Met with atty: A few more questions about filing Ch 7

[goodtimes50]

I met with an atty yesterday and have a few remaining questions. Obviously, I'll run any answers by her, but she's probably sick of answering my questions so I figured I'd ask here first.

1) First of all, I had assumed that the free consultation would include the means test to determine eligibility for Ch7, but it did not. She wants a $250 to begin the process. Is that normal? I'm a little bummed since I know it's going to be VERY close and I don't want to waste $250.

2) She is currently reading through the the Supreme Court's ruling regarding the Vehicle Ownership Expense for people who own their cars free and clear. She said she wasn't sure how it would effect the $200 "high-mileage" allowance, but seemed to think it would no longer be available. Has anyone heard anything about this? This could make or break my case.

3) If you take the allowed deductions on the means test (eg. family of 5 = $486 for non-mortgage utilities, $1633 for food/clothing/personal, etc.) can you carry those values over to the Sched J or does the Sched J have to be based on *actual* expenses which may be less than the allowed deductions?

TIA!

[HHM]

1. Correct. successfully doing a means test is not simply a matter of filling in a few numbers on the form. The means test is legal work product, you will not get it for free (some attorneys do an adhoc one at a consult, but unless you have a true 6 months worth of pay stubs to enter, and really go through the expenses, the means test will not be accurate; these are generally not done at the consult).

2. That supreme court case made no explicit ruling regarding the high mileage. There is dispute on when you get to take it, but as I understand it, the high mileage is an add on to Vehicle "operating" expense, not "ownership." So, I see no reason why you couldn't take it. The dispute in this area has to do with taking an "ownership" expense plus the enhanced operating expense (the extra $200). But if you have no "ownership" cost, then you shouldn't have a problem taking the enhanced operating expense if the car is older than 6 model years or more than 75,000 miles.

3. Schedule J must show actual. (but there is dispute about this).

[goodtimes50]

Great, thanks for the quick response!

One more question. My wifes car (which is paid for) is on its last legs. If we go ahead and get a new car now can we list that monthly payment even though we haven't had it for the last 6 months?

[HHM]

Yes, you can list it.

Also, I want to address a confusion that I am seeing more and more that you raise in your post.

The 6 month look back on the means test is only on the INCOME side. On the expense side, you use the allowed expense and in those categories that allow for actual, you place your present day, actual. The means test is not about averaging your last 6 months worth of expenses.

[goodtimes50]

Also, I want to address a confusion that I am seeing more and more that you raise in your post.

The 6 month look back on the means test is only on the INCOME side. On the expense side, you use the allowed expense and in those categories that allow for actual, you place your present day, actual. The means test is not about averaging your last 6 months worth of expenses.

In addition to what I've read here, my atty used 6 mo averages to come up with values for stuff like Food, clothing, charitable giving, etc. I guess it may just be a rule of thumb rather than a requirement. Interesting...

[HHM]

You would not do that on the means test...the means test requires use of IRS standards for those categories.

Now, on schedule I & J, you will definitely look back and take an average to get a more real picture of actual spending. But on the means test, you don't need to have an expense for 6 months.

[goodtimes50]

Gotcha... thanks!

[debee]

If you take the allowed deductions on the means test (eg. family of 5 = $486 for non-mortgage utilities, $1633 for food/clothing/personal, etc.) can you carry those values over to the Sched J or does the Sched J have to be based on *actual* expenses which may be less than the allowed deductions?

It can be helpful to divide your expenses into three types: fixed, slightly variable, and variable. Your fixed expenses should be the actuals (whether backward as in mortgage or forward as in new rental, or insurance after lowering deductible, etc), your slightly variable should be averages (heat, water, etc) but also with a forward-looking component. Did you not water your lawn last year because you were scrimping for the VISA bill, but plan to water it once your debts are discharged? Has your municipality announced a 10% fee hike for trash collection?

