Failed the means test for chapter 7?

[philrozzi]

I went to my lawyer last week and he informed me that I failed my means test which was based on mine and my wife's income. Those of you who are getting chapter 7's how are you passing this stupid test?

I was on unemployment for a few months and even with the low unemployment payments I still failed the test. The only thing I can think of is my wife will be on maternity leave next week for 4-5 months and will be getting only 60% of her hourly wage. After that I'm hoping that will lower our avg. income enough to pass the test.

This is unrelated to the means test but I am curious how the trustee handles property in a bk? For example I have 5 cars registered under my name and if the the cars were in working order their value would be 2-4 thousand each. These cars were used for off roading on our property and we would totally demolish them to the point they are basically scrap. If in the future I pass the means test and I tell the trustee none of these cars are worth anything will he\she want to come to my property to validate my claim or will they tow all that trash off my property?

[LadyInTheRed]

The vehicles should all be listed on your petition at whatever their values are in their current condition. If you have exemptions available to exempt them and want to protect them, you can exempt them. If you don't care about them, you wouldn't waste the exemptions. If the trustee asks at the 341, he will probably take your word for it when you tell him what their condition is. But, if he doesn't believe you, he could send somebody to look at them. I have only heard of a trustee sending somebody to somebody's home to inspect property in the Middle District of Florida.

The trustee will decided whether it his worth his trouble to take the vehicles and sell them. If he decides they have enough value, he will sell them. If he doesn't he will abandon them and they will be yours to do with what you like. He wll not tow them away just to destroy them. A trustee only takes assets if they will produce money to distribute to creditors.

As far as the means test goes, people pass it by having enough allowable expenses to deduct from their income and show their disposible income in the 6 months before file wasn't high enough to pay a significant amount to unsecured creditors in a Chap 13. Waiting until after your income has decreased may help, assuming your expected DMI calculated on Schedules I and J aren't too high to result in an objection based on totality of circumstances. Have you consulted with more than one attorney? If not, I suggest you do so. Some attorneys are more willing to fight for a boarderline Chap 7 than others. If you can't file a Chap 7, a Chap 13 is not the end of the world.

[LadyInTheRed]

Another advantage to waiting to file is that you will have a larger household after the baby is born which could help you pass the means test.

I looked back at your other thread where you said you make $20,000 a year and your wife $50,000. The median income for a family of 3 in Ohio is $62,251. It's $52,922 for a family of 2. So, you will probably pass the means test after your wife is on maternity leave for a month or 2. But, passing the means test does not guaranty a Chap 7 discharge. The income on Schedule I will have to reflect what your average income would be during a Chap 13. Assuming your wife will go back to full pay after maternity leave, then Schedule I will have to use her higher income, or will at least have to disclose the fact that her income will increase. If that higher income leads to too high a disposable income, the trustee may object to a discharge based on totality of circumstances which could put you in a Chap 13. But, if household income is below median in the 6 months before the month you file, you would be in a 3 year Chap 13, not 5.

Again, have other attorneys run your numbers and discuss how waiting to file might affect your eligibility for a 7. If you find an attorney who thinks you can get a Chap 7 discharge, be sure to ask whether they think you are vulnerable to a totality of circumstances objection.

[philrozzi]

Thank you for the very detailed replies. I will definitely have to consult with another attorney because I'm not even sure how he did the means test. I only consulted with his assistant and I told her how much our mortgage was and how much we give to charity and that was it. My wife doesn't have much disposable income after bills and expenses but the assistant didn't ask what other expenses she has which was odd. The attorneys office then called me and told me I didn't pass the means test and told me they'll keep my paperwork on file in case anything changes, they didn't mention anything about a Chapter 13.

Also my income did double after starting a new job and just in case I still can't file what happens if creditors try to take me to court, put a judgment on me or start deducting money from my paycheck? And how exactly does a chapter 13 work, just because our combined income is higher will they try to make us pay high payments? And how does it work with student loans? Right now I'm paying around $150 for student loans will they put those on hold so I have more money to pay unsecured debt that is being discharged?

[pamkev]

Our experience we did not pass the means test either at first but when we started adding everything up with our normal expenses which some were over what was allowed we passed. The US Trustee took a interested in our case due to the extra expense but we could prove everything. Example we pay over 6000.00 per year for fuel oil which is way over what is allowed. We live in a big old house built in the 1800's in the northeast. With that alone we passed. We had a great lawyer who fought and when the US Trustee did not show up at our 341 she said smooth sailing and it was.

School loans our lawyer advise to keep paying if we could even though they will go into forbearance when you file BK.

I also agree with Lady in Red wait till after the baby comes to see if that makes a difference.

Pam

[philrozzi]

I told the lawyer that by the time I'd file we'd have a kid so supposedly he factored that into the means test and we still failed.

What I'm curious about is whether school loan payments factor into the amount available to pay others in a chapter 13? Because if that's the case I'll go from interest only payments to the full amount which is around $300 a month.

[LadyInTheRed]

Thank you for the very detailed replies. I will definitely have to consult with another attorney because I'm not even sure how he did the means test. I only consulted with his assistant and I told her how much our mortgage was and how much we give to charity and that was it. My wife doesn't have much disposable income after bills and expenses but the assistant didn't ask what other expenses she has which was odd.

Most of the expenses on the means test are local and national standards. So, an attorney does not need to know about all of your expenses to run the means test. But, they should have asked about your mortgage and any other secured debt payments. If you plan to file without your wife, then they also should have asked if she has any of her own expenses that are not considered household expenses.

