Motion to dismiss for abuse 707b - chapter 7

[ShazzaS]

Hi Everyone - we had our 341 meeting on Oct. 5th and everything seemed to go fine. I was excited to get a package in the mail yesterday as I thought it was our discharge and was stunned to find a motion to dismiss from the UST. We have already notified our attorney and have a conference call set for Monday to further discuss. After reading up on some others experience on the forum, it seems we should have received a presumption of abuse well before now - that never happened, is that unusual? It seems the trustee questioned something on our sch j and our attorney filed an amended one (which we really do not recall happening) and now the UST is filing the MTD from what I gather because we have too much disposable income. I really hope we can get this sorted with our attorney, I am just sick over it. A couple of things that she seems to have an issue with - I have a 401K loan of $600/mo. which she advises should not be counted as an expense. We are surrendering our home and therefore she advises we should not be including the mortgage in the means test (I've read of another person on the forum who was allowed to include this on the means test). We have not been overly impressed by our attorney thus far - she is very mellow and is not the most responsive/informative. I guess I am reaching out to all of you for any advice/input you may have based on my situation. If there is any additional information I can provide to help you help me, please let me know.

Thanks,
Sharon

[tcreegan]

Hi Sharon,

First off....many many folks around here have gone through this very thing and survived. Rebutting the UST presumption of abuse doesn't seem to be a problem of epic porportions. BK attorneys handle this, probalby on a real regular basis.

The presumption of abuse comes in when the means-test is examined, so it occurs early.

The next place to see MTD is the Sched I minu Sched J = DMI (disposable monthly income) Needs to be less than $187

If the trustee takes out the mortgage expense b/c you are surrending, you need to add back in rent or lease, somewhere to live.

The 401K repayment is not usually an allowed expense or income adjustment. Missing that $600 a month, you need to find $600 worth of expenses somewhere.

If you post your expenses that are going on Schedule J, people around here will give it a look-over; hi there, low here, forgot this, check this, .....

Let us know how you do with this, and any help, just ask!

Tom in Colo

[gmk]

Unless something has changed, in Northern Illinois including the mortgage expense in the means test has been allowed, at least in the Rockford district. My attorney (a Ch7 trustee who didn't bat an eye at it) & I included it. Before that I had looked up some decisions in the Northern district and I found some indicating that it was allowed. I don't recollect where I found it but I remember that the decision was based on the issue that the secured debt was in force at the time of filing so it could be included in the means test even though it doesn't reflect what may happen further down the road. I don't recollect what specifically was put in our I & J schedules for housing, but for the means test I believe it is or was allowable in the Northern district of Illinois. The UST may be bluffing on this one, waiting to see if there's any push-back from your attorney.

I too had a 401k loan but it was not included in the means test and IIRC we didn't use it in the schedules. $600/mo may be a big hit to your efforts. I hope you can find a way around it.

[october99]

Is your mortgage expense much higher than the rent allowance in your area? That would be one reason I've heard of objections to it being included if the house is surrendered.

The 401k laon payment is a tough one. It seems to be an issue for most people that have them.

[justbroke]

Just some technical details on a Motion to Dismiss under 11 USC 707(b)(2) and 707(b)(3). First, it is pretty well established that the United States Trustee (UST) does not need to file an assumption of presumed abuse when it's a motion to dismiss under 11 USC 707(b)(3). The only time the UST files the presumed abuse motions/notices is when there is a problem with the Means Test. It reads like your UST is going after you under 11 USC 707(b)(2) and 707(b)(3).

The 401(k) loan repayment (or even contribution) is not allowed in a Chapter 7. While you can pay that loan and include it as an expense in a Chapter 13, it's not allowed in a Chapter 7. There is, however, what they call a "hypothetical" Chapter 13 that they use as a test to see what you'd be paying in a Chapter 13. Most agree that you would need to show a disposable monthly income (DMI) less than $182.50/month for that hypothetical Chapter 13 to be moot (meaning that you couldn't pay your creditors enough in a Chapter 13).

As for the mortgage expense, that's a different story. If the UST actually stated that you can't include it on the Means Test, then the UST is wrong. This has been argued ad naseum, and the bottom line is that it's okay to include it on the Means Test. However, you can't include the expense of a property that you are surrendering on Schedule J. (This is why the UST didn't file a presumption of abuse because it's not a Means Test issue.). This is a totality of circumstances issue and the UST's complaint is probably dabbled with 11 USC 707(b)(3) all over the place.

You will be able to, however, add in the "rent expense" for your county to compensate for the mortgage. I'm sure the UST already ran your numbers using the local rent expense and still believes that they have a case... so that tells me that the IRS allowance for rent expense for your family size and county, is not enough.

Hopefully your attorney can mount a defense. I actually hate it when the UST does these "last minute" motions to dismiss when clearly, they should have seen it earlier.

[chriselle]

why did the attorney didn't put reaffirmed on the mortgage? If you don't sign the reaffirmation then it will just be included in BK and if you can't still afford it then walk away. Can't they just ammend that? Or that can't be done since the the intentions were stated? as for the 600/mo 401K payments, i think that battle will be lost.

[Fallonedward]

Good Luck Sharon:


this is scary. We had our 341 on December 1st and Pacer stated: Pending status: Awaiting Discharge - Flags: CASECHECKED

I hope we don't get this surprise come Feb. 2011 when we are expecting a discharge.

[justbroke]

why did the attorney didn't put reaffirmed on the mortgage? If you don't sign the reaffirmation then it will just be included in BK and if you can't still afford it then walk away. Can't they just ammend that?

No, because now you're just playing a game, and I'm sure that the SMART UST will ask the Judge to hold the discharge until a reaffirmation is entered into the docket. Well, at least a smart UST, and they are pretty smart and know all the "legal" maneuvering... although changing the paperwork after the fact to list a different intention which you don't intend to do... is not good faith. Beware of the "bad faith" argument!

[chriselle]

HEY JB, how are you... would you believe it's been a year since I started asking you similar questions? anyway, the attorney should have seen that coming even before turning in the papers. Another case of secretary putting the pprwk? hopefully it gets worked out.

[justbroke]

HEY JB, how are you... would you believe it's been a year since I started asking you similar questions? anyway, the attorney should have seen that coming even before turning in the papers. Another case of secretary putting the pprwk? hopefully it gets worked out.

Yes, it's been a long time, and it has been 2 years and 5 months (almost to the day) that I filed my Chapter 13!!!

Many attorneys still will attempt to push things through that are... contestable (if that's a word!). In many instance the UST and/or the Trustee just overlook these things... especially in an under the median case. However, that doesn't mean that the inclusion of payments on secured property which you are surrendering, isn't contestable and won't be contested.

Best wishes!