What Happens If I File Chapter 7 And The Trustee...

[backtoschool]

Yeah, I have already been warned that the US trustee will be raising the presumption of abuse and scrutinizing my case. Like I said though, it doesn't look like I qualify for a 7 and there is no way I have 20k right now to fund a chapter 11. (I think that is the amount that a chapter 11 costs...)

The kicker is that my primary residence is under water about 400k. I owe about 400k more than what I was trying to sell it for. There is pending litigation on the property that is basically making it unmarketable. Even without the litigation I am under water about 200k.

I hired what most people in my area consider to be the best bk attorney's around. They do high profile cases and they are charging me an arm and a leg to do mine.

I am NOT planning on keeping the property since I can't afford the payments on it. Does that increase the likelihood of them not allowing the payment to qualify for the means test?

I usually run all my questions by my attorney but she is out of town and I was freaking out about this. Thanks for the responses.

If you are not keeping the property, then you will only be allowed to include a rent/mortgage payment equal to the irs standards for your area and family size on your expense schedules. As far as the means test goes, including a huge multi-million dollar mortgage may get you past the initial hurdle, but when you do your expense schedule you will not be able to count the home you are giving away and your monthly disposable income will be too high to do a chapter 7.

I don't want to be a downer, but it is unlikely that you will be able to file a chapter 7 with your income and debt. The US trustee is going to dismiss it for "totality of circumstances" if not for other reasons. It is very difficult for high income, high debt filers to successfully file for chapter 7 when the debt is consumer debt.

[backtoschool]

Yeah, that is what is making me nervous. But, like I mentioned above, my attorney seems pretty confident that I will be able to qualify for the chapter 7.

See this...

http://www.bkforum.com/showthread.php?mode=hybrid&t=33922

It's a California case where the court ruled that the trustee can't dismiss for totality of circumstances just because the mortgage payment is what they would consider excessive. At least that is how I understood the ruling. Maybe I missed something. So if I don't qualify for the 7 and I don't qualify for the 13 and I don't have the money to fund an 11, what do I do?

Wait 6 months and refile for the 7 when my income goes below the median if it does?

Here are the questions you have to ask yourself:

1. what are your car payments? Are they over $450 a month?
2. What are your mortgage payments? What is the average for your area?
3. Are any of your expenses on your expense schedule for private school, University tuition, nannies, housekeepers, music lessons, eating out, or anything that the trustee is going to see as discretionary?

4. What is in your house? Do you have a lot of electronics, jewelry, art, etc that would be sellable to raise cash to pay your creditors? This will not keep you from filing chapter 7 per se, but will turn your case into an asset case.

[UWFan]

If you are not keeping the property, then you will only be allowed to include a rent/mortgage payment equal to the irs standards for your area and family size on your expense schedules. As far as the means test goes, including a huge multi-million dollar mortgage may get you past the initial hurdle, but when you do your expense schedule you will not be able to count the home you are giving away and your monthly disposable income will be too high to do a chapter 7.

I don't want to be a downer, but it is unlikely that you will be able to file a chapter 7 with your income and debt. The US trustee is going to dismiss it for "totality of circumstances" if not for other reasons. It is very difficult for high income, high debt filers to successfully file for chapter 7 when the debt is consumer debt.

Yeah, this is what I am suspecting. I don't plan on keeping the property, but I think my attorney plans on checking the box that says I am going to, but not reaffirm. She has showed me cases where she has successfully done this so I have a tad of hope, but I am very worried obviously from everything I have read here and elsewhere. There isn't much literature on this however since there seem to be fewer people in the debt/income situation I am in. I guess I will just have to wait and see, but goodness this does seem like a bit of a mess.

[backtoschool]

Yeah, this is what I am suspecting. I don't plan on keeping the property, but I think my attorney plans on checking the box that says I am going to, but not reaffirm. She has showed me cases where she has successfully done this so I have a tad of hope, but I am very worried obviously from everything I have read here and elsewhere. There isn't much literature on this however since there seem to be fewer people in the debt/income situation I am in. I guess I will just have to wait and see, but goodness this does seem like a bit of a mess.

I am concerned that your attorney is painting too positive a picture. This type of case will most likely go before the US Trustee as well as the bankruptcy judge. You probably have a 2004 hearing as well to go over your expenses in very fine detail.

[UWFan]

Here are the questions you have to ask yourself:

1. what are your car payments? Are they over $450 a month?
2. What are your mortgage payments? What is the average for your area?
3. Are any of your expenses on your expense schedule for private school, University tuition, nannies, housekeepers, music lessons, eating out, or anything that the trustee is going to see as discretionary?

