Confused by Lawyers advice to qualify for chapter 7

[kmkrause]

I'm in the process of filing chapter 7. We pass the first part of the means test but my husbands Social Security is added in the second part of the test and shows $360 disposable income. My lawyer advised me to have more taxes taken out of my paycheck ($200) is this good advice? Way i understand the trustee looks at the past 6 months. So how would and extra $200 taken out in the future help any?

[justbroke]

I, myself speaking, won't second guess your attorney. The Trustee aggregates things for the past 6 months. Whether the Trustee would catch this or even care, is another story. Do you receive refunds each year or do you pay? If you are paying additional tax each year, your attorney is just trying to make your taxes reflect your actual income and tax liability.

Otherwise, I'm not going to say anything else. Your attorney know more about your picture than I ever will know. It reads as though you're an over-the-median income case, since you had to fill out the entire Means Test.

[LadyInTheRed]

Are you sure you are understanding correctly what the attorney is telling you?

If you pass the first part of the means test, you are done. You do not even have to complete the second part. You can see that by looking at line 15 of the means test form: http://www.uscourts.gov/uscourts/Rul...rent/B_22A.pdf

But, even if you pass the means test, you have to complete schedules I and J which include your current income (including social security) and expenses to determine whether you have enough monthly net income to pay unsecured creditors in a Chap 13. If your monthly net income as calculated at the bottom of Schedule J is high enough, the trustee will object to a Chap 7 discharge based on "totality of circumstances". If you can't defeat the objection, you could be forced into a 36 month Chap 13. It may be schedule I/J that your attorney is concerned about.

This issue is explained at http://www.nolo.com/legal-encycloped...eans-test.html

You shouldn't have to increase your actual withholding to claim it as an expense on Schedule J. Unlike the means test, Schedule J is forward looking. You should report your actual withholding on Schedule I. If you will owe tax at the end of the year, then the additional tax should be divided by 12 and listed on Schedule J.

If you will owe tax at the end of the year, I strongly encourage you to increase your withholding, regardless of BK. But, if your attorney is telling you it is necessary, I would see that as a bad sign and consult with other attorneys. Also, if increasing your withholding will just result in a refund and the trustee does some quick tax calculations, it won't help because the trustee will claim that you over stated your expenses.

All of that said, it is possible that your attorney has enough experience with the local trustees to know what will fly. Do you know how experienced the attorney is?

[kmkrause]

Yes we receive a refund every year. Actually we are under the median because Social Security income isn't included in the first part of the means test. It is included when figuring disposable income.

From Nolo
"Even though you are not required to list your Social Security income on the means test, you must include it on Schedule I when calculating your budget. Be aware that if your budget shows a significant amount of disposable income each month, you may still be disqualified from filing for Chapter 7 based on a lack of good faith even if you pass the means test."

[LadyInTheRed]

Otherwise, I'm not going to say anything else. Your attorney know more about your picture than I ever will know. .

If I were in a more conservative mood, I might have said the same thing. You definitely should not take the word of a stranger on the internet, who is not an attorney, over your own attorney. But, you can ask your attorney more questions based on what you have read.

It reads as though you're an over-the-median income case, since you had to fill out the entire Means Test.

We pass the first part of the means test

[LadyInTheRed]

You might want to ask your attorney about other ways to decrease your disposable income.

[justbroke]

That's why I didn't understand the completing the entire Means Test. An under-the-median income filer does not complete the entire Means Test. They stop after section III (after completing sections I, II and III). However, the inquiry is not done and Schedule I and J will be important.

I too would ask my attorney about reducing the DMI through other means. Perhaps there are missed expenses. How about life insurance? Did your Schedule J account for things like hair cuts, car maintenance, vehicle license renewals, etc?

[kmkrause]

Thank You for your replies. I will be talking with the attorney tomorrow. Would adding my son to my health insurance plan count? Currently has no insurance and would like to add him to the plan. Costs $400 monthly. But may not be able to do that until open enrollment at work.

[kmkrause]

I too would ask my attorney about reducing the DMI through other means. Perhaps there are missed expenses. How about life insurance? Did your Schedule J account for things like hair cuts, car maintenance, vehicle license renewals, etc?

i'm not sure. The lawyer just told me on the phone this morning that we currently show $369 disposable. And then suggested having the bookkeeper at work take an extra $200 a month out of my checks for taxes.