income question?? Indiana

[danoct]

I talked to a lawyer today about chapter 7 and he stated that my income is below the state median, but I might not qualify because I will have too much disposable because I will have no rent or mortage. Is this true? Everywhere I read states as long as you fall below the median income you automatically qualify for chapter 7

[debee]

If you are below the median you qualify to file the chapter 7, but in order to be certain of the discharge your disposable monthly income needs to be around $115 or less. (Up to $195 in dmi depending on the type and amount of debt you seek to discharge.)

[danoct]

do I have to prove my monthly expenses or is there standard allowances? Just asking because some of the bills I pay aren't in my name. Also, I just started a new job 2 days ago and was wondering if income is based only off the last 6 month or can they say this is how much you're making at your new job, and this is your projected annual income? For the last 6 months I was collecting unemployment.

[debee]

There are two hurdles to Chapter 7.

First one is the Means Test. If your income during the 6 months before filing is below the median for your state/family size, you pass.

Second one is your Schedules I/J. This is where you list your income/expenses at time of filing. So your new job income would go on Schedule I and your expenses would go on Schedule J. When you subtract one from the other, the less you have the better off you are (in terms of chapter 7). How much is too much will depend on the amount and type of your debt, but under $100 - if it's an ironclad schedule - is fine.

You claim your actual expenses on Schedule J. If your expenses exceed the national/local standards, expect to be asked about it and be prepared to document it. It is ok for them to exceed when it is both "reasonable and necessary". Medical expenses wouldn't be a problem. Excessive grocery bill because you eat filet mignon every night would be.

Whether or not you can claim an expense that is not in your name probably depends. If you have a car (you drive it, you pay for it, but the title/loan are in your parent's name) then you can normally claim that expense. The other side of the bargain is that you then have to declare the car as an asset in the bankruptcy and unless you can exempt your equity in it, it is at risk for liquidation.

The extent to which you would have to prove your expenses will depend on the kind of expense, luck, your particulars, and your trustee. If you get a random audit, you can be asked for all kinds of records. If your trustee is suspicious, same thing. But normally, if your income is below the median and you're a no asset case, your case gets passed over pretty quick. Having said that, most people have some kind of record - bank statements of online payments, checks that cleared the account, receipts, etc - to prove the expenses they claim.

[daylate]

Since what your attorney is talking about is a going forward look at how much you have left, if you were to rent a place after bankruptcy or purchase a car or add additional expenses because you could now afford to you can still qualify for a chapter 7. So to clarify what debee said on Schedule J you put down what your expenses will be AFTER you file. Because you will not be paying on your debts you will have more dispisable money and therefore your expenses could very well be different than what they are now. Good luck,

[danoct]

Since what your attorney is talking about is a going forward look at how much you have left, if you were to rent a place after bankruptcy or purchase a car or add additional expenses because you could now afford to you can still qualify for a chapter 7. So to clarify what debee said on Schedule J you put down what your expenses will be AFTER you file. Because you will not be paying on your debts you will have more dispisable money and therefore your expenses could very well be different than what they are now. Good luck,

That makes sense! I told the lawyer if they took my disposable income how could I ever afford to buy/rent a home or buy a car. He said that doesn't matter, they'll take it. That pissed me off because I can't mooch off my family for free for the next five years. Its not like I'm single, I have a wife and kid. He acted like I had this big scheme going to screw my creditors. I offered them minimal payments until I got back on my feet and they wouldn't except. So now I have a new attorney and he said he will make it work.

[debee]

That makes sense!

Yes, but unfortunately, bankruptcy doesn't.

Schedule J is for your expenses at time of filing. It is for your current, actual expenses. You cannot put expenses on schedule J that don't exist - like a car you don't own, or an apartment you don't rent.

You can see the schedule here.

Maybe what you need to do is stop paying the debt, get the apartment, field the collection calls, and then file.

[danoct]

LOL.. Your right it doesn't! So why would one even qualify to file for chapter 7 based on median income, it's an oxymoron

[daylate]

debee-I'm confused. lets say I file on Day 30 of Month one. I am going to start a new apartment lease on day 15 Month 2. Don't I put the new rent on Schedule J. There have been numerous posts forum saying that Schedule J should reflect what your expenses will be going forward. If I'm going to get a bunch of cc debt discharged and they aren't going to be there going forward I have to spend the mone on something or I'll never not have excess dmi

The form instructions say "Complete this schedule by estimating the average or projected monthly expenses of the debtor and the debtor’s family at time case filed."

It doesn't say current it says average or projected. I think if you are planning on renting or buying or spending medical expenses or whatever. you are entitled to reflect that in your Schedule J.

What am I missing? Not trying to be argumentative just trying to make sure OP gets the different points of view.

[debee]

lets say I file on Day 30 of Month one. I am going to start a new apartment lease on day 15 Month 2. Don't I put the new rent on Schedule J.

When you file, you list your current rent. If you're planning to move and your rent will increase/decrease you would mention that on line 19 where you have a chance to describe changes.

You can't count the expense though because you don't have it yet. It's not "current". It can't be documented and you might change your mind and not move into it at all.

