and also the links you provided elsewhere concerning this situation JB. Been reading until my eyes bleed !!



Meatstick

[LJoutWest]

albacore44,

The UST refuted our lawyers claim that since our 401K loan was to pay two months of mortgage payments because of a mess up by a credit card company they should allowed to be included. They disputed our student loans but will include them if we go to a 13. They disputed a loan that my wife has with our credit union backed by her mother's CD. We did raise a claim that our Federal and State witholdings have to increase but we will dispute the amount they came up with as it is not sufficient (lose the mortgage, increase the taxes, stop the 401K contributions and increase the tax, though they may allow a small amount of 401K contributions in a 13). As a result of losing the home this year we will not have a tax deduction and will probably owe but won't know an amount until next month.

They did not dispute our charitable contributions because until this year we can show a certain contribution every year. Furthermore they increased the car allowance on the car I drive which is now almost 14 years old (but running great) taking us over the Federal allowance. They also acknowledge that our 16, almost 17 year old will fall off our taxes when she turns 18 and the same with her brother the 2nd year of the plan. Our lawyer says if we have to go for a 13 that is the better way to go for the kids as since we cannot claim them for taxes since we cannot support them, and will have it on a legal document, our kids will be eligible for major financial aid (and scholarships we hope!).

The document they provide is really interesting. They go through the means test and then tell you how much disposable income you have after they list their allowances next to yours. In our case it is around $1200 dollars. Then they basically provided an excel spreadsheet that shows your expenses from your schedule J, and then how much income you really have to pay, how much you pay each year minus the trustee's fees and the lawyers fee. In our case before the tax write offs we have around $650 a month to pay, but after the taxes and fees we pay around $502 a month. Now realize that this is what they have as a base, and IF we go chapter 13 the expenses are up for our lawyer the trustee to dispute together, that is how I understand it, but others with more experience could explain it better I'm sure.

[music12]

other than looking at legal precedents, i would suggest to consider the effect of fighting or not fighting on day to day life and amount of stress. it sounds like your attorney is convinced he can win for you, or he would never offer the flat rate. the question is how good is this attorney, and how much experience he has. also, how long will this fight last? during the fight, there will be a lot of stress. can you take it? alternatively, will you really be able to make the ch13 payments if you don't fight? will 5 years of living under the court's thumb be more or less stressful than fighting? and, will just the fact that your lawyer is fighting get the UST to back off (which would of course be great)?

my point is that whether your lawyer is legally correct is not necessarily the most important factor in deciding. i learned the hard way that judges sometimes end up doing whatever it is they feel like doing, and the law is the last thing on their minds. as you can see, the UST is doing whatever they want in spite of any number of precedents against them.

[albacore44]

albacore44,

The UST refuted our lawyers claim that since our 401K loan was to pay two months of mortgage payments because of a mess up by a credit card company they should allowed to be included.

. Furthermore they increased the car allowance on the car I drive which is now almost 14 years old (but running great) taking us over the Federal allowance.

They also acknowledge that our 16, almost 17 year old will fall off our taxes when she turns 18 and the same with her brother the 2nd year of the plan. Our lawyer says if we have to go for a 13 that is the better way to go for the kids as since we cannot claim them for taxes since we cannot support them, and will have it on a legal document, our kids will be eligible for major financial aid (and scholarships we hope!).

.

I can understand disallowing the 401k loan since that is not allowed in the budget for a Ch-7

for a car over 75,000 miles you get an increase of $200 to the IRS allowance to cover higher maintenance costs. I have not found this on the IRS guidelines but heard it is so.

Now, I dont understand this thing on the kids. are you going to be paying the majority of their support, and will they be considered part of your household ?? If so you should be able to claim them. I have a 17 year old and a 22 year old living at home and I still claim them on my taxes. Why did the UST determine you cant claim them as part of your household ??

[LJoutWest]

Not sure why the UST determined we lose them on the tax returns. To be honest, I see our daughter attending a local community college for two years and then moving to one of the local universities to complete her degree. She'd be living at home so the majority of her costs we would be covering so I'm not sure on their reasoning. Our son would be similar situation. I believe they figured that IF we don't claim them once they turn 18 what the impact would be on our taxes in order to be able to refute a claim of higher taxes.

