Help I failed the means test!!!

[so_far_in_debt]

I just took the meas test. I passed part 1 but failed part 2 because I do not have enough disposable income after paying expenses. Does this mean I have to file 7 and will lose all my assets?

[CATCHMEIFYOUCAN]

The Means Test is not a "pass," or "fail," its just a test to see whether you have disposable income of at least $100 or more to be able to pay back the creditors.

When I took the Means Test, I was "negative $65," but schedules I and J showed I had $800 available disposable income to pay back the creditors, I was in Ch13 (but I expected it - because I had 2 full time jobs at the time).

I am not familiar with cases that have assets, but BK is workable where you keep most your assets, some others will chime in here with more experience!

Best Wishes, Catchmeifyoucan

[lrprn]

I just took the meas test. I passed part 1 but failed part 2 because I do not have enough disposable income after paying expenses. Does this mean I have to file 7 and will lose all my assets?

Keep in mind that these practice Means Tests are not set in stone. There are interpretations that can vary from district to district and trustee to trustee.

It sounds like you may not have enough disposable income to file Ch 13, but depending on your circumstances (amount of equity in your home, if your mortgage payments are up to date, etc), Ch 7 does not mean you lose your house or cars. However without more detail about your circumstances, it's hard to offer more than "maybe's" and "if's".

Please discuss this with your lawyer who is familiar with the specifics of your case. If you haven't retained a lawyer yet, then be sure to discuss this when you are interviewing 3-4 bk lawyers in your area. Please keep us posted on what you find out!

[sisterfunkhaus]

There should be exemptions in your state that allow for you to keep some assets.

[LostOne0069]

Ironic thing here is that by most people on here's standards... you PASSED the means test! Most people are trying to get the chapter 7 as it's over quickly and most of us don't have any assets to speak of to protect.

What kind of assets do you have that you're so worried about protecting? Have you looked into what the exemptions are for your state?

[so_far_in_debt]

Chapter 7 sounds good because it seems like you can get it over and done with and move on with your life.

I have a land contract that I receive payments from and still have 27 more years to go. I also own an apartment building in which I have 25K equity.
Really don't want to lose those things especially since I am thinking about letting my house go because the payments are so high.

Where can I find out what the exemptions are for my state which is Michigan?

[BKTango]

I hope this helps some, it is from a Michigan bk website. Be sure to check with an attorney if you have one.

You can choose one of two "exemption schemes" in Michigan, whichever best suits your circumstances.

Under the first exemption scheme, from federal bankruptcy laws, you can keep:

* Your home, including co-op or mobile home, to $18,450
* Life insurance payments for person you depended on, needed for support
* Life insurance policy with loan value, in accrued dividends or interest to $9,850
* Unmatured life insurance contract, except credit insurance policy
* Alimony, child support needed for support
* Pensions and Retirement Benefits, ERISA - qualified benefits needed for support
* $475 per item in any household goods up to a total of $9,850
* Health Aids
* Jewelry to $1,225
* Lost earnings payments
* Your motor vehicle to $2,950
* Personal injury compensation payments to $18,450, wrongful death payments, crime victims' compensation, public assistance, social security, unemployment compensation, and veterans' benefits
* Tools of trade up to $1,850
* Wild Card - $925 of any property plus up to $9,250 of any amount of unused homestead exemption

Married couples may double the amount of the federal exemptions.

If you choose the second exemption scheme, under Michigan bankruptcy laws, you can keep:

* Your home, if you do not have more than $3,500 in equity in the house (today's value less costs of sale less payoff balances on all liens and mortgages)
* Family pictures and clothing
* Food and fuel to last six months
* Household goods, furniture, appliances, utensils, books, up to $1,000 total
* Burial plots; church pew, slip, seat
* 10 sheep, two cows, five swine, 100 hens, five roosters, and hay and grain to last six months
* Arms and accoutrements you're required by law to keep
* Tools of trade and farm equipment, up to $1,000 in value
* Building and loan shares to $1,000 par value if you did not claim a homestead exemption
* Disability, mutual life and/or health benefits; fraternal benefit society benefits; and life, endowment or annuity proceeds if a clause in the policy prohibits the proceeds from being used to pay the beneficiary's creditors
* Private retirement benefits
* ERISA-qualified pension benefits
* Public employees' pensions
* Property of a business partnership
* Alimony and child support
* Crime victim's compensation, veterans', AFDC, social welfare, worker's compensation and unemployment compensation benefits
* 60% of earned but unpaid wages (not less than $15 per week, plus $2 per week for each dependent) if you are a head of household with a family; 40% of earned but unpaid wages (not less than $10 per week) if you are not a head of household with a family

[so_far_in_debt]

Thanks BKTango

I guess I will find out more on Thursday. I would like to do 7 but may have to try for 13 so I can keep apartment and land contract.

I was wondering if the income from the land contract would be viewed as income like a pay check? The sad part is that the house was bought with money that was taken out of 401K.

I do have some thoughts though not sure if it can be done as it may be looked at as a transfer of assets. Maybe I can get some input from others on the board. Could I take the apartment and the land contract and form an LLC for some type of realestate business and then I could file BK on a personal basis?