4. What is in your house? Do you have a lot of electronics, jewelry, art, etc that would be sellable to raise cash to pay your creditors? This will not keep you from filing chapter 7 per se, but will turn your case into an asset case.

1) My car payment is $1320 per month. Stupid I know. Negative equity there.
2) My 2 house payments are around 10k per month total... One primary one second home, that nobody would want to rent out. More like a cabin in the woods type of thing. Neither property has equity.
3) I pay about 1k in child care. I was paying $2500 monthly(last year), but I can't afford that any longer so I am doing a day care instead of nanny now. Looking currently for cheaper solutions. Nothing else is out of the norm.
4) I have stuff, but I have no problem giving up every last bit of it if the trustee wants it. I probably have about 30-50k worth of stuff depending on how it's valued.

I guess the best thing to do would be just wait and maybe work a little less hard to get the income below the median :P I really have no clue what else to do. There is no way I can pay it back and I incurred the debt (most of it) when I was earning in excess of 30k monthly.

[backtoschool]

1) My car payment is $1320 per month. Stupid I know. Negative equity there.
2) My 2 house payments are around 10k per month total... One primary one second home, that nobody would want to rent out. More like a cabin in the woods type of thing. Neither property has equity.
3) I pay about 1k in child care. I was paying $2500 monthly(last year), but I can't afford that any longer so I am doing a day care instead of nanny now. Looking currently for cheaper solutions. Nothing else is out of the norm.
4) I have stuff, but I have no problem giving up every last bit of it if the trustee wants it. I probably have about 30-50k worth of stuff depending on how it's valued.

I guess the best thing to do would be just wait and maybe work a little less hard to get the income below the median :P I really have no clue what else to do. There is no way I can pay it back and I incurred the debt (most of it) when I was earning in excess of 30k monthly.

Here are the red flags as I see them:

1. Your car payments are way over the irs standards and will probably trigger a totality of circumstance with the US trustee.

2. The 10k a month will most likely not be able to be used in your expense schedules. That is way over the irs norms.

3. The $1,000 child care will probably be ok (how many children is this for?) but if you are using last year's $2,500 a month nanny expense that will be thrown out as excessive.

I sympathize with your situation. High income leads to high expenses often, and I was in a similar situation (although on a lesser scale) when I lived in nyc. I ended up getting laid off and changing my entire lifestyle in order to file a chapter 7. When I first tried to file chapter 7, I was told that my case would be thrown out even though with my expenses I passed the means test.

[UWFan]

I am concerned that your attorney is painting too positive a picture. This type of case will most likely go before the US Trustee as well as the bankruptcy judge. You probably have a 2004 hearing as well to go over your expenses in very fine detail.

Thanks for the reality check. She told me the US Trustee would take interest in my case, but she still seemed like it wouldn't be a problem. Good lord, I really hope she knows what she is doing. I wonder if anyone out here has a feel good story about someone in a similar situation? How fine tooth a comb are we talking BTW? Like super fine? Does it matter when the expenses occurred? I had no clue I was going to be in this situation last year and I made some unnecessary Christmas purchases. If my six months does not include that time period, will they care about those expenses?

[backtoschool]

Thanks for the reality check. She told me the US Trustee would take interest in my case, but she still seemed like it wouldn't be a problem. Good lord, I really hope she knows what she is doing. I wonder if anyone out here has a feel good story about someone in a similar situation? How fine tooth a comb are we talking BTW? Like super fine? Does it matter when the expenses occurred? I had no clue I was going to be in this situation last year and I made some unnecessary Christmas purchases. If my six months does not include that time period, will they care about those expenses?

I am not trying to scare you. But a "don't worry be happy" attitude on the part of your attorney is not going to help you either. People in your economic situation do not get easy chapter 7's. Chapter 7 reform was designed to keep people in your situation from getting relief. That being said, there are exceptions to the rule and maybe your attorney is a total rock star that knows the trustee personally, etc.... and can get you through.

Expect a very detailed examination of your expenses. The US trustee will do whatever possible to throw you into a chapter 13 or a chapter 11.

[UWFan]

Here are the red flags as I see them:

1. Your car payments are way over the irs standards and will probably trigger a totality of circumstance with the US trustee.

2. The 10k a month will most likely not be able to be used in your expense schedules. That is way over the irs norms.

3. The $1,000 child care will probably be ok (how many children is this for?) but if you are using last year's $2,500 a month nanny expense that will be thrown out as excessive.

I sympathize with your situation. High income leads to high expenses often, and I was in a similar situation (although on a lesser scale) when I lived in nyc. I ended up getting laid off and changing my entire lifestyle in order to file a chapter 7. When I first tried to file chapter 7, I was told that my case would be thrown out even though with my expenses I passed the means test.

