Should we fight the courts to get a chapter 7 because of my SS?

[mom2crazies]

My attorney called me today.

Even though my SS income is excluded on the means test, we are fairly certain that the court will force us into a 13 because, there is still disposable income according to schedule I and J. The trustee will argue that there is a potential for abuse and that we should be in a 13. This is because I live in UT, which is a "creditor friendly" state and they are ignoring the issue of social security being exempt and forcing people to go into a 13, even if they are in my situation.

My attorney thinks we should file chapter 7 and fight because of the Social Security act and all of the other statutes stating that social security is exempt from being considered as well as the fact that it's not included on the means test. Many other states do follow this and there are court cases in other states where this has been argued and won.

He feels we have a case and that it may go very far, possibly to the supreme court because the laws are so contradictory to the schedules I and J.

I am torn.

On one hand, I want to fight it, not only for me, but for the millions of others that face this problem due to the contradictions in the bankruptcy laws. On the other hand, this may mean disclosing the reason for my disability, which is a mental illness and I rarely let other people know this.

He wants to get other attorney's involved and possibly a law professor at the U. Although, I am hoping that some of this will be pro bono, I am not sure what this would mean in legal fees. As far as it possibly exceeding what I would have to pay in a chapter 13 case. Then there is the issue of losing the case and having to pay for both a chapter 13 and attorney's fees.

Do I follow my convictions and fight this, or do I suck it up? We have already seen what happens when you are a little guy because we tried to fight regarding our foreclosure and even though the laws state we should have won, we lost because we didn't have representation.

[keepmine]

Only thing I can suggest is, get a written guarantee as to legal fees and then decide if you can afford the fight.

[HHM]

I'd say fight it...but as keepmine points out, make sure you understand the fee arrangement for doing so and the costs.

[daylate]

Hopefully enough will be done pro bono to allow you ot challenge as this is just one of the many inconsistent idiotic things in this whole process-it can get you into the club but then it can be used to toss you out...Congress at its best (worse?-same? :-) )

Good luck

[despritfreya]

Your attorney is correct that there are cases that exclude SS in determining if, under the totality of the circumstances, proceeding in a Chapter 7 is an abuse. However, the vast majority, both pre and post BAPCAP utilize SSI in determining if a debtor is proceeding in good faith.

I am not suggesting that you toss in the towel. What I am suggesting is that since the vast majority of cases go against your argument, you fight the fight as a test case for appeal purposes only if your attorney is not going to charge you and only if you are willing to stick it out. (It could take 2 years just to get to the 10th Cir. Court of Appeals unless a direct appeal is properly requested and authorized.) If your attorney is so sure he can win and on principal wants to fight then he should be willing to do so at no cost to you. I do want you to be aware of the issues as expounded by the below decision that came out in June, 2010:

In re Cranmer, 433 B.R. 391 (Bankr. Utah, 2010)

The issue before the Court is whether Debtor may exclude Social Security Income from his projected disposable income (“PDI”) analysis. For the reasons stated below, the Court concludes that SSI must be included in the PDI analysis and that exclusion of SSI is a factor in determining whether a (Chapter 13) plan is filed in good faith.

There is no dispute that SSI is statutorily excluded from both the calculation of CMI under § 101(10A) and the calculation of DI under § 1325(b)(2) as both calculations are determined by using Form 22C. However, the 10th Circuit Court of Appeals in In re Lanning determined that CMI and DI calculations are different than the calculation of PDI found in § 1325(b)(1)(B). This distinction was upheld by the United States Supreme Court (“Supreme Court”) with its decision of Hamilton v. Lanning. The term PDI was not changed by BAPCPA. PDI was introduced in the 1984 amendments to the Bankruptcy Code as an economic test of the debtor's best efforts. Courts considering whether SSI should be included in PDI calculation pre-BAPCPA have held that the exempt status of SSI does not exclude it from calculation of PDI.

By analogy, in In re Koch decided by the 8th Circuit Court of Appeals, the debtors filed for relief under chapter 7 and the United States Trustee filed a motion to dismiss asserting a discharge would result in substantial abuse as the debtors had $1,443 of PDI on schedules I and J, which included Mr. Koch's worker's compensation benefits exempted by state law. The Court found that “the exempt income question becomes something of a two-edged sword for prospective Chapter 13 debtors” as the exempt income would be included in order to satisfy the requirements of a chapter 13. The Court concluded that the exempt income should also be included in the substantial abuse determination because “Congress is free to limit chapter 7 protection to truly needy debtors who cannot fund a chapter 13 plan with exempt and non-exempt income.”

There are some post-BAPCPA cases which have taken the view that SSI should be excluded from PDI based on the definition of DI from § 101(10A). But at least one of those courts which excluded SSI from PDI determined that SSI is still part of the determination on whether a plan has been proposed in good faith under § 1325(a)(3).