[Grace]

Why don't you sell the rental and pull the 25k in equity out to help with the debts? I doubt you can now form a corporation, transfer the rental unit to it, and salvage the equity right before filing bankruptcy. Of course a bankruptcy lawyer would be the best source in this case.

[Spartan]

Thanks BKTango

I guess I will find out more on Thursday. I would like to do 7 but may have to try for 13 so I can keep apartment and land contract.

I was wondering if the income from the land contract would be viewed as income like a pay check? The sad part is that the house was bought with money that was taken out of 401K.

I do have some thoughts though not sure if it can be done as it may be looked at as a transfer of assets. Maybe I can get some input from others on the board. Could I take the apartment and the land contract and form an LLC for some type of realestate business and then I could file BK on a personal basis?

It depends on the state law. In some states, such action is considered fraudulent transfer, and will be reversed by the court.

Besides, even if that is not reversed, you will get a charging order, and your Bk case will never close. The trustee will keep it open, and take the annual distribution, year after year, till all debts are satisfied. You can elect not to distribute, but since you are a 1 person LLC, they will just get the court to order you to distribute.

It will be an interesting case, if you choose that route. Be sure to keep us posted.

[hansky]

It depends on the state law. In some states, such action is considered fraudulent transfer, and will be reversed by the court.

Besides, even if that is not reversed, you will get a charging order, and your Bk case will never close. The trustee will keep it open, and take the annual distribution, year after year, till all debts are satisfied. You can elect not to distribute, but since you are a 1 person LLC, they will just get the court to order you to distribute.

It will be an interesting case, if you choose that route. Be sure to keep us posted.

I am not so sure it is "interesting," as much as fraudulent conveyance (under state law and/or bankruptcy law) that can simply be set aside in bankruptcy (depending on timing). Non-exempt assets are often just liquidated by the trustee. The trustee would not necessarily have to kee the case open - they would just liquidate the asset, whether it is the real property, the debtor's interest in the LLC, or the debtor's interest in the right to the stream of payments. Some investor would come along and pay a discounted lump sum for the stream of future income.

Even a Chapter 13 is not a guarantee of keeping non-exempt property. If, for example, creditors are not receiving 100% of their claims and the debtor has non-exempt assets (such as rental property) that, if liquidated, would given them 100%, is it grounds to object to the Chapter 13 plan and request conversion.

This is an example of the need for getting good advice well in advance of transfers or filing, if at all possible.

[Spartan]

LLC is under special protection. Creditors cannot just 'get' the assets in an LLC. They can ONLY get a charging order for any future distribution, IF such distribution is ever distributed. With the charging order, the creditor is responsible for the tax that is due. But the LLC can elect to defer paying out distribution for as long as it likes. So, getting a charging order, is actually not the greatest thing since slice bread. No investor will pay you a lumpsum for distributions that can be deferred year after year. And meanwhile, you have to pay the tax everyyear.

Trustees cannot touch the assets in an LLC neither.

Thus LLC is a legitimate and effective asset protection tool.


His problem is the timing. Had he done it before he is in default, then his LLC, if structured correctly ( if he takes on a partner, co investor, etc), then his asset in the LLC is protected.

The problem is, he is trying to convey his assets into an LLC, after a liability has arisen. So, that may or may not be construed as fraudulent conveyance. Furthermore, if he has a one person LLC, the trustee can petition the court to order him to make distribution. The trustee cannot seize the asset in the LLC, unless the trustee manages to 'piece the weil', ie proving that the LLC is nothing but an alter ego of the owner.

Needless to say, if he had planned this out earler, he could have created an LLC that protects his non-exempted asset.

Thus, it is certainly "interesting", in that, it would interesting to see what the court says about conveying non-exempt assets after the liability has arisen, in this case.

[HHM]

LLC is under special protection. Creditors cannot just 'get' the assets in an LLC. They can ONLY get a charging order for any future distribution, IF such distribution is ever distributed. With the charging order, the creditor is responsible for the tax that is due. But the LLC can elect to defer paying out distribution for as long as it likes. So, getting a charging order, is actually not the greatest thing since slice bread. No investor will pay you a lumpsum for distributions that can be deferred year after year. And meanwhile, you have to pay the tax everyyear.

Trustees cannot touch the assets in an LLC neither.

Thus LLC is a legitimate and effective asset protection tool.


His problem is the timing. Had he done it before he is in default, then his LLC, if structured correctly ( if he takes on a partner, co investor, etc), then his asset in the LLC is protected.

The problem is, he is trying to convey his assets into an LLC, after a liability has arisen. So, that may or may not be construed as fraudulent conveyance. Furthermore, if he has a one person LLC, the trustee can petition the court to order him to make distribution. The trustee cannot seize the asset in the LLC, unless the trustee manages to 'piece the weil', ie proving that the LLC is nothing but an alter ego of the owner.

Needless to say, if he had planned this out earler, he could have created an LLC that protects his non-exempted asset.

Thus, it is certainly "interesting", in that, it would interesting to see what the court says about conveying non-exempt assets after the liability has arisen, in this case.

I bascially agree, forming an LLC now is probably a moot point. Since the liability has already a arisen, it WILL BE construed as a fraudulent conveyance at this point. If you formed an LLC, you would likely have to wait 2 years before filing BK.