No Way we could file 7!? Think Again!!!

[alorth]

I cannot believe our "luck". Had our appt. with our lawyer Monday, expecting to file 13. We make about twice the median income, so I figured there was NO WAY we could file 7, or that we'd pass the means test. The lawyer also essentially told us that at the beginning of the meeting.

But lo and behold! Our debts and obligations to income are such that if we did a 13, our payback would be far lass than 20 cents on the dollar, which supposedly also qualifies you to file 7, according to our lawyer. He assures us he is NOT worried about our 7 going through in this case. He was very very thorough in going through everything, every debt, and every asset, and pay. It just seems like circumstances worked out perfectly.

Believe me....I am hoping and praying that this goes through. Part of me is still convinced that somebody in the process will object to this and make us file a 13. I'll be proverbially "holding my breath" for the next few months now until we finally get that discharge.

It sure would be nice to be over and done with this BK stuff in only a few months, rather than 5 years!

[IamOld]

That would be awsome! A good atty who knows the lay of the land can make all the difference!

[HHM]

Actually, that is a bit of an oversimplification, the part of the means test that you may be referring to is this.

Test 3: Not Enough Disposable Income to Matter.
If you have disposable monthly income according to Test 2, then you move to Test 3. Test 3 rarely applies; but basically, if your monthly disposable income multiplied by 60 is less than $6,575, then you are presumably a chapter 7 bankruptcy, If your disposable monthly income multiplied by 60 is between $6,575 and $10,950 and that amount will not pay at least 25% of your non-priority unsecured debt, then you presumably qualify for chapter 7 bankruptcy. In essence, within those narrow guidelines, the bankruptcy code is saying that there is not enough left over at the end of the month to matter, and therefore, you may still receive a chapter 7 bankruptcy discharge.

The problem you will still run into is what you are claiming as expenses. It doesn't take that much for a trustee to object to certain expenses and bump up the amount, so although it looks like you are off to a good start, there is still a long way to go, (sorry to be a downer).

[Kev1235]

The problem you will still run into is what you are claiming as expenses. It doesn't take that much for a trustee to object to certain expenses and bump up the amount, so although it looks like you are off to a good start, there is still a long way to go, (sorry to be a downer).

Agree. Sounds like there could be some headaches there. There are such a thing as just bad lawyers, who could lead you into a mess. But that is for you to decide if he/she is trustworthy or not. Though I do hope it works out for you.

[momofthree]

HHM is spot-on, as usual, the 25% rule applies to very few people. I have a feeling this attorney is telling you what you want to hear and you're going to experience the old bait-and-switch. Keep us posted on your progress.

[alorth]

The good thing is my attorney has been practicing 40 years, represents Chapter 7 Trustees in many cases in this area, is ABC certified, shares a building with the Chapter 13 Trustee, and is a near-yearly speaker at the ICLE Bankruptcy Boot-Camp for new attorneys.

I figure if anyone has the experience, and the resume to guide us through this BK, our attorney does. And if he says a 7 looks probable, I fully trust his opinion.

[Hopeful123]

very interesting read... thank you.

[alorth]

Actually, that is a bit of an oversimplification, the part of the means test that you may be referring to is this.

Test 3: Not Enough Disposable Income to Matter.
If you have disposable monthly income according to Test 2, then you move to Test 3. Test 3 rarely applies; but basically, if your monthly disposable income multiplied by 60 is less than $6,575, then you are presumably a chapter 7 bankruptcy, If your disposable monthly income multiplied by 60 is between $6,575 and $10,950 and that amount will not pay at least 25% of your non-priority unsecured debt, then you presumably qualify for chapter 7 bankruptcy. In essence, within those narrow guidelines, the bankruptcy code is saying that there is not enough left over at the end of the month to matter, and therefore, you may still receive a chapter 7 bankruptcy discharge.

The problem you will still run into is what you are claiming as expenses. It doesn't take that much for a trustee to object to certain expenses and bump up the amount, so although it looks like you are off to a good start, there is still a long way to go, (sorry to be a downer).

Yes...I believe you are right in that we are looking at qualifying for 7 by way of Part 3.

I don't know what the history is in this area of Trustees trying to implement the "Totality of Circumstance" clause. My atty didn't bring it up, and again, did not seem worried, and if you read my most recent post about my atty, maybe there is a good reason for this.

I can tell you that one HUGE expense we have right now is for Montessori schooling for our child. This is roughly $500/month, and due to go up. Our atty does not think this will be an issue.

We also have a BOATLOAD of medical co-pays, for both prescriptions and Dr. appts. mainly due to me.

We have been keeping an itemized budget of every expense since January on Quicken. We have receipts, we have everything. We can prove every dollar we spend.