In terms of the stress, our attorney has been practicing bankruptcy law since 1992 (graduated from the U. of Michigan Law School in 1986 and has great credentials. I am going to ask him in the meeting today how many of these type of cases he has defended and won. To be honest, were not really stressed about this. If we file a motion to defend and win, great. If we file a motion to defend and lose, and end up in the chapter 13 were fine if the payments are in the $400 to $600 range, which I believe they would be. We need a new car to replace my aging one is my only concern. I'll post what we decided when it comes up.

Thanks so much for the advice and input. It really is helping.

[albacore44]

Not sure why the UST determined we lose them on the tax returns. To be honest, I see our daughter attending a local community college for two years and then moving to one of the local universities to complete her degree. She'd be living at home so the majority of her costs we would be covering so I'm not sure on their reasoning. Our son would be similar situation. I believe they figured that IF we don't claim them once they turn 18 what the impact would be on our taxes in order to be able to refute a claim of higher taxes.

.

So your saying the UST is determining what your household size is for you in advance of your future tax filings.........interesting. first time I have heard of this.

did they also readjust your food/clothing/other allowances down to account for the smaller household size ??

[Meatstick]

LJ I think you will win the battle. It seems maybe the UST is trying to intimidate you into accepting what they have come up with. One of my kids is 20 going to community college still living at home and is a dependant on not only my tax returns but also on my work benefits. Every semester I must show proof to my benefits department that he is enrolled fulltime or they give him the boot.

My case will mirror yours somewhat. How much over the 6month median were you. Also how far over the annual ? We are roughly $10k over the 6month median and the annual we are damn near double. Since July our household is earning 45% less than what we had been earning. I think for year 2009 we will be around $140k most of that was at the beginning of the year and 2010 we estimate to be $70k-$80k which is around median for Arizona family of 5. We do need to adjust our Fed withholding as too much is taken out at the moment. We do have monthly expenses that havent been entered into Means such as healthcare costs for my son who has a heart transplant and also out of pocket college tuition expenses and a few other items. It seems the Arizona District has been fairly lenient in what they allow and what they have contested so we feel at ease.

Once again good luck and I hope it all works out the best for you and your family. We have another meeting with our lawyer tomorrow to really take a close look at what were up against. We feel very fortunate that we have legal insurance that covers the entire bankruptcy process. All we have to pay is the filing fees and a small clerical fee.



MEatstick

[LJoutWest]

Meatstick,

Our income is 98K a year (and it is steady for the last 3 years) and the median in Utah is about 71k for a family of four. Without the mortgage cost we are $1600 over the median on six month. We need to increase our Fed witholding for the Fed and State income tax and we will owe for this year and have to set up payments.

It is the totality of circumstances that is the key here, and I am very, very convinced of that. Sans some of the expenses they have taken, we have the extra income. Do I think they are trying to strong arm us? Perhaps, they are also doing their job to protect the bankruptcy system (their job) and to garner as much money as possible for the creditors (their other job). IF when speaking to our attorney at 9:30a.m., he can convince me we can win the totality of circumstances then we fight it. I'm sure he can based on email (he communicates A LOT via email and in person when necessary).

My advice to anyone filing a chapter 7 who is over the median is to really look at your expenses, really hard. Make sure you can beat a totality of circumstances as JustBroke has posted about in many places.

Albacore44 you bring up a great point. No, our food budget wasn't touched and won't be because I suffer from Celiac disease and the cost of food that has non-gluten is extremely high and in my circumstance, gluten will lead to ill health to the point of disability if I were to have to consume (possibly cancer of the intestinal regionsince I am at a high risk). Neither did the UST touch our other household expenses. Nor did they adjust the taxes to reflect the lost of a dependant outside of removing the child exemption on our taxes (not realizing that at our tax bracket, the actual tax would increase besides the loss of the child exemption). I guess if we lose our fight and go to a chapter 13 we can examine our what happens if we lose our two kids (dependents) which I don't think we will because my health insurance allows them to remain until age 26 if they are living in my household and attending college at least part time. At that point the majority of their support would be coming from us still. Well, off to get ready to go meet the attorney.