Some things I learned from the lawyer I interviewed today...

[Wantmypeace]

So, I went to my second lawyer today. I certainly liked him better than the first guy! Anyway, here are a few interesting tidbits that I learned from him (and am mulling over):

1.) In our district (Eastern CA), we are allowed to use our mortgage payments on the means test EVEN IF WE ARE BEHIND AND INTEND TO GIVE UP THE HOUSE. As long as the bank has not yet foreclosed on the house on the day of filing, it can be used for the means test.

2.) In a situation like mine, where we are losing my income due to medical reasons and I will not be returning to work due to medical reasons, we can request that the court "reset the time" for the 6-month look back to different dates, INCLUDING FUTURE DATES. So, my last check is Dec. 31st. If we don't want to wait until July 1st to file (in order to have a 6-month look-back with only my husband's income), we can file any time after January and request that the court look at Jan-Jun (forward), figuring income based on my husband's income, with an explanation of why I would not be returning to work. For a medical reason like mine (according to the attorney), the court will have no problem with it, and we would be able to file sooner. This motion does come with an extra fee, of course (about 1,000). So, we may choose to wait it out until July. Gotta crunch numbers.


So, any thoughts on this very interesting information? I'm still processing!

[ccsjoe]

I had not heard about that (point #2). If that is legit, then it would resolve a lot of problems some people havem however I can also see it being used as an avenue for abuse. Do you plan on interviewing more attorneys, and if so, ask them if this is acceptable? Thank you.

PS, glad your attorney experience is improving from one to the next.

[Wantmypeace]

I am supposed to meet another one tomorrow afternoon, so I will ask about this.

The attorney I talked to today also teaches BK Law at the Law School here in town, so that is a plus. I'm putting a little more weight on what he thinks based on that. Also, he was very clear and specific about the matter being based on what debt you owe as of the date of the filing. He said if it was for a Ch. 13, it would not be allowed, and for Ch.7, it is only allowed on the means test, but not on schedule J (looking forward to consider totality of circumstances). I felt very comfortable with his answer, so that's a biggie for me!

[debee]

You would just be using the IRS standard for your housing amount, right? Or did the lawyer mean you would use the actual mortgage payment amount?

[Wantmypeace]

No, he said on the MEANS TEST, we use the actual mortgage payments (3250 for us). He said any secured debt you actually owe on the day of filing can be counted, and our trustees allow it. Now, he said with a Ch.13, they DO NOT allow it, because the numbers play into the plan, etc. BUT, for a 7, it is allowed. This is only for the means test for ch.7, though. I asked him three times to be clear.

[debee]

So, you're putting this amount in way down at the bottom of the test but not as your personal housing expense? Is that right?

[debee]

I would listen to your lawyer over a disembodied username posting on a forum (especially a newbie like me) but there was a case in the 9th (In re Baeza, ---- B.R. ---, 2008 WL 5411118 (Bkrcy, E.D. Cal. Dec. 2008, Lee. J.) where the judge denied a chapter 7 because the debtors claimed the expenses for property they were planning to give up.

Issue: Where the debtor intends to surrender collateral which will result in substantial “net disposable income,” can that be the basis for dismissal of the case under 707(b)(3)?

Holding: Yes.

These chapter 7 debtors have $436,000 of secured debt and about $54,000 of unsecured. Based on their Statement of Intentions, they intend “to surrender the collateral for almost all of their secured debt, approximately $433,876, including their home, one vehicle, an ATV, and a travel trailer.” Their CMI is $10,348. The means test net is minus $1110. The UST moved to dismiss the case as an abuse both under 707(b)(2) and (3). As to (b)(2), the argument was that payments for secured debt for property which is going to be surrendered should not be included. As to (b)(3), the court should look to the totality of the circumstances and once the collateral is surrendered, the debtors will have significant net disposable income to pay to creditors as part of a plan.

The judge dismissed their chapter 7.

[Wantmypeace]

I will ask the attorney about this. Where did you find it? I'm assuming it would go where the mortgage payment normally goes, BUT we didn't look at actual forms. And, actually, with the health insurance expenses we have, we'll be at about -2300 DMI with both the mortgage and the health insurance. But, I'm still going to ask him about this. You've piqued my interest!