Your variables have the most wiggle room. If you've been eating ketchup soup for the last few months, you wouldn't want to base your forward-looking grocery budget on that same theme. If you've been avoiding the dentist, using a magnifying glass to read the newspaper, and keeping your hernia in place with duct-tape, then you don't really have figures for estimating your future medical/dental expenses when you start living like a "normal" person again. Illness, chipped tooth, leaky radiator, water heater death, roof leaks, mice gnawing through the wires, termites, etc are all unpredictable and "forward looking".

eta: Your attorney should know what will fly in your area.

[csonly]

HHM, as far as expenses, electric for instance, even though I'm on a budget plan, the electric company evalutes it every few months and it changes a few times a year, so when I asked my attorney, he said to average the last 6 months. When I gave him the electric bill for the means, I gave him the highest amount, as it was that amount for a few months, but then went down about $50 due to summer, and I'm sure next month it will go back up again, so now I'm confused. We have electric everything in our house in PA, so the bill is high all year but worse in the winter.

I'm also confused about the $200 car allowance. I realize you said there is a dispute about it, but we have a 1999 sunfire with 185K miles that we own, would we qualify for that. We call it our beater car as my husband drives 120 miles round trip for work with it and it gets good gas mileage. It can die any day now, but as long as it runs, we'll keep it.

[HHM]

Yes, you would take the extra $200 vehicle operating expense on that car. The dispute, right now, on that issue is if you have a car payment, thereby, you get the car ownership expense, and the regular car operating expense, but trustees are objecting to the extra $200 operating expense when the debtor has an ownership expense (e.g. car payment).

Just keep in mind, your actual electric does not go on the means test. It goes on I & J.

Let me back up and clarify what I think was being asked initially. A subsequent question in this thread was, if the debtor goes out and buys a car on even of filing BK; can they now claim that car payment on the "means test" even though they have not been making the payment for the prior 6 months. The answer is YES. The confusion I was pointing out is that the means test looks at 6 months of income...but on the expense side, the means test looks at the "standards" and what you have at the time of filing. Schedule I & J, where you put your actual expenses, one method of calculating is to take a 6 month or 12 month historical average. Schedule I & J is where you get the flexibility to show the court either (a) what you actually spend, or (b) what you "will" spend, depending on which number better suits the goals of your BK.

[csonly]

So, is the vehicle operating expense of $200 in addition to the gas expense? We do own the car with 185K miles. Live in PA. Why is this even considered an expense? Is it because the car is old and pretty much can "nickel and dime" you due to high mileage and repairs?

[HHM]

Yes, the $200 is on top of the allowed Vehicle operating expense.

For example, the OP's state is Oklahoma, Oklahoma is in the South Census Region, the allowed Vehicle "operating" expense (gas, insurance, registration, et al) is $239 (IRS Trans Stds). If the car is older than 6 years or has 75K+ miles, the debtor can claim an "additional" $200 in the Operating Expense category "ON THE MEANS TEST" However, on schedule I & J, you would most likely average your historical vehicle expense.

However, in many districts, the trustees routinely object to the "additional operating" expense if the debtor has a car payment (vehicle ownership expense) [don't ask me why, the reasoning makes no sense but judges seem to go along with it]

[debee]

There's a blurb about this issue on the USTP's position paper on the means test legal issues and it indicates that in order to take the $200 you have to own the car outright (no lease either) and live outside the 5th, 7th and 8th circuit. The relevant section is line 22A. The paper can be read here:

http://www.justice.gov/ust/eo/bapcpa/index.htm

[csonly]

What does outside the 5th, 7th, and 8th circuit mean. We live in PA, does that help?

[debee]

The country is divided up into regional circuit courts. PA is in the third. A map of the circuits is here: http://www.uscourts.gov/court_locator.aspx

I don't know how often the USTP updates their online docs so I would discuss it with your attorney to see if it's an available option in your district/circuit.