UST and Notice of Deficiency

[emmaj]

I haven't seen anything like this in the forum and wondered if anyone has any insight. We filed Chap 7 in Aug 2009 and were slightly over median but expenses including car repair for cars that are +100,000 miles and 9 and 7 years old, put us into a negative DMI. Promptly at 30 days we received notice from the UST they had filed a a motion to dismiss or convert to Chap 13. The UST took issue with the amounts we spend for car repair (I have documentation, but it was not requested) and 401K Loans. We are not currently contributing as we do not have the income. The UST stated that between what stop paying the loans and allowed only the IRS amount for car maintenance. I contacted our attorney and approximately 4 days after the UST filing the court stated that the UST had a "deficiency error" so until UST corrected there was nothing to respond to. Promptly 30 days later we received another notice that the hearing is shedules for Jan 12 and response must be received by UST by Jan 4.
1) Has anyone ever had the UST sighted by the court for a deficiency, any idea what this is? It seems they have had a lot of time to review and make corrections.
2) We are really nervous about is that we stop the 401K loans it then becomes a distribution with tax ramifictions (which I don't think we can afford), and that would leave us with about $50 in the 401K, my husband would be 64 years old at the end of the Chap 13 plan, no company pension just the $50,000,the cars over the next 5 years are only going to need more repair in order to keep running. I am not contributiong to a 401K either and would receive a small pension and I am 5 years younger so would work a bit longer than my husband. At the time of filing we did not know how much our health care insurance would rise, however in Nov received sticker shock it is going up by $350 / month.

This is a long one, but I am just so nervous that we are being forced into Chap 13 and expenses have increased since filing, we are somewhat able to afford car repair and much needed home repair since not paying creditors, but if we go Chap 13 not sure what would happen to us. Any thought?

[albacore44]

I'm confused about what you state about the 401K loans. for a CH-7 you are not allowed to count them as part of your budget to qualify, so hopefully your attorney realized that and did not use that amount to qualify for a Ch-7. The trustee can not force you not to repay them. what he can do is subtract them from your Ch-7 expenses, and use this as a basis to push you into a Ch-13.

If preparing to file in February. my 401K loan repay is a whopping $800 a month for another 3 1/2 years. i have made sure my allowable expenses will fit me into a Ch-7 without including my 401K repay .

Good luck to you

[justbroke]

1) Has anyone ever had the UST sighted by the court for a deficiency, any idea what this is? It seems they have had a lot of time to review and make corrections.

This is nothing. It could be as simple as they forgot to file the certificate of service, or that they didn't allow enough days between service and the hearing date. All procedural matters.

2) We are really nervous about is that we stop the 401K loans it then becomes a distribution with tax ramifictions (which I don't think we can afford), and that would leave us with about $50 in the 401K, my husband would be 64 years old at the end of the Chap 13 plan, no company pension just the $50,000,the cars over the next 5 years are only going to need more repair in order to keep running. I am not contributiong to a 401K either and would receive a small pension and I am 5 years younger so would work a bit longer than my husband.

This seems to be a common theme these days on the Forum. I don't know why attorneys are not telling their clients that 401(k) contributions (including loan repayments) are not valid expenses under the Chapter 7 Means Test (except in unusually special circumstances).

Don't be nervous about "stop paying" the 401(k) loan. What the UST means, is that in the Chapter 7 context, those payments should not be made, so they don't count for purposes of expenses in the means test. If you're in a Chapter 13, you absolutely can include those as valid expenses.

Sounds like it's time to sit down with your attorney and strategize on some things. Since you're getting close to retirement, it may actually be okay to contribute even in the Chapter 7 context.

[JustFileSuit]

You have to Respond to the Motion!

Meanwhile, do not lose sight of the underlying issue: the Trustee has filed a Motion. You have to file a responding pleading, or you probably will get the Motion granted against you. You "could" just show up and try to argue verbally; I would suggest your attorney file a responsive pleading in writing, setting forth the counter-arguments. the Judge may not rule from the Bench and may want to mediate on it, so if you have your arguments in writing the the Judge has those to sift through. Remember, the Judge is dealing with thousands of cases!

Trustees are given a lot of deference in the Court, much more so that adverse creditors' attorneys. The procedural issue, if uncorrected, "might" oblige the Judge to kick it out for a continuance, but only if your Judge is a real stickler (don't count on it). If you are there, with your counsel, the Court is just likely to proceed.

You really have to focus on answering, and satisfying, the argument advanced by the Trustee.

[LJoutWest]

If your over the mean and your attorney did not count the 401K as part of your means, but as part of your schedule J that may be an issue, I think it is in ours. However, in making the case to convert you to a 13 if you are in a district that is forward looking, then they have to allow those expenses in the future circumstance. The UST in our case did not allow the 401K loan in looking forward, and if you count them and several other items that should be we have no extra money to fund a 13. Our attorney is currently writing our response to the UST motion which is due by Jan. 11th, 2010 with a hearing set for 2/4/10 which our attorney will move because he is already scheduled for something else that day. Your attorney needs to be on the ball and already writing your response. If not, get on their case, they represent you but sometimes we who file, have to remember to remind them they work for us and to make sure of what they are doing. Good luck to you.

[tlcabk]

I'm confused. I thought the UST had 10 days to file against you?

[justbroke]

I'm confused. I thought the UST had 10 days to file against you?

The UST has two periods to file against a debtor. The first is the Statement of Presumption of abuse. This is due 10 days after the 341 Meeting. If the UST files that Statement of Presumption of abuse, s/he must then file either a Motion to Dismiss or a Statement of No Abuse within 30 days of that Statement.