Yeah, I am really screwed unless the good old attorney can pull off a miracle. I too get the feeling she is making this sound easier than it will actually be. I am prepared to completely change my lifestyle. I don't really have any other choice. It's amazing though when you are earning substantial sums of money monthly you think paying off 100k is no big deal and I just let it get out of control and then the bottom fell out of my income source like overnight.

I guess I will just have to get my ass under the median if for some reason this doesn't go through. It sucks that I won't qualify for the 13 because of too much debt. Otherwise, the solution is easy. Pay a grand or two a month for 5 years and everything is all good. The law is literally going to force me into working less and not paying unsecured creditors back so I can get under the median. Good work law making people.

[Charlie777]

I understand what folks are saying about the scrutiny your case is going to draw. But if your attorney is a specialist and practices regularly with this type of case in the specific court (thus with the same US Trustee Office, etc.) her advice gains some credibility in my eyes.

[StartingOver08]

There have been others on the board here that have successfully filed and been discharged from a Ch 7 with your debt levels, not a lot of people, but some. Yes, the UST will be involved, no doubt. You will probably have multiple 341's as is typical for the larger cases where the UST is rooting around your documentation looking for assets. Given the figures you have provided above, it is likely that you will be a Ch 7 asset case. Have you valued your assets yet? Make sure not to put too high a price on your stuff, including your real estate.

Make sure you have documentation for everything.

You will have to provide a much longer timeframe for your documentation in the way of bank statements, mortgages, deeds etc than the usual Ch 7. The UST will be looking for transfers. For real estate transfers the trustee can look back up to ten years at both your purchases and all of your sales. I would not be surprised if the UST asked for 3 yrs of your bank statements and brokerage accounts too.

Hopefully you have retained all of your documents. If you are still current on your accounts, please download every statement you can to your hard drive. Once you file, your online access is cut off and you can not retrieve anything. The documentation will be important in getting a successful discharge in your Ch 7. Don't underestimate the value of it.

[backtoschool]

There have been others on the board here that have successfully filed and been discharged from a Ch 7 with your debt levels, not a lot of people, but some. Yes, the UST will be involved, no doubt. You will probably have multiple 341's as is typical for the larger cases where the UST is rooting around your documentation looking for assets. Given the figures you have provided above, it is likely that you will be a Ch 7 asset case. Have you valued your assets yet? Make sure not to put too high a price on your stuff, including your real estate.

Make sure you have documentation for everything.

You will have to provide a much longer timeframe for your documentation in the way of bank statements, mortgages, deeds etc than the usual Ch 7. The UST will be looking for transfers. For real estate transfers the trustee can look back up to ten years at both your purchases and all of your sales. I would not be surprised if the UST asked for 3 yrs of your bank statements and brokerage accounts too.

Hopefully you have retained all of your documents. If you are still current on your accounts, please download every statement you can to your hard drive. Once you file, your online access is cut off and you can not retrieve anything. The documentation will be important in getting a successful discharge in your Ch 7. Don't underestimate the value of it.

I totally agree with StartingOver08. As I said above there have been exceptions to the rule, but it is not the norm for a case like this to go through, and it will not be a slam dunk case. You will have a longer look back period, and will have your expenses thoroughly examined. Here are the expenses that will most likely be looked at closely based on other similar cases on this board:

1. Private school or university tuition.
2. Student loans (you will most likely not be able to claim these as an expense)

3. Car payments (you will most likely not be able to claim those high carpayments or reaffirm your car)

4. Nanny-daycare. (you will have to claim irs standards here)

5. expensive gifts.

6. Utility payments over the irs standards

7. cable over minimum package

8. expensive cell phone packages

9. Any trips in the last six months will be looked at closely

There are cases on this board where music lessons for children, housekeeper, student loan expenses, and expensive car payments all were questioned by the US trustee and used to try to dismiss the case.

The longer you can wait to file at a lower salary, the better your situation will be in regards to filing a chapter 7.

[UWFan]

There have been others on the board here that have successfully filed and been discharged from a Ch 7 with your debt levels, not a lot of people, but some. Yes, the UST will be involved, no doubt. You will probably have multiple 341's as is typical for the larger cases where the UST is rooting around your documentation looking for assets. Given the figures you have provided above, it is likely that you will be a Ch 7 asset case. Have you valued your assets yet? Make sure not to put too high a price on your stuff, including your real estate.

Make sure you have documentation for everything.

You will have to provide a much longer timeframe for your documentation in the way of bank statements, mortgages, deeds etc than the usual Ch 7. The UST will be looking for transfers. For real estate transfers the trustee can look back up to ten years at both your purchases and all of your sales. I would not be surprised if the UST asked for 3 yrs of your bank statements and brokerage accounts too.

