Is the new means test too easy?

[Rona123]

Hi all,

I've been thinking about trying for BK7 for a couple months now, and am finally ready to give it a go. I've found a lawyer that I think I can count on, but none of the ones I've spoken with have done a BK since October, so it's going to be an interesting time.

One thing I was curious about is whether anyone else has noticed how easy it seems to pass the means test. I'm a single filer with no dependents, don't own a home, and only one car payment as a secured/priority debt. At the moment, my income is below my state median, so I shouldn't even have to worry about the means test. But just to be safe, I did the means test with my income once it reaches it's final average (I have a few months of no work dragging my 6 month average down). Even with my income being over the median by NOT a small amount, and only a few added expenses on top of the federal standards, I still easily qualify for BK7.

Has anyone else noticed this or heard any news of recent filings? I really thought I'd qualify for BK7 by the skin of my teeth, so the ease with which I expect to do so makes me wonder if I'm missing something!

Thanks,
Ron

[StaciMM]

The new laws really should not impact most filers. There is a lot of fear over the unknown, but much of that is not necessary. Just keep in mind that the federal #'s are limits. If you spend $250/mo in groceries but the federal standard allows up to $350, you can still only claim $250. At the end, deducting expenses from income if you have a very small # or a negative # then you should not have a problem filing BK.

[Rona123]

Thanks for the reply Stacy, but are you absolutely sure about this?

The reason I ask is because on the B22A means test form, each section (and the DOJ website, too) specifically states to "enter the amount of the IRS National Standards for the applicable family size and income level," with no caveat saying that an actual amount should be entered if it's less than the standard.

And on the 'local standards for transportation operation costs', it even states that "you are entitled to an expense allowance in this category regardless of whether you pay the expenses of operating a vehicle AND regardless of whether you use public transportation."

It sounds from previous posts as though before October 17th, filers had a little room to modify these amounts to help themselves out, but could the new law have changed this to a flat amount to simplify the process for the courts?

Thanks again!

[StaciMM]

If it sounds too good to be true...

You can't claim an expense that you don't have. THe IRS guidelines are maximums. For the transportation expenses, it is saying that you don't have to own a car to have transportation expenses. Things like using the bus, or a cab, or carpooling would still be considered.

The means test form is NOT your bankruptcy petition. It is a cheat sheet, of sorts, or a first test. If you turn in a petition showing the maximums, but are not able to back them up because you don't really have those expenses-you have a very good chance of having your case thrown out.

Consult with several attorneys. Be honest with them, in regards to what your expenses are, what your income is, and what your debts involve. Be sure to discuss if/when you last made cash advances or balance transfers, and when you last used the accounts for more than basic expenses. Local attorneys will be more knowledgeable about local exemptions, and how the district/trustee views things.

[cpw111]

similar questions

I am going through the same problems. I make about 6K over the average for my state so I figured I might be in trouble. I am looking at what my lawyer put down on my means test and they used the maximum amounts for my region. My rent is listed at $850 by me but under the means test my lawyers used the maximum $901. This is the problem, no one really knows what to use and therefore they will use the max until someone says otherwise. I am no expert but I look at it like this, if you are filing your taxes and your deductions dont add up the standard deduction then you use the standard deduction. You dont penalize yourself. We will see. My firm files the most in the state and they have already processed a bunch with no problems.

I filed Dec 28, 2005 and my 341 is Jan. 24, 2006 and I'm worried sick. But hey the worst that can happen is I will start smoking again and file a 13.

[StaciMM]

I'd be nervous, too-CPW111. From what I hear, many trustees are asking for documentation of expenses and $50 here, $30 there, etc. could define a ch. 13. In the end, your attorney does bear responsibility for the info filed but can claim 'I didn't know better' and can perhaps get leniency.

One thing to remember: for the trustees, it is a game and when they win, they get paid. They're not 'nice' or 'understanding'.

Keep the board posted-there are alot of people eager for info from those who filed after 10/17.

[Genenco]

I am going through the same problems. I make about 6K over the average for my state so I figured I might be in trouble. I am looking at what my lawyer put down on my means test and they used the maximum amounts for my region. My rent is listed at $850 by me but under the means test my lawyers used the maximum $901. This is the problem, no one really knows what to use and therefore they will use the max until someone says otherwise. I am no expert but I look at it like this, if you are filing your taxes and your deductions dont add up the standard deduction then you use the standard deduction. You dont penalize yourself. We will see. My firm files the most in the state and they have already processed a bunch with no problems.

I filed Dec 28, 2005 and my 341 is Jan. 24, 2006 and I'm worried sick. But hey the worst that can happen is I will start smoking again and file a 13.

Let us know how it comes out and stay away form the cancer sticks (Yes, I smoke 2 packs a day!) you'd end up hurting worse! (I can't wait to hide, as I'm going to quit..But I must be alone..Otherwise, I'll be spending time in the graybar hotel...)

[FoolAndHisMoney]

Staci, I researched it and you are allowed to take the max for food, clothing.

I actually checked several filers on pacer $ $ to get some answers and noticed that every filer took ALL the maximums even for housing expenses and transportation. I'm still wondering about the phone, caller ID, pagers, etc. I noticed only 1 filer listed this and most didn't. Can't imagine most people don't have phones or cable modems.