Our atty was more than impressed by that bit of info.

I do have my thoughts that we will have to fight to get the 7 through, that maybe the Trustee will send us one of those letters that accuse us of a "Presumption of Abuse" despite passing the Means Test, but we are not spending on anything frivolous in my opinion, and we will fight for every expense, which our atty. also promised.

[outsidetool]

If you've got a good atty, which your info suggests that you do....then I'd bet that your 7 will go through. I went through a
similar situation...it's all about the attorney...being willing to file for 7 in the first place, and then willing to see it through.

[biotechsolution]

You do have to realize that you are limited to $150/month for schooling on your means test. You'll have to make up the additional $350/month somewhere else.

[alorth]

The $150 is the IRS-determined deduction. That has nothing to do with an actual expense. The Means Test also only gives you something like $850 for housing allowance. But our actual expense is $2400.

I think I will defer to my attorney who has been practicing 40 years in this case as to what we can actually count as real world expenses without much worry.

We are able to count real world expenditures in part 3 of the Means Test, and my attorney basically has said that as long as they can be "backed up", and are not "frivolous", they can be counted towards your expenses vs. disposable income when figured against what would be the percentage payback.

Supposedly, in this area, the trustees tend to not question too much on schooling expense for young children.

Again, that is a supposition of mine based on my atty.'s advice. I will certainly get my chance to see how everything shakes out in the next few months.

[moe]

Well, that's great. It feels like we are in this situation in reality where we are above median income but we don't have any money. But when I do the means test, it doesn't look so great.

I am impressed with the $500 Montessori school!!! How did you get one that cheap? The ones here are $1,000-1,200.00 a month. I could never afford it. I always felt really sad about that as my kid is born for Montessori. We pay $350 for really crummy after school daycare.

My question is: What did you have to do to prove everything. You saved every receipt and kept track of everything on Quicken? What do you have to submit when you do the means test? Doctor bills? Anything else?

I have health issues and medication did not work so I started doing yoga and exercise and acupuncture and this helps so much more. Alas, no trustee would let me count those as a medical expense, I am sure!

We still do pay a lot of money on doctors and so forth--but not our whole income.

[karm43]

HHM if you do not have 25 percent what happens? I have 1 secured loan. I would have to find a way to pay that correct. I do not have 25 percent left but may be able to swing this pay for 5 years, have not paid this bill in 2 years. It was a personal loan with a truck as collaterol, they do have a lien with penn dot, because we tryed to junk it. that is not runnable basicaly junk. What do you think?

[LadyInTheRed]

Karm43, Is the car the only collateral for the loan? If so, let them have their collateral and the deficiency will be discharged.

[alorth]

Well, that's great. It feels like we are in this situation in reality where we are above median income but we don't have any money. But when I do the means test, it doesn't look so great.

I am impressed with the $500 Montessori school!!! How did you get one that cheap? The ones here are $1,000-1,200.00 a month. I could never afford it. I always felt really sad about that as my kid is born for Montessori. We pay $350 for really crummy after school daycare.

My question is: What did you have to do to prove everything. You saved every receipt and kept track of everything on Quicken? What do you have to submit when you do the means test? Doctor bills? Anything else?

I have health issues and medication did not work so I started doing yoga and exercise and acupuncture and this helps so much more. Alas, no trustee would let me count those as a medical expense, I am sure!

We still do pay a lot of money on doctors and so forth--but not our whole income.

To answer your questions, I haven't had to do anything "yet" to "prove" everything from the Means Test. Our Lawyer sat down with us, we had everything - our whole entire financial life - in a file case we brought with us, and we did the Means Test together, which took over 2 hours, and we went into it assuming we were filing a 13, not a 7.

Yes, we saved every receipt since January. They are all filed, they are all categorized on Quicken, which makes printing reports easy. I'm talking every receipt from Groceries, to Entertainment, to clothes, to household goods, to repairs....everything.

Our Medical Bills were easy to keep track of. We had a Health Spending Acct. through my wife's work....she's the only one working.....but we had it maxed out at $2600, and already spent it all on co-pays and such. So we can easily stand by our estimate of about $4000/year in Co-Pays....plus we also count the $800/month we pay for Health Insurance. I see a LOT of doctors regularly, and take a LOT of expensive meds.

The Montessori expense will go up to about $700, but that should be it for awhile. Like I said in another post, our Lawyer says that expense should be acceptable to local Trustees.

Now....as HHM noted, our filing and our "passage" of the Means Test is the first step, and we have a long way to go. We are counting on our Attorney's 40 years of experience and relationships with local Trustees to guide us through, but there is nothing that says we won't get challenged.

The wheels turn slowly, but if and when we come up against something, you can be sure I'll be posting about it here.