Hopefully you have retained all of your documents. If you are still current on your accounts, please download every statement you can to your hard drive. Once you file, your online access is cut off and you can not retrieve anything. The documentation will be important in getting a successful discharge in your Ch 7. Don't underestimate the value of it.

I have pretty much all documentation of my entire life for the past 5 years. I am pretty ocd about keeping everything. Thus providing the docs will not be a problem. Whether or not the UST will like what they see on my bank statements is another thing entirely.

What exactly will they be looking for? I didn't do anything fraudulently. I didn't see this coming and I didn't transfer a single thing. I just lived above my means and when the income dropped suddenly I got stuck.

For example I would buy my wife Louie purses and other crazy things on a regular basis. We pretty much ate dinner out every night for a couple years at an avg of 80 per night I think. I spent probably 100k on furniture since 2006, but my attorney doesn't think its worth very much now. I don't have a problem giving up anything I have. They want my furniture or my wifes purses they can have them. It's really is depressing thinking about how much money we made and how little we actually have. I feel like a complete idiot for letting this happen.

I just need a discharge because I no longer have the means to pay. A 13 would probably be ideal for all parties, but I don't qualify. I have put a call into her office so I can go have a sit down and discuss all this in person. She really put me at ease the last time I met with her, but now I am freaking out. I honestly have no clue what I will do if the chapter 7 is denied.

[kmbk2b]

If you are not keeping the property, then you will only be allowed to include a rent/mortgage payment equal to the irs standards for your area and family size on your expense schedules. .

Per my attorney, this is not true. The current case law supports including all "contractually due" debts (at the time of filing) in the means test and our attorney has successfully done this dozens of times. This can include mortgages on 2 homes, even if 1 will be surrendered. Even if you live in an area where the average home is still outrageously expensive compared to the national average.

UWFan, I was in your exact situation and it was horrible (although I didn't have a car payment). The BK black hole. If I didn't qualify for Chp 7, I would have too much debt for a 13. My financial circumstances changed dramatically and the current system does not take that into account. I was a nervous WRECK and didn't want to have to consider a Chp 11. Fortunately, the UST did not file a presumption of abuse and I was ultimately discharged. It was VERY stressful knowing that the UST or TT could have targeted me at any moment -- I did not sleep for months. The 341 was not fun as I was considered "high income" and the TT called out expenses I had made (even those that are "allowed" -- he was just trying to rattle me and embarrass me). My 341 took about 15 minutes, versus the average 3-4 minutes . . .

Are your attorney's initials GN, by any chance (guessing your locale by your screen name)? Have you already retained her?

[UWFan]

Per my attorney, this is not true. The current case law supports including all "contractually due" debts (at the time of filing) in the means test and our attorney has successfully done this dozens of times. This can include mortgages on 2 homes, even if 1 will be surrendered. Even if you live in an area where the average home is still outrageously expensive compared to the national average.

UWFan, I was in your exact situation and it was horrible (although I didn't have a car payment). The BK black hole. If I didn't qualify for Chp 7, I would have too much debt for a 13. My financial circumstances changed dramatically and the current system does not take that into account. I was a nervous WRECK and didn't want to have to consider a Chp 11. Fortunately, the UST did not file a presumption of abuse and I was ultimately discharged. It was VERY stressful knowing that the UST or TT could have targeted me at any moment -- I did not sleep for months. The 341 was not fun as I was considered "high income" and the TT called out expenses I had made (even those that are "allowed" -- he was just trying to rattle me and embarrass me). My 341 took about 15 minutes, versus the average 3-4 minutes . . .

Are your attorney's initials GN, by any chance (guessing your locale by your screen name)? Have you already retained her?

Thank you very much for replying with a positive outcome. I know the stress that comes with bk is huge, but this bk black hole stress is unreal. Most over median people can fall back on a 13, but I am seriously royally screwed if they dismiss my 7. January was my last bigger month, where we earned 24k. If we can get past that month and file in August, our average will drop to around 10k per month I think, which is still well over the average, but it seems doable given my secured debt. I think our best option is just to wait and see how far the income falls. But, I don't have too much more time until my house goes to auction so I have to file sometime in the next 2 months.

The thing is I don't really need my car payment to qualify for the means test.. My one mortgage plus the allowed irs expenses would put me with a negative dmi and thus passing the means test. I am concerned about being dismissed based on the totality of the circumstances however. The entire case really boils down to whether or not the trustee will be allowed to cut the payment on my primary house or not and I have heard very conflicting info regarding the trustees success in doing so.

Anyway, thanks again for sharing your experience. Hopefully my outcome will be as good as yours.