There have been numerous posts forum saying that Schedule J should reflect what your expenses will be going forward. If I'm going to get a bunch of cc debt discharged and they aren't going to be there going forward I have to spend the mone on something or I'll never not have excess dmi

I understand what you're saying and YOU make perfect sense. I just don't think bankruptcy does. I don't think it's fair or right that people seem to get penalized for trying to do the right thing and/or making wise choices like sacrificing their 401Ks or moving back in with Mom and Dad. The system is very good to people who have huge mortgages and new cars.

Once a person files and stops paying the debt (or if they stop paying the debt before they file) the money will be there to put towards food, rent, etc., going forward.

The form instructions say "Complete this schedule by estimating the average or projected monthly expenses of the debtor and the debtor’s family at time case filed." It doesn't say current it says average or projected.

You have to look above the instructions. It says right across the top:

"SCHEDULE J - CURRENT EXPENDITURES OF INDIVIDUAL DEBTOR(S)"

Also, the expenses are to account for the whole year ahead. That is where the projection comes in. The average would be for things that vary - utilities may be higher in winter, but lower in summer, etc. By averaging them out over the year, you get a more realistic DMI.

I get what you're saying though. The system should be set up to award people for trying hard to do the right thing, but it's not.

[Cavedog]

Excellent post debee. We thought about staying in our house for a few months longer to make it easier for us post BK, but then without a rent/mortgage payment, our DMI goes through the roof and we would have been forced to file Ch13. So we moved into a rental before we file for the extra expense and the peace of mind that we have a place to live.

[DAE]

I'm a little confused here. There must be something wrong with the description of the Schedule I/J analysis. Assume I am a debtor that makes less than half the median income for my state (let's say NET $2,000/month) and I have ONLY three expenses: food ($300/month), mortgage ($1,500/month), and car payment ($200/month). I pass the median income test, period. We know that.

What I am hearing here, however, is that if I am not making payments on my house or car ... or I don't reaffirm my mortgage or car, Schedule J would show me with a positive Monthly Net Income of $1,700/month and despite passing the means test I can still be denied a Chp. 7 discharge? That simply cannot be the case.

Debee, you're saying that because I'm not paying my mortgage on the day I file (and I don't reaffirm it), I have have no housing expense for Schedule J? I can't believe that to be the way in which the form is to be completed.

The inclusion of a housing expense must be contemplated post-discharge for those not paying their mortgage on the day of filing or those who are not reaffirming their mortgage.

What am I missing here?


EDIT: what would also be clearly problematic is the situation where a debtor is unemployed. His fuel expense would be far lower than if he were commuting to work, drycleaning would be lower, etc. But a permanent state of unemployment can't be contemplated here. Schedule J must take into account reasonable expenses over a period of time.

[debee]

Debee, you're saying that there is NO allowance for the reality that if I am not paying my mortgage on the day I file (and I don't reaffirm it), that I have NO housing expense for Schedule J. I can't believe that to be the way in which the form is to be completed. The inclusion of a housing expense must be contemplated post-discharge for those not paying their mortgage on the day of filing or those who are not reaffirming their mortgage. What am I missing here?

OP lives with his parents. Doesn't pay any rent. No housing expense.

You have a housing expense. You just don't pay it.

See the difference?

[DAE]

So drawing upon the work of a bankruptcy attorney in Utah here is what I think I know.

So you have passed the Chapter 7 means test and you figure everything should be smooth sailing from thereon out. You could be wrong because failing the means test is not the only reason a case might be booted from Chapter 7. Another important consideration is the amount of excess income showing on the bottom line of Schedule J.

On Schedule I you list your monthly income as it currently stands. On Schedule J you list your monthly expenses. You must also explain any reasonably anticipated decreases or increases in your income or expenses. The expenses on Schedule J are forward looking. This means you list the expenses you will have once the bankruptcy is filed. After you file bankruptcy you will no longer be paying on most unsecured debts (student loans are an example of an exception) such as credit card and medical bill debts. For some people's situation, once you subtract all of these unsecured debts there will be a surplus of income left over each month after deducting expenses. (Even if you intend to voluntarily repay a debt after the bankruptcy case you still cannot list such a payment on Schedule J.)

Too much excess income on Schedule J could prompt the bankruptcy trustee to bring a motion to dismiss for abuse of the bankruptcy process under Bankruptcy Code section 707(b)(3). It is for this reason that the budget on*Schedule J*must be carefully considered so that no expenses are left off. It the case where a housing expense will decrease due to the discharge of a mortgage and that mortgage payment will be replaced with a lower rental payment, you enter a notation on line 19.

Does this sound right?

[debee]

That sounds right to me. Schedule J has no debt on it that is listed for discharge. Only current expenses. You don't really put your future gas expenses or future drycleaning bill on the schedule just like you don't put your future income on schedule I. It's all current.

It is a good idea to look at what you spend and then to look at what the national/local standards are for you in that category. You might spend $300 on food and household expenses (sheets, towels, cleaning supplies, etc), but the national standard might be twice that. That means you could spend more on food, etc and indicate that in your schedule.

edit: If you were planning to give up your house and move into a rental that cost about the same, no need to mention it.