Well Reviewed BK Atty Says Passing Means Test Isn't Important

[BrokeTwinkie]

I met with a few different attorneys regarding filing my over-median Chapter 7. One of them I went to based on an overwhelming number of positive reviews, both online and on AVVO (edit out attorney name). During our consultation, she was adamant that she could successfully file a Chapter 7 without us having to pass the means test. She said, "The budget test is far more important than the means test. Even if you don't pass the means test, if your budget shows you have no money left after your expenses, then we can still successfully file you in a Chapter 7."

EVERY other attorney I spoke with has said exactly the opposite. One even went so far as to say, "It's entirely a numbers game. If we can get the numbers to show you pass the means test, then a Chapter 7 won't be a problem for you."

BTW, the former attorney plugged our numbers into her means test software and says we will pass in February by a safe margin. The latter attorney plugged our numbers into his means test software and says we will barely pass by the skin of our teeth. Why would these numbers be different?

[HHM]

Here is the problem, both attorneys you spoke to are correct, and both are incorrect.

It IS a numbers game. But also, you can be over median income and still get a chapter 7 bankruptcy. If you are over median, the question becomes, why don't you have disposable income. What the means test is saying (rightly or wrongly) is that a person who makes more than $x of income per month SHOULD be able to pay something back to creditors. The means test presumes some amount of disposable income. If you are over that income threshold, the burden is on the debtor to prove, to explain, why they don't have any disposable income. However, being over median and staying in chapter 7 is actually rare. People on this forum have done it, and it does happen, but to give you the impression that it is easy or common would be misleading.

The issue comes down to expenses. What expenses do you have that are preventing you from paying your debts and are those expenses reasonable and necessary?

For example, if you are just a few hundred dollars over per month on the allowed housing expense and have a child with special needs costing an extra $500 a month, that is okay. If you are renting a house at $3,000 per month and the allowed housing allowance is only $1,800 and you are leasing two mercedes at a combined payment of $1,500 per month, that is not okay.

Lastly, the means test is actually 3 parts. Part 1, the over/under, are you over or under your states median income, part 2, the disposable income test. In this part, the test determines, based mostly on pre-defined expense amounts, whether you have disposable income. Part 2 is where the over median income debtor makes or breaks there chapter 7. If Means test Part 2 is saying you have $1,000 per month in DMI but your schedule I and J is showing $0, there is a problem.

[pamkev]

BK,
I can tell you what happen to us we saw 4 different lawyers. 2 said without a doubt Chapter 13 and would not even talk about a 7. One other took all our info and would make a decision based on that. The lawyer we choose was the one who really took the time to sit and talked to us not once but twice.
At one point it really did look like we had to do a 13 which I then thought she scammed us but thanks to the good people on here I saw I was wrong.
We did not pass the means test we were over but not much. She said almost the same thing your first lawyer did it comes down to your expenses. We had some expenses that were over what the federal allowances which got the UST attentions which she said would happen. We had paperwork for the past 4 years to back up all claims submitted them to the UST and that was that. We filed a chapter 7 in Aug and was discharged and closed in Nov of this year.

Pam

[justbroke]

You meant "discharged and closed" Pam. I fixed it for you.

[pamkev]

You meant "discharged and closed" Pam. I fixed it for you.

Thanks

[ExplorerZ]

However, being over median and staying in chapter 7 is actually rare. People on this forum have done it, and it does happen, but to give you the impression that it is easy or common would be misleading.

That's only if no other events are involved, no?

For instance, I pass the means test even without considering a major salary cut (from well above to well below the median) that only influences the last month. I could see it being tricky if that pay cut hadn't happened, but with that event there I'd think it wouldn't be tricky at all. Am I wrong to think that would be a factor?

FWIW, the lawyers I spoke with generally thought it was better to file early when way over median and passing the means test than to wait, as the mortgage wouldn't really be a valid expense to claim as I couldn't afford to pay it while waiting for those 6 months to lapse. I get that there's a sales aspect to it, in that they want my business now, but it seemed to be the consensus and valid reasoning imo.