[debee]

Google "in re:Baeza" and it'll come up. I believe it was a decision in the Eastern District of California too. I'd read it before because it was on a CA bk website and I skim them looking for rulings pertinent to our circumstances.

[debee]

It's here: http://lawprofessors.typepad.com/ban...ircuit_briefs/

just scroll about 4/5ths down

[Wantmypeace]

Checking it out. Thx!

[Wantmypeace]

Here's the kicker: it was a FRESNO JUDGE! I'M IN FRESNO! LOL! YIKES!

So, this is the rest of the story:

Judge Richard Lee in Fresno granted the motion and dismissed the case. He said first that he did not need to consider the (b)(2) arguments if (b)(3) applies. He said next that ability to pay is part of the totality of the circumstances. “It would be counterintuitive to construe this same phrase [totality of the circumstances], as used in BAPCPA, to exclude a consideration of the debtor's ability to pay.”

“Turning now to the facts of this case, it appears that at least two of the Price factors, the first and second, are relevant. The Debtors have enjoyed an annual income that is substantially more than the applicable median family income in California. While their income may have recently decreased, they also are no longer burdened with oppressive payments to secured creditors which consumed a large percentage of their income. There is no showing that the Debtors filed this joint petition as a result of illness, disability, unemployment, or calamity. The Debtors' own schedules show that the Debtors have the ability to repay a substantial portion of their unsecured debts based on their current financial situation.”

The debtors argued that in a chapter 13 there would be no payments to unsecured creditors under the facts here. “The Debtors' argument mischaracterizes the issue and misstates the law. The question before the court is not whether the Debtors would be required to pay anything to their unsecured creditors in a chapter 13, but rather, whether they have the ability to pay something substantial to their unsecured creditors. The answer to that question is unequivocally yes.” He said that this is not a chapter 13 case and therefore that is not an issue. He concluded, “Based on the foregoing, the court finds and concludes, based on the totality of the circumstances, that the Debtors have the ability to pay a substantial portion of the debts for which they seek a discharge and that the granting of a discharge in this case would be an abuse of chapter 7.”

I'm thinking that the judge thought these people were taking advantage of the court here, choosing to walk away from the secured debts when they actually COULD pay the debts with their income. He implies that the loss of income was by choice. I DO have the fact that I'm losing my job due to health reasons. Also, without the mortgage, I think we still qualify with only our health insurance premiums. The attorney did mention that the fact that we lost income due to illness and didn't anticipate that changing was a big factor. He said if I could go out and get another job tomorrow, things would be handled differently. So, my health condition seems to be a big part of the puzzle. Interesting....

[Wantmypeace]

Okay, found more info on this. I found the ENTIRE argument for this case with details. It's VERY interesting reading, includes numbers, budgets, etc... So, I put it on Google Docs. Here's the link: http://tinyurl.com/2be4u7l

Tell me what you think.

[debee]

Here's what I think: I can't read all their stuff.

For me, the material point is the UST backed out the payment for the house they were surrendering. The judge backed the UST and the ch7 was dismissed.

I think we all have to decide for ourselves what we're willing to risk when we file. I don't have nerves of steel and I don't want to be dismissed and I don't want a 13. So for me, I'm going to be as careful as I can be going in. That's my personal decision.

In considering totality of circumstance, health is only one aspect. And not 'health' so much as it represents sudden calamity beyond one's control that forces the debtor into bankruptcy. It's a factor but it doesn't override "ability to pay".

The judge backed the house out of the calculations in Baeza, not because there was no illness in the family, but because they weren't keeping it. And with the house, goes the utility payment, etc. Suddenly, there's money to repay the creditors.

[debee]

I just noticed that you came on this forum last May but still haven't filed. That got me curious about you. So I clicked on your name and skimmed through your old posts. I guess at first you were planning to file bk right away (last May), but you saw a lawyer who said you couldn't get past the means test and in June your lawyer told you that if you could quit working for 6 months, you'd lower your income enough to be able to pass it. And now, here you are, not working anymore. And not only that, you have fibro which is an illness the existence of which cannot be proven/disproven by any medical test. It's interesting how that all worked out.