The attorneys office then called me and told me I didn't pass the means test and told me they'll keep my paperwork on file in case anything changes, they didn't mention anything about a Chapter 13.

Sounds to me like a mill that only wants to do easy Chapter 7s.

Also my income did double after starting a new job and just in case I still can't file what happens if creditors try to take me to court, put a judgment on me or start deducting money from my paycheck?

You pretty much described what happens. They sue you, get a judgement and then garnish your paycheck, assuming your state law allows garnishment. They also could take money from your bank accounts.

And how exactly does a chapter 13 work, just because our combined income is higher will they try to make us pay high payments? And how does it work with student loans? Right now I'm paying around $150 for student loans will they put those on hold so I have more money to pay unsecured debt that is being discharged?

In a Chapter 13, you pay all monthly disposable income to the trustee for 36 to 60 months, depending on whether your income is above or below median in the six month before the month in which you file. The trustee distributes your payments to creditors. The balance of your dischargeable debt is discharged after you have made all of your monthly plan payments. Disposable income is your household income minus your allowable household expenses. It seems that student loans are treated differently in differently courts. This is a very simplified description of a Chapter 13. Read in the Chapter 13 forum for more information.

So, are you saying your household income is now $90,000? If so, there is a good chance you will end up in a Chap 13, but do consult with more attorneys to be sure.

[philrozzi]

Right now my household income is high because I'm working 7 days a week (mandatory). My base pay is only $14 per hour though, I get hourly bonuses and quarterly bonuses on top of that but the amounts can vary. This will obviously be lower when my wife goes on maternity leave and I stop with all the overtime hopefully.

I guess the question I would like to know is what if I go through a chapter 13 bankruptcy and they make the payments high enough that all the creditors get paid in full after the allotted time, meaning I basically could of paid them off myself without going through bankruptcy? This is what stumps me. Unless the court automatically makes sure a certain amount of debt is discharged no matter how much a person is able to pay?

[keepsmiling]

I am willing to bet that full time daycare for the baby will eat up most of that extra 40% of income. Has that been discussed?

[philrozzi]

I haven't discussed that in detail but I did think about that a while ago and isn't a bad idea. What would happen if a cc company filed a judgment on me? The only assets I have of any value is one working car and a motorcycle probably totaling $6000 maybe even less due to depreciation. Could the police show up on a judgment and confiscate those two assets whenever they want?

[keepsmiling]

You may be getting ahead of yourself. Have you actually missed a payment yet?

Regardless, that scenario is very unlikely to happen. If the company gets a judgment against you, which will take some time, you will just "avoid" it in the bankruptcy later.

[philrozzi]

Yes, the last payment I made was in June or July. Capital one sent me a letter a few weeks ago saying it was my last notice before legal action. I'm not sure if that means a judgment or just a threat?

[keepsmiling]

Right now my household income is high because I'm working 7 days a week (mandatory). My base pay is only $14 per hour though, I get hourly bonuses and quarterly bonuses on top of that but the amounts can vary. This will obviously be lower when my wife goes on maternity leave and I stop with all the overtime hopefully.

I guess the question I would like to know is what if I go through a chapter 13 bankruptcy and they make the payments high enough that all the creditors get paid in full after the allotted time, meaning I basically could of paid them off myself without going through bankruptcy? This is what stumps me. Unless the court automatically makes sure a certain amount of debt is discharged no matter how much a person is able to pay?

Generally speaking, NO, that won't happen. Because you have found this board, for one thing, and will be much better prepared! And because you probably don't make enough money to be in a 100% plan.
The usual advice here is to talk to a minimum of 3 lawyers. You may be very surprised at how different their approaches may be.
You may want to spend as much time as you can just browsing through the forum Some people in 13's are actually in ZERO percent payback to unsecured creditors. It really, really varies according to individual circumstances, local rulings, HOW WELL YOU HAVE PLANNED YOUR BK AND HOW GOOD YOUR LAWYER IS, and a drop of just plain luck (some creditors never even file to receive payment!)

What are your plans for child care? Someone is going to have to watch the baby and it's not too early to start investigating your options. You may be stunned at the cost. OTOH it's better to pay out the $$$ for that than to your unsecured creditors. This is a pretty critical point here; you really want to throw it into your calculations before you start getting yourself to worked up about a 13.

[LadyInTheRed]

In a Chap 13, you pay what you can afford to pay, not what the trustee decides he wants the creditors to receive. If you have non-exempt assets or arrears on secured debt or other priority debt, these items could create a minimum amount that must be paid to creditors during your plan. So, you would have to show you have enough income to propose a "feasible" plan. Even if you had enough income to pay 100% of your unsecured debt, it would be without interest, which can be pretty significant. Can you pay all of your debt down in 5 years without BK? If not, a Chap 13 is probably a good option.

[LadyInTheRed]

Yes, the last payment I made was in June or July. Capital one sent me a letter a few weeks ago saying it was my last notice before legal action. I'm not sure if that means a judgment or just a threat?

It is a threat that they may or may not follow through on. They won't suddenly have a judgement without warning. You will be served with a notice of the lawsuit and have a period of time to answert he lawsuit. Or, you will have time to file BK to stop the lawsuit in its tracks. Don't feel pressured by the creditors. Take your time to consult with at least a couple more attorneys and go over the details of your financial situation.