Confused about median income and means test

[olosir]

I live in Rhode Island. My bi-weekly net pay is $1000 ($2000 per month) and I'm single. My 6 month average net income has been $2200. According to what I have read online, I'm well below the median income level for a 1 person household.

I have about $12,000 total in personal loans, medical bills, credit card debt, etc. I want to file for Chapter 7 and have met with an attorney twice. At our last meeting, he threw me somewhat of a curve ball. After we reviewed my monthly expenses, he said that I wouldn't qualify for a Chapter 7 because I had too much discretionary income. This is due to the fact that I'm temporarily living with my parents for a few months. This confused me, though, because I thought that if you were below the median income you automatically qualified for a Chapter 7.

Am I wrong?

[mlsj2009]

I think you are right Olosir. If you are below the average median income for your state, I don't think you have to take the means test. Here is what NOLO says about the issue: http://www.nolo.com/legal-encycloped...quirement.html

I would seek out additional counsel and see what other lawyers in your area say about your circumstances. It wouldn't hurt to get more than one opinion.

[LadyInTheRed]

If you are below median, you automatically pass the means test. Thats only the first step to qualifying for chap 7. If schedules I and J show you have enough disposible income to pay a certain portion of your debt in a Chap13, the US Trustee can object to discharge based on "totallity of circumstances". Consult with more attorneys. If your current living situation is temporary, you may get differing opinions.

[mlsj2009]

By the way, if you are living with your parents, I believe you have to look at the median income for the entire household income. So, that may be where the lawyer was coming from. You may want to ask him. The laws get rather vague sometimes in this area. Maybe one of the lawyers in this forum will answer your question. Good luck.

From another lawyer's website, "the new law instructs us to look at the "household" median income. As a result, we are looking at the total income for everyone in the household combined, no matter who is filing the case."

[olosir]

That makes sense. I did some more reading and now I understand how the schedules factor in. So, basically, what my lawyer said is correct. I need to increase my expenses by approximately $900 per month. What I'm trying to clarify is if I can just sublet an apartment beginning September 1, sign my petition that week, and then wait until after my 341 meeting to leave the apartment. I really can't afford to pay $900 per month indefinitely.

[Pjmax]

You could pay your parents rent, but I don't know how that would be received if you only start paying the month before you file. Six months down the road, you'd probably be fine.

[olosir]

You could pay your parents rent, but I don't know how that would be received if you only start paying the month before you file. Six months down the road, you'd probably be fine.

Well, this is my other point of confusion. My lawyer said it wouldn't be believable that I was living with my parents and paying them $900 in rent, but that it would be okay for me to find a sublet for a few months. Also, he said that the trustees will not look at my bank statements for the past few months, only my tax return and pay stubs. If that's the case, how will they even know if I'm paying rent?

[Pjmax]

Most of us had to submit at least 6 months of bank statements.

How will they know? Because you are expected to be truthful, and have documentation for everything if you are asked for it.

Is there a rush to file for some reason? You might want to rethink your expenses/budget and delay filing for awhile. Where does the extra $900/mo. go now? Everything is relative, but $12,000 in debt doesn't seem like it would be worth it for BK right now. Have you considered a 2nd job to pay off your debt?

[olosir]

Most of us had to submit at least 6 months of bank statements.

That also makes sense. I'm now completely confused about how to proceed. I thought this would be a simple process. Now it looks like I need to get a second opinion.

[Pizza]

By the way, if you are living with your parents, I believe you have to look at the median income for the entire household income. So, that may be where the lawyer was coming from. You may want to ask him. The laws get rather vague sometimes in this area. Maybe one of the lawyers in this forum will answer your question. Good luck.

From another lawyer's website, "the new law instructs us to look at the "household" median income. As a result, we are looking at the total income for everyone in the household combined, no matter who is filing the case."

The only income you have to include from non-filing relatives is the amount they contribute to the expenses listed. In other words, you couldn't include an electric bill on schedule J that is paid by parents. But having to include ALL income for the entire house is not an entirely accurate interpretation.

My mother-in-law has lived with us for over a year. We did not have to include her personal income and expenses on our petition, but we DID have to include her contribution to household expenses ($200/mo for groceries/consumption, etc).

[Pizza]

Actually, let's just forget about the household income for a second and focus on this strategy:

What I'm trying to clarify is if I can just sublet an apartment beginning September 1, sign my petition that week, and then wait until after my 341 meeting to leave the apartment. I really can't afford to pay $900 per month indefinitely. I really can't afford to pay $900 per month indefinitely.

What you're considering is problematic for a few reasons.

First, you can't afford that price. So, assuming an apartment complex would even let you rent out an apartment that drains you of all remaining income, you would have to go month-to-month or be facing more contractual complications that would give you more bills and headache post-bankruptcy. All debt after discharge survives your bankruptcy.

Second, your schedules are sworn documents, and they specifically ask you to describe any expected changes to your income and/or expenses. So, if the truth is "I'm just renting an apartment for a couple of month to cheat the means test and after this is out of the way I'm moving back home", then you would be lying to the trustee with a sworn document that says "None". Would you be caught? There's no way of knowing for sure, but getting an apartment just long enough to muddle through the process and leaving it right away is probably bad form.

Third, your bankruptcy and temporary rental may haunt you when you decide to move out again. It's generally best to find some level of stability first, THEN file against debts of the past.

Honestly, I'm a little curious why $12,000 in 'credit cards/medical bills...' has your hand clutching the BK trigger. Have you explored other options? The creditors might not have enough monetary incentive to bully you beyond the level of barking and howling, and it doesn't sound like you are protecting any assets?

If you truly have $900 in disposable income, it might be possible to consolidate and pay the debts off within a couple of years. I would be careful not to file in haste. You can't do it again for years and $12,000 really is not a monstrous amount.

[olosir]

While I have $900 in disposable income, I really don't anticipate staying with my parents for much longer than a few months. Really, they don't even have room for me at this point. I'm imposing on them. I can afford $600-700 on rent (including utilities), but my attorney says I need to be higher than that. I'm stuck between a rock and a hard place.

I suppose I can just never pay those debts off, but wouldn't I ultimately be sued?

[Pizza]

Health insurance/medical expenses, car payments/maintenance/repairs, clothes, food, toiletries,...

All reasonably necessary expenses can be included. You can include both current and anticipated expenses.

The 'presumption of abuse' does not arise when income minus expenses does not allow enough money to pay unsecured creditors.

[AngelinaCat]

You 'read' like you are fairly young, with minimal debt. If so, you may be shooting yourself in the proverbial foot, as it were, if you declare BK now. A CH7 will stay on your credit reports for 10 years.

Also, you may incur medical expenses that you would not be able to repay. Once you pull the BKCH7 trigger, it will be impossible for you to file for another eight (8) complete years after the date that you first filed.

I think you need to look at yourself, your spending habits, living situation, and see what you can do to remedy the situation before you have to take this step.

It is my opinion, and mine only, that some discipline is in order on your part, and not a BK at this time.

I do wish you well.

[olosir]

Health insurance/medical expenses, car payments/maintenance/repairs, clothes, food, toiletries,...

All reasonably necessary expenses can be included. You can include both current and anticipated expenses.

The 'presumption of abuse' does not arise when income minus expenses does not allow enough money to pay unsecured creditors.

What constitutes anticipated expenses?