Chapter 7 and Presumption of Abuse

[Jacey]

I'm confused after reading many posts on here about the "Presumption of Abuse" with Chapter 7s. If I am over median but pass the means test on the second half of the test due to expenses/family of 5/mortgage and cars, can they still mark me with the Presumption of Abuse and consider dismissing or converting my case? I thought that passing the means test meant that you qualify for a 7 without presumption of abuse.

[dumpinmydebt]

They can "presume abuse" even if you pass the means test. If you have luxurious expenses and they think you are hiding assets, then they can state they presume abuse.

If you have nothing to hide, and you pass the means test with normal expenses, then you have nothing to worry about. Your lawyer will take care of it.

[olivies]

Yes, they can. We passed the means test. Over the median, family of 8. The UST is questioning our rent (which is higher than the ridiculous IRS standard - spotting a unicorn is more likely than finding a rent at that level) and even our payroll tax witholding (which, if we are lucky and we calculated it right, we won't owe this year like we did last year and will just break even).

[debee]

I thought that passing the means test meant that you qualify for a 7 without presumption of abuse.

Passing the means test means you are qualified to file a chapter 7 but it doesn't guarantee your debts will be discharged. There's still your DMI from schedules I/J, any individual expenses that may raise objections, bad faith issues, totality of circumstances, etc.

A few months back someone put it likes this: Passing the means test just gets you in the Chapter 7 club. There's still the hurdle of your schedules I/J.

eta: 11 USC § 707. You can read more about it here: http://www.law.cornell.edu/uscode/us...7----000-.html

[tcreegan]

Hi all,

Thought I would add that even if there is presumption of abuse on the means test, you shouldn't be converted to Ch 13 unless you have enough disposable monthly income (DMI) from schedules I-J to fund a Ch 13 plan.

Hi Jacey, You posted "passed the means test" so we can assume you checked the "presumption does not arise" box on line 52 or line 55 ? To get bumped out of the "not" category you need to have enough expenses not allowed or additional income added. If your expenses aren't over the IRS standards and you included all sources of income you are safe.

Now, as debee said, you have to clear the I&J hurdle.

Hang in there,

Tom in Colo

[AKA]

My question for all of you is this all based on the 6 months income/expenses prior to filing or does this include income after filing? My situation is I didn't make squat for almost 18 months before filing. A couple months before filing I started making some money again and since filing my income has increased significantly. I only filed after failing to modify my loan twice hoping the new job/income would allow me to do that the second time. Still didn't so I had no choice but to file. It's as if the mtg company didn't want my money. not sure what the trustee is looking at and what they are required to be looking at and take into consideration.

[hughewil]

AKA as I understand it income after you file has no impact on whether or not you are over the median. As to if it impacts your schedule I/J and if you get pushed into a chapter 13 instead of a 7 I don't know.

It is a good question though, I just filed yesterday and if I go out and find a part time job now does that impact my income/expenses for determining if I get a chapter 7 or not?

[olivies]

AKA as I understand it income after you file has no impact on whether or not you are over the median. As to if it impacts your schedule I/J and if you get pushed into a chapter 13 instead of a 7 I don't know.

It is a good question though, I just filed yesterday and if I go out and find a part time job now does that impact my income/expenses for determining if I get a chapter 7 or not?

Actually, they can. Look up the Lanning decision. The USSC has said "when a bankruptcy court calculates a debtor's projected disposable income, the court may account for changes in the debtors income or expenses that are known or virtually certain at the time of confirmation.".

So if you started a new job just weeks before or after filing, there's a good chance the trustee will look at that.

[clevelandmom]

We were told (and I've read on this board) that the "magic" date is after your 341 hearing. When you go to your hearing, the Trustee may ask if you've had a change in income or your job status. If you haven't started a new job (or even if you think you MIGHT be in line for a job, but haven't started it yet - because things CAN go wrong!), then you are fine. My husband is finally back to work, though we haven't been discharged yet. However, at our 341 hearing, he was still not working and there was no change in our income. I remember when we filed our Ch. 7, our attorney told us we wouldn't have a problem as long as he isn't called back to work before the 341.