This Court finds that here the Debtor's Schedules I and J are a better gauge of the Debtor's current financial situation and ability to pay rather than the mechanical approach from Form 22C. As stated by the Supreme Court in Hamilton v. Lanning “in cases in which a debtor's disposable income during the 6-month look back period is either substantially lower or higher than the debtor's disposable income during the plan period, the mechanical approach would produce senseless results.
_____________________________________

So, if the UST is going to claim that due to your SSI, you have the ability to fund a Chapter 13 you have a fight ahead of you. You have ask yourself if it is worth it. Remember, if (with the exclusion of SSI for means testing) you are below median income, you can file a 36 month Chapter 13. Fighting the UST “all the way to the Supreme Court” will take a great deal longer than 3 years.

Des.

[PushRestart]

Wow, what a puzzle, my sympathies to you for your troubles, it seems like a tough call to make. Seems like if you are 1. In the right and 2. Can afford to fight then 3. It might make sense to push back and make a stand. Still, I would look for advice from any of this forum's more seasoned members, I am very new to all of this and so can mostly just offer my best wishes for a good conclusion....

[mom2crazies]

My question is this: Why would it be excluded from the means test only to be included in the "ability to repay"? Why did they go to the trouble of excluding it for the means test? It just doesn't make sense to me.

[despritfreya]

My question is this: Why would it be excluded from the means test only to be included in the "ability to repay"? Why did they go to the trouble of excluding it for the means test? It just doesn't make sense to me.

Answer:

Because Congress made up the law. Oh, and according to Congress "it's a perfect law". Go figure.

Des.

[mom2crazies]

So, if the UST is going to claim that due to your SSI, you have the ability to fund a Chapter 13 you have a fight ahead of you. You have ask yourself if it is worth it. Remember, if (with the exclusion of SSI for means testing) you are below median income, you can file a 36 month Chapter 13. Fighting the UST “all the way to the Supreme Court” will take a great deal longer than 3 years.

So, even though we are below the median income and passed the means test, the DPI looks like it could be about 1K according to the means test that I calculated. Which puts at a 100%payback over a 5 year plan. What do you mean by a 36 month chapter 13? Would this make my payments lower, too since I did qualify for a 7?

[mom2crazies]

One more question: If it does stay in the court system, What are the ramifications for us? I understand that as of the day you file everything "freezes" as far as your creditors amounts they are owed and the right they have to continue collections practices. Would they still be prohibited from collecting or garnishing based on the fact that they are on the filing paperwork?

[despritfreya]

So, even though we are below the median income and passed the means test, the DPI looks like it could be about 1K according to the means test that I calculated. Which puts at a 100%payback over a 5 year plan. What do you mean by a 36 month chapter 13? Would this make my payments lower, too since I did qualify for a 7?

If you are below median income filers, as I read the Code, your "commitment period" is 36months therefore you cannot be forced into a 60 month Plan. See 11 U.S.C Section 1322(d)(2):

If the "current monthly income" (as defined under Section 101(10A) which excludes SS) of the debtor and debtor's spouse combined is below median income the plan may not provide for payments over a period that is longer than 3 years (36 months) unless the court approves a longer period of time (typcially at the request of the debtor).

_________________________

So, in your case payments might be $1000/month for 36 months not 100% over 5 years.

Des.

[despritfreya]

One more question: If it does stay in the court system, What are the ramifications for us? I understand that as of the day you file everything "freezes" as far as your creditors amounts they are owed and the right they have to continue collections practices. Would they still be prohibited from collecting or garnishing based on the fact that they are on the filing paperwork?

Once the case is dismissed creditors are free to collect in any way allowed by State law until such time as you file another bk.

Des.

[mom2crazies]

Does this mean that if the trustee argues the case, it is automatically dismissed? Or does it have to go through the judge before they can dismiss it?

Thank you for the judges memo, too . There was actually some information in there that may help my case since the judge argues that the debor entered into a 13 "voluntarily" and we would not have.

[momofthree]

Does this mean that if the trustee argues the case, it is automatically dismissed? Or does it have to go through the judge before they can dismiss it?

Thank you for the judges memo, too . There was actually some information in there that may help my case since the judge argues that the debor entered into a 13 "voluntarily" and we would not have.

A ch.13 is always voluntary. If you don't qualify for a ch.7, you can voluntarily convert to a ch.13 or you can just allow your ch.7 to be dismissed and not do anything. Just because you don't have 7 as an option doesn't mean that you "involuntarily" entered into the 13. You always have a choice. Really though, ch.13 isn't as bad as it's made out to be....

[despritfreya]

Does this mean that if the trustee argues the case, it is automatically dismissed? Or does it have to go through the judge before they can dismiss it?

Nothing is automatic. If you cannot reach an agreement with the UST the matter is brought before the judge who makes the final determination based upon the evidence presented. If there is a finding of abuse you have 2 choices - a) allow the case to be dismissed or b) convert the case.

Des.