Severance Lump Sum Ruining Means Test - What Can I do?

[DIYMeans]

I was on medical long term disability (back surgery) with a company that I had worked for for 19 years when I received a layoff notice. I continued on disability for a year but the termination of my employment didn't take effect until the disability ended which was in April 2010. I received my severance lump sum April 30th. Then received a week and half of unemployment and then found another job. I used most of my lump sum to pay off my folks for some help they had given me many years ago.

I have been planning on filing Chapter 7 soon, on July 19th because I am afraid my creditors will discover where I am working and start garnishing my wages and then I will not be able to support myself. As it is I am only making 50% of what I used to. But I was working on the Means Test this morning and the way they have it structured they are forcing you to include any monies you received during the last 6 months to figure your average monthly income. But in reality that is not even close to my current average monthly income. With my real monthly income I would have no trouble qualifying but with this bogus number they want me to use - I do not qualify. What can I do?

I know I could wait and file in November but if I do that I run the high risk of being garnished.

[keptdigging]

Do you already have judgments against you? Lawsuits pending? If not, you can probably hold on til November without garnishment. And even if you can't, you can end them once you do file, so they won't last long.

But you've got another issue you haven't identified. The payment to your folks is preferential. Doesn't prevent you from filing, but if it's big enough to make you flunk the means test, it's likely big enough that the Trustee will make them return it, take his cut, and distribute it evenly to your creditors. Obviously if you made it a priority to pay them this is not a result you want. (And it's even possible that they no longer have the money and so it'll be a real problem for them.)

And the waiting time for it to not be a preferential payment is a year (since you're related.)

I feel awful just pointing this out.

To others reading this: If you're considering bankruptcy or just see it as a possibility in the next year, DO NOT PAYOFF relatives. Your heart is in the right place, but you'll get the worst possible result. You need to try to find a way to exempt the assets and then pay them off after.

[DIYMeans]

Hmmm...thinking about what you said makes me feel like I may have no option but to wait it out. So my question would be - can ANY KIND of creditor garnish your wages? i.e. secure and unsecure credit cards and loans?

[helpmeout]

You have more issues than just the severance ruining your means test. You have a preferential payment to your parents to deal with.

The Trustee can go after your parents for the money you gave them. Personally, if I were you, I would wait at least a year before filing and hope for the best. Or be prepared to cough up the money you paid to your parents to pay to the Trustee.

[myid4u2c]

I think the question that has not been answered is do your creditors have a judgement against you? A creditor can not just garnish your wages because you are behind. Them must go to court and get a judgement, you can make this take several months is you answer the complaint.

[gmk]

When I filed my lawyer treated my severance package as a "one time" event and did not use it in the means test, but he did use accrued vacations and bonuses in the income calcs. Somewhere in the petition there is (as he told me) a place where he can exclude certain monies from the means test income.

TBS, what you did with or plan to do with the severance cash is an asset issue.

[DIYMeans]

What about the fact that your severance shows on your bank statement that you have to give the trustee?

[gmk]

I turned into my attorney 6 mos of pay stubs and 3 months of bank statements (also a bank statement as of the filing date). The severance pay was before the 3 months of bank statements so mine didn't show up as a deposit but it was included with the 6 mos of pay stubs I submitted.

Things like this could very well be district specific so I would discuss this with an attorney. Like you, I did my own means tests and I did mine every which way - including the severance and not. The attorney did it his way but we were close. When I calculated it I was over median but passed the means test w/o the severance so I believe he didn't include it.

When we originally discussed the severance he was very sure he wouldn't include it. Since he's been a trustee for many years he is very adamant about what flies and what doesn't in his district. Your attorney and your district may view such things differently.

Our case was reviewed by the US Trustee for presumption of abuse but the UST eventually filed a form stating that "dismissal was not appropriate."

Good luck.

[keepmine]

The means test is just step 1.
You still need to fill out schedules I and J to determine if you have enough disposable income to fund a Chapter 13.

Fill this out and see where you stand.

http://www.legalconsumer.com/bankruptcy/means-test/index.php

Nobody can garnish anything until they sue you and win.

[Fallonedward]

I was on medical long term disability (back surgery) with a company that I had worked for for 19 years when I received a layoff notice. I continued on disability for a year but the termination of my employment didn't take effect until the disability ended which was in April 2010. I received my severance lump sum April 30th. Then received a week and half of unemployment and then found another job. I used most of my lump sum to pay off my folks for some help they had given me many years ago.

I have been planning on filing Chapter 7 soon, on July 19th because I am afraid my creditors will discover where I am working and start garnishing my wages and then I will not be able to support myself. As it is I am only making 50% of what I used to. But I was working on the Means Test this morning and the way they have it structured they are forcing you to include any monies you received during the last 6 months to figure your average monthly income. But in reality that is not even close to my current average monthly income. With my real monthly income I would have no trouble qualifying but with this bogus number they want me to use - I do not qualify. What can I do?

I know I could wait and file in November but if I do that I run the high risk of being garnished.

We have a similar severance issue. Both of us lost our jobs in March of 2010 and one of us received our severance payout in March and the other spouse received their severance payout in April.

I found a position 2 months after I was let go but it was for 40% of my previous salary. The spouse is still looking and has not been offered anything. So with a family of 5 and one of us on unemployment and my salary below the median income for a family of 5 in my state I was told by one of the attorney's we consulted that we would have to wait till Oct. 2010 to declare 7 if that was the route we wanted to pursue.

I just need someone that can tell me if I would be able to keep my house that is about $30K underwater and my car that I recently bought and has a 3 year car payment...ugh so stressful

[DIYMeans]

'KEEPMINE' Thanks for the link! I reworked my Means Test on that website and found out that in my state median income point was higher then I thought so I do qualify now! Now it is just a matter of convincing the trustee that with my real monthly income I will not have money left over to pay my creditors off

[DIYMeans]

All the best...

'FALLONEDWARD' I do know what you are going through. The first thing that happened to me is that I had to go through the process of trying to sell my house and then when it didn't sell I had to do a 'Deed in Lieu of Foreclosure' (it is safer then a regular foreclosure). Then I had to spend about three months selling my belongings because I had to go live with my parents and only had one bedroom plus a storage unit. Now with the job that I got the pay is so low I am back to living in an apartment and can't afford my car payment so I have to include it in the bankruptcy and take a 1996 vehicle that is being given to me. THIS IS NO FUN I hope things go better for you then they did for me.....all the best

[Fallonedward]

'FALLONEDWARD' I do know what you are going through. The first thing that happened to me is that I had to go through the process of trying to sell my house and then when it didn't sell I had to do a 'Deed in Lieu of Foreclosure' (it is safer then a regular foreclosure). Then I had to spend about three months selling my belongings because I had to go live with my parents and only had one bedroom plus a storage unit. Now with the job that I got the pay is so low I am back to living in an apartment and can't afford my car payment so I have to include it in the bankruptcy and take a 1996 vehicle that is being given to me. THIS IS NO FUN I hope things go better for you then they did for me.....all the best

I keep hoping things will get better but it is the times we live in...good luck