[justbroke]

I didn't think Lanning was about a Chapter 7, but more about a Chapter 13 and how DMI is calculated. At least in my District, they have always aqccepted a "forward" looking approach, but many District used a STRICT interpretation of the Means Test and whatever Form B22C came up with, was basically the "minimum" that you had to pay (plus any amount that came about due to the calculations in the Chapter 7 liquidation test).

As for Chapter 7s, what is being talked about here is the Totality of Circumstances approach. The UST (United States Trustee) can look at factors after filing to determine if you are really deserving. Imaging a person who files for bankruptcy is about to discharge $200K in debt, but wins the lottery 2 days after filing. Technically, the actual winning are untouchable, but the UST has a rabbit in his hat called an 11 707(b)(3)(B) objection, based on Totality of Circumstances -- or "changed" circumstances. It's not used often, but is precisely used to deal with debtors who time their filing with a new job or large promotion!

This is a sensitive issue and is precisely why many attorneys would like to see NO CHANGES in your financial status in the period before and up to your 341 Meeting. The Trustees look for this and this is why they ask if your financial status has changed! While you are generally out of the woods once the 341 Meeting is concluded, you may still find trouble if something does change and the UST finds out about it.

As to the original poster's (OP's) original question of whether abuse can be found... sure it can. If the UST is able to poke at the expenses on your Means Test, and that yields you being presumptively abusing the code... ce la vie! The are two mechanisms for the UST to poke at a case. First is the Means Test and the presumption of abuse. The second shot the UST gets is the Totality of Circumstances review. If you are over the median, always expect that the UST will be probing your expenses.

[AKA]

What's total BS, IMO, is that it was the two years prior that lead me to this financial position of declaring BK-7 only after trying to rectify it with the creditors multiple times. It's crap for them to turnaround and try to stick it to me now just because I have just found some solid footing. The house is in foreclosure and I plan on moving out in a month. My lawyer thinks they just need some additional numbers, but still nervous as hell not knowing and not getting a precise plan of action from my lawyer.

[olivies]

I didn't think Lanning was about a Chapter 7, but more about a Chapter 13 and how DMI is calculated. At least in my District, they have always aqccepted a "forward" looking approach, but many District used a STRICT interpretation of the Means Test and whatever Form B22C came up with, was basically the "minimum" that you had to pay (plus any amount that came about due to the calculations in the Chapter 7 liquidation test).

As for Chapter 7s, what is being talked about here is the Totality of Circumstances approach. The UST (United States Trustee) can look at factors after filing to determine if you are really deserving. Imaging a person who files for bankruptcy is about to discharge $200K in debt, but wins the lottery 2 days after filing. Technically, the actual winning are untouchable, but the UST has a rabbit in his hat called an 11 707(b)(3)(B) objection, based on Totality of Circumstances -- or "changed" circumstances. It's not used often, but is precisely used to deal with debtors who time their filing with a new job or large promotion!

This is a sensitive issue and is precisely why many attorneys would like to see NO CHANGES in your financial status in the period before and up to your 341 Meeting. The Trustees look for this and this is why they ask if your financial status has changed! While you are generally out of the woods once the 341 Meeting is concluded, you may still find trouble if something does change and the UST finds out about it.

As to the original poster's (OP's) original question of whether abuse can be found... sure it can. If the UST is able to poke at the expenses on your Means Test, and that yields you being presumptively abusing the code... ce la vie! The are two mechanisms for the UST to poke at a case. First is the Means Test and the presumption of abuse. The second shot the UST gets is the Totality of Circumstances review. If you are over the median, always expect that the UST will be probing your expenses.

I mentioned Lanning because the conversation turned to calculating DMI based on schedules I/J for possible funding of a 13. If we're talking about schedules I & J and projected income/expenses, whether it's a 7 or 13, wouldn't the court take the same approach? I could be very wrong- I am nowhere near the expert you are JB. But, an increase in income just before and a significant increase just after could flag the trustee's attention regardless, like you said.

[AKA]

For the first time EVER I'm really worried about making too much money...not to mention my year end Christmas bonus...talk about sh!tty timing. I try to do the right thing and work with my creditors once I started making money again and it turns out is the worst decision I made.