The other chance the UST has at you, is prior to the discharge bar date (60 days after your first scheduled 341 Meeting). The UST can file a Motion to Dismiss for Bad Faith or Totality of Circumstances. These are used much less frequently, but do provide the UST another chance to dismiss the debtor.

[JustFileSuit]

Not quite. The US Trustee can file a Motion at any time in the Proceedings, upon cause. Where it becomes apparent to the UST that, for equitable purposes or to protect the integrity of the Court, and probably on a number of other grounds [just as an example, on the grounds of newly-discovered evidence, or on the grounds of an Amended Schedule that produces new evidence of the affairs of the debtor], the UST can file a Motion, asking for such relief as the UST deems appropriate. If it is not opposed you run the very real risk that the Motion will be Granted. If you oppose the Motion then it goes to a Hearing and the Trustee has to make his case and convince the Judge, and you get to oppose and make your counter-arguments.

And that is why, if someone makes a Motion against you, you file a reply (typically, an Objection), OR you deal with the substance of the Motion, and you show up in Court with your atty and you contest the matter at Hearing. Otherwise, you probably end up heaved out of Court.

One common example: say your income was so small that you fell below the threshold were you would customarily file a tax return (1040). The UST notes no tax return, and files a Motion to Dismiss, citing as grounds that you are availing yourself of come aspects of relief under the Code but not fulfilling the Obligations under other sections. Although you are indeed not obliged to File under the Income tax Act (you have not enough income to attract tax), the Ch. 7 Trustee and the UST do not know that because you have no Filing. So they require you to File. The Motion to Dismiss is one way they have to force the issue; you file, and then they typically simply withdraw the Motion if they are satisfied (at the Hearing).

Merry Christmas to you and all! Better times to come!

[justbroke]

Not quite. The US Trustee can file a Motion at any time in the Proceedings, upon cause.

Huh??? The UST is time barred for certain actions by 11 USC 704, the FRBP, and other parts of the bankruptcy code. So, the UST can't file a Motion at "anytime" for "any" cause. The only cause that gets the UST an absolute wildcard is actual fraud.

The poster I responded to, was asking specifically about abuse and the 10 days. Not about general UST tools. No need to get people thinking the UST sits around waiting and pounced on your after a bar date passes... except in the case of fraud.

[JustFileSuit]

The Poster recites that the UST has filed a Motion to Dismiss (or Convert) outside the time window. Please note that I state "for cause."

Typically, the UST responds to the average BK Filing with a deafening silence. Most "7's" are utterly uninteresting to the UST. So there is "something" that has perked up the UST's ears, and that does need to be addressed. It seems to be outside the time-bar window JustBroke references, so that makes it "for cause."

And that is why the debtor has to get on the ball, with his atty, and respond to the Motion.

I bid a Merry Christmas to all, in these uncertain times, and hope for a brighter future for all. Love and Peace be with you this Christmas.

[justbroke]

I think we were talking to two different posters. I wasn't referring to the original poster and my post was specific to the 10-day comment. Also, in the original poster's post, they stated that the UST did file within the 30 days, but had a deficiency. I don't understand the "outside" the bar date comment.

[mautang21]

I have a question in regards to 401K loan payments not counted in chapter 7 but chapter 13. For example, if the DMI without the 401K loan payment is +200 then they try to put you on chapter 13. If your loan payment is 300 (3 more years to pay). that will bring your DMI to -100. How can you fund a chapter 13 then? assuming all your other expenses are reasonable and uncontested? I have searched for that question in this forum so many times. Please, justbroke, HHM,angelinacat,flamingo...???

[justbroke]

I have a question in regards to 401K loan payments not counted in chapter 7 but chapter 13. For example, if the DMI without the 401K loan payment is +200 then they try to put you on chapter 13. If your loan payment is 300 (3 more years to pay). that will bring your DMI to -100. How can you fund a chapter 13 then? assuming all your other expenses are reasonable and uncontested? I have searched for that question in this forum so many times. Please, justbroke, HHM,angelinacat,flamingo...???

You an always fund a Chapter 13, so they say, by "belt tightening". That means, you reduce expenses in other areas. I'm in a technically negative DMI Chapter 13 (about $-450/month).

There are even Districts where they have a "minimum" percentage (believe it or not) to have your plan confirmed. In those Districts, the minimum percentage is 10%. If you have negative DMI, you somehow have to come up with 10% of the total unsecured debt. In my case, that would have been $360000*10% = $36000. Divide by 60 months and that's $600 a month for 60 months! Sheesh, glad I don't live in one of those Districts! Imagine being $-450 and having to come up with $1,050 a month out of your "allowances"!!!

[mautang21]

i live in the northern district in illinois...I am dead, my lawyer always sugarcoat things. I have 44K of unsecured debt. Will the trustee do plea bargaining? instead of putting me in a chapter 13, put me in 7 and i will waive my 401K. Just too desperate for this to be over. 5 years... I'll think I will die before then.

[justbroke]

i live in the northern district in illinois...I am dead, my lawyer always sugarcoat things. I have 44K of unsecured debt. Will the trustee do plea bargaining? instead of putting me in a chapter 13, put me in 7 and i will waive my 401K. Just too desperate for this to be over. 5 years... I'll think I will die before then.

How much you owe unsecured creditors has absolutely nothing to do with your ability or need of a discharge in a Chapter 7 case. It's your income and (allowed) expenses that determines that.