It seems like the test is just to be certain that you are within reasonable guidelines. The schedule I & J are still the actual documents that they use to determine disposable income if the presumption of abuse does not arise. If a someone still lives at home with parents and pays $400 a month in rent then not only must they add all household members income, but they can only claim $400 a month rent even if the test allows $1000 a month. The means test is pretty much "not to exceed" numbers.

[Rona123]

So if I understand correctly, they'll still use the schedules I and J to try to push me into BK13 if my actuals are significantly less than the standards?

If so, then I assume the state median income test is also just a "guideline," and that even though my income is below the median, they could still try to push me into a BK13 in the same case?

If so, then what's the point of the B22A if the calculations are just redone on the schedules I and J?

Thanks!

[StaciMM]

Just my 2 cents...

The means test is not intended to keep low income filers in a ch. 7. It is more intended to simplify the US Trustee's job, by diverting high income filers to a 13. There has always been an income/expense means test involved that says if you have sufficient income to repay your creditors in part, you are eligible for 13 rather than 7.

One other thing, if people put the max allowed amounts for all categories, it may draw more scrutiny from the trustees. They're not going to believe the #'s are real if you just happen to have the max in every area. Much the same if your exemptions are all perfectly 100% of what you're allowed.

[FoolAndHisMoney]

So if I understand correctly, they'll still use the schedules I and J to try to push me into BK13 if my actuals are significantly less than the standards?

If so, then I assume the state median income test is also just a "guideline," and that even though my income is below the median, they could still try to push me into a BK13 in the same case?

If so, then what's the point of the B22A if the calculations are just redone on the schedules I and J?

Thanks!

That pretty much sums it up.

There is nothing written in stone with the means test. If the test says that you have only $80 left at the end of the month and your schedules say you have $200 then you will be in a 13. The total amount of unsecured debt plays a roll too. If you owe 100k and can afford to pay back only $6000 it isn't worth the bother to have a chapter 13 plan for anyone.
On the other hand if you have $250 left over and check the presumption DOES arise you may still qualify for a chapter 7 depending upon your employment situation. Someone may have had a decent income and still had financial troubles and then lost a job and got a less paying job. This person may need to file A.S.A.P to avoid a repo or forclosure and can't wait for the 6months with the lower income so they would have to file and rebut the presumption and hope the judge allows the 7.

The below link I posted weeks ago with an attachment of a US Trustee that feels a debtor's expenses were to high and the judge (which is rare) sided with the debtor.

http://www.bankruptcyforum.com/t5108-more-readingi-like-this-judge.html

[FoolAndHisMoney]

Just my 2 cents...

The means test is not intended to keep low income filers in a ch. 7. It is more intended to simplify the US Trustee's job, by diverting high income filers to a 13. There has always been an income/expense means test involved that says if you have sufficient income to repay your creditors in part, you are eligible for 13 rather than 7.

One other thing, if people put the max allowed amounts for all categories, it may draw more scrutiny from the trustees. They're not going to believe the #'s are real if you just happen to have the max in every area. Much the same if your exemptions are all perfectly 100% of what you're allowed.

The form B22 does ask you to put the max allowed. If debtors put the max allowed on their schedules then yes that will raise some flags.

[bkinfoseeker]

This confusion is over the Means Test vs. Schedule J. This is a question I asked early on and no one really answered it. The means test is different asks you to use the maximum "Expense Allowance" sort of like a Standard Deduction. For example, in one case it allows $475 per month for ownership of a car and over $300 for a second car no matter what you actually spend. Then there are transportation costs in addition that you must also claim whether you own a car or not.
Now don't get so excited when the Means Test shows you're far in the negative each month. This is only intended to prevent the embarrasment of someone filing who think they need $1,000 per month for that BMW and $4,000 for their luxury apartment.
I believe the that the schedule J is what actually they will actually go by. BUT by having these IRS "Expense Allowances" it does make it harder for the Trustee to argue that your expenses are too much when they are below your IRS guidelines. What about cellphones which are allowed on the means test? Are cellphones considered luxuries, as certain uptight Trustees in the past have tried to imply? Certainly, there are ways for the Trustee to attack your expenses. If you spend maximum $150 per month on clothes yourself and you have not gifted anything then you should have several thousand dollars of clothing in assets over the years. (Remember it's depreciated replacement value not liquidation value of the past). Single filers I feel get picked on the most since the Trustee may feel that they should not have this or that or should only spend a meer fraction of what a family filer spends. There are certain basic fixed costs that everyone must spend to survive and the Means Test at least gives single filers an argument that their expenses are not unreasonable.

[FoolAndHisMoney]

bkinfoseeker, as staci mentioned the means test is just a way for US Trustee's to force high income debtors into a 13 plan.

It's actually questionable about the "single person" thing because the IRS collection standards allows the same amount for 1 or 2 persons. That actually sucks if a married couple file together unless they have a low income.

The cell phone/cable modem, etc. issue is still questionable. The means test states it, but still wonder if it's allowed because of the way they word it. They make it sound like since it's for "health & safety" then a Dr. must prescribe it or something. Who knows? In time we shalll find out.

[bkinfoseeker]

It's actually questionable about the "single person" thing because the IRS collection standards allows the same amount for 1 or 2 persons.

OK now you just made me feel really uncertain and depressed about this whole thing.