[justbroke]

That's only if no other events are involved, no?

What other events? Typically you need to qualify based on the numbers (period). An over-the-median income filer is going to receive the utmost scrutiny from the U.S. Trustee's (UST) office and many, if not all, expenses will be questioned and poked at.

For instance, I pass the means test even without considering a major salary cut (from well above to well below the median) that only influences the last month. I could see it being tricky if that pay cut hadn't happened, but with that event there I'd think it wouldn't be tricky at all. Am I wrong to think that would be a factor?

This depends entirely on the appetite of the UST. I think you're saying that you had a salary which put you over the median. In the month before filing, you had a pay cut which brought you under the median. Now, when you file, you're still over-the-median but you had that event (reduced salary/pay cut) which would bring you under the median if you waited to file. No one can tell you for sure how the UST will react. You will receive scrutiny on the expenses. In some District, the surrendering of a home could be a factor! It really depends on how the UST sees the case and what they want to poke at. If you can't afford the home later (in 6 months), doesn't that mean that you probably can't afford it now?

FWIW, the lawyers I spoke with generally thought it was better to file early when way over median and passing the means test than to wait, as the mortgage wouldn't really be a valid expense to claim as I couldn't afford to pay it while waiting for those 6 months to lapse. I get that there's a sales aspect to it, in that they want my business now, but it seemed to be the consensus and valid reasoning imo.

Again, this just depends on so many factors, non one should and could clearly tell you that a.) the mortgage "would" be a factor, and b.) that waiting is not a better option. It is really all about how your numbers work (or don't work) and how the attorney is going to approach the case.

Most people wait for income to fall off so as not to have a fight with the UST. In the end it will be your numbers, the UST's interest in your case, and your attorney's ability to argue for you. That is just how an over-the-median case progresses.

(Note: I did receive a Chapter 7 discharge in an over-the-median income case. However, I was a non-consumer filer.)

[btbeme]

As HHM indicated, the Means Test is designed to be a tripwire. Before the 2006 BK law changes, it wasn't difficult to get higher-income wage earners into a Ch 7; now, you have to pass the test and/or prove that your expenses are reasonable so that you cannot afford some of your debt to be paid back.

In that sense, "affordability" is a function of both income and expenses. Incomes can and do vary over time; for the Means Test it encapsulates the last six months of earnings. So, the margin between expenses and income will vary over time, and TIMING can be a critical component if that margin is narrow. It was for us, and it required a good deal of patience and flexibility until such time that certain incomes fell off the Test and our expenses were "normalized" so as not to "stick up" too far above average and draw scrutiny.

Two or three years ago Trustees were buried in an avalanche of filings, meaning they had to comb their files and would usually only "alert" on things that appeared quite unusual or abnormal. Now that filings have slowed, they have a finer-toothed comb and more time to process files - so any "warts" or abnormalities may get flagged with a Presumption of Abuse in order for the Trustee to get more time to closely scrutinize the filing.

In any case, it IS a numbers "game" but do not expect to be the "winner" of the game. This is serious business, and the numbers are the numbers. A legitimate filing that shows all numbers for what they are, and those numbers fitting under the limbo bar - that is fine. But I have heard of few attorneys describing ANY over median Ch 7 as "easy." Great attorneys have strong knowledge of the local Trustees and what will pass muster with them if a file is somewhat warty. But never easy. That great big "totality of circumstances" catch-all keeps getting in the way.

Unless, of course, you consider that it is your skin on the line, and not the attorney.

[Snax]

Income insecurity is definitely a factor on this issue. For the 6 months preceding our filing, we ended up actually being about $2k over the threshold, however our annual income was an important consideration for the UST who was able to see that the boost was seasonal against an income that averaged under the threshold on a 12 month basis.

If you are genuinely unable to cover your expenses, the trustee should be able to see that and will act accordingly.