Good candidate?

[Brokeandbeat]

Hello,

Chapter 7 or 13?

Here is the summary:

1. $42,000 In CC debt
2. Live with parents
3. No assests ( no car, real estate)
4. Had job that made about 24,000 in last 6 months
5. Now different job that pays less
6. HIGH Median Income State (CT. Around 54,000)
7. If below Median, then I assume that I will auto Chapter 7.

P.S
Only concern is how they calculate yearly income, I have read that they use pay from last 6 months. Do they consider any other bank transactions other then paycheck deposits income? Will they ask if I have some deposits of $1000 or more into checking in last 6 months? Should I wait several months to file to make sure that I don't have to do the means test?

Thanks!

[anonymuse]

Everyone has to do the means test.

The CMI (Current Monthly Income) is the average of the last 6 months of pays--you will need to have paystubs to support this. Nothing from other other deposits--but you may have to explain them since the trustee will have you bank records.

You need to show that you have less than $100 disposable income monthly to qualify for a Ch 7. Seeing as how you live with your parents, that will be hard to prove. You may be better off going out and getting an apartment (and all the expenses) before filing.

[aa06a47]

Hello,

Chapter 7 or 13?

Here is the summary:

1. $42,000 In CC debt
2. Live with parents
3. No assests ( no car, real estate)
4. Had job that made about 24,000 in last 6 months
5. Now different job that pays less
6. HIGH Median Income State (CT. Around 54,000)
7. If below Median, then I assume that I will auto Chapter 7.

P.S
Only concern is how they calculate yearly income, I have read that they use pay from last 6 months. Do they consider any other bank transactions other then paycheck deposits income? Will they ask if I have some deposits of $1000 or more into checking in last 6 months? Should I wait several months to file to make sure that I don't have to do the means test?

Thanks!

Based on what you have shown above, Chapter 13 may be the only thing the trustee/judge will accept. You will probably show a significant amount of disposible income. Reason...you live with parents...no rent...no utilities.... no car payment. Almost your entire pay check could be shown as "disposible income".

If your going to file BK, you need to do some pre-bk planning to qualify for a chapter 7......1) get some secured creditors (car)..(there is an allowance for non-vehical owners for tranportation, but not sure what that about is) and 2) a landlord (rent).

The debt/income ratio is extremely high given it is all unsecured debt. Under normal circumstances, without a doubt bk would be the best option. Your circumstances are not normal in that you live with your parents / no car payment / no house payment / no utilites...etc..

Note, while you can pay your parents rent, I am not sure if they would assume that amount is preferencial to an insider...parent? Other's might know about this.

[Brokeandbeat]

Thanks for the help,
Now I am more nervous then EVER.
I would be intrested in paying my parents as if they are my landlords, this is something I have been doing all along.
Can someone speak from experience on this one?

Thanks

P.S

My car is under my father name, but I have been paying the payments for the last 3 years, i send the check every month.

[Brokeandbeat]

Please,
Can anyone help on this? I can't do a chapter 13, wont work for me. Need chap 7.

Thanks

[anonymuse]

There are some other recent threads with people in similar situations. They basically are going to go out and rent an apartment so they have expenses to ensure there isn't any disposable income. After their discharged, they will move back in with their parents.

Being under median helps in 2 areas--1) you do not have the presumption of abuse and you only fill out the beginning of the means test; 2) if you do have to go Ch 13, it's only a 3 year commitment.

It does not automatically qualify you for a Ch 7. If you have more than $100 disposable income per month, then they want you in a Ch 13.

Do the income and expenditures based on your current living expenses and future salary--how much money do you have left over?

[LostOne0069]

Don't bother going out and getting an apartment... just have your parents do up a lease agreement that shows the rent you pay and make sure that you can show by your bank records and canceled checks that you DO pay them that rent.

If you're over the age of 18, your parents are under no obligation to give you a free place to live so a trustee can't say, "well, it's your parents so you don't HAVE to pay rent."

As for the means test... no, everyone does not have to do the means test. Techinically the "means test" referrs to where they compare your expenses against your income to determine if the assumption of abuse applies and if you can file chapter 7. If you're below the median income for your state then you skip the "means test"... yes you'll still need to report your income and expenses but the law states that having more than $100/month in disposable income forces you into a 13 ONLY when you're above the median income.

Now, being below the median income doesn't mean you necessarily get a free ride to a chapter 7, the law does have this wonderfully ambiguous statement in it about being able to force you to chapter 13 if granting you a chapter 7 would be a "abuse" of the system.... with no definition of what that abuse really is. This is where everyone thinks that the $100/month rule comes in and forces you to chapter 13.... and under the OLD laws, that would be correct. Now though, this isn't necessarily true... unfortunately a lot depends on the bankruptcy judges in your area... it's up to their interpretation as there is no solid, country-wide precedent on it. Some are reading the new law and applying it the way it reads... others are just going on the same way they used to.

My attorney has stated that even if I had $1000/month in disposable income that he may still be able to get a chapter 7 through. He also said that this might not be true in other courts and other states.

If your income is $24k and the median income is $54k... I can't imagine you having problems getting a chapter 7.

Talking to an attorny is really the only way to get a better idea... but it would seem much like a slam dunk to me.

[anonymuse]

I read it as he made $24K total in the past 6 months--equivalent of $48K yearly, and now is making less. Either way, still under the $54K median income for his state.

Okay, Lost, I'm lost and want to understand this. Of the 5 attorneys I spoke with, all said that if I had over $100 disposable income when doing schedules I & J, then it would go to a Ch 13. Please explain how someone can have $1000 disposable income per month and still file Ch 7?

[LostOne0069]

I read it as he made $24K total in the past 6 months--equivalent of $48K yearly, and now is making less. Either way, still under the $54K median income for his state.

You're absolutely correct, I did read this wrong but as you say, he's still under the median. Maybe not so much of a slam dunk as I was saying but still not ruled out... especially if he makes a lot less now and waits a few months before filing.

Okay, Lost, I'm lost and want to understand this. Of the 5 attorneys I spoke with, all said that if I had over $100 disposable income when doing schedules I & J, then it would go to a Ch 13. Please explain how someone can have $1000 disposable income per month and still file Ch 7?

Well, I too heard a lot of attorneys give that "$100/month" statement... but then I read the law myself and talked to an attorney who DOESN'T work at a bankruptcy mill.

I've described this in other threds, but it's been a few months... in a nutshell, if you look at section 707 of the BK code and in particular at the sections 707(b)(2) and 707(b)(7).

707(b)(2) talks about the $100/month bit and other "you have too much disposable income" reasons as to why the presumption of abuse would arise.

This part of the law is what is left over from the old law and is what many (lazy, IMHO) attorneys keep spouting the "$100/month = ch 13" crap.

Now we get to section 707(b)(7).... here is the actual law as it reads:

"No judge, United States trustee, panel trustee, bankruptcy administrator or other party in interest may bring a motion under paragraph (2), if the current monthly income of the debtor and the debtor's spouse combined, as of the date of the order for relief when multiplied by 12, is equal to or less than-- {median income for your state}"

So by the very law, NO ONE can say that having more than $100/month in disposable income (which is what paragraph 2 talks about) automatically makes it so you can't have a chapter 7.

Where the gray area comes in, and why attorneys still argue about this whole subject, is in section 707(b)(3). This section says they can still deny you a chapter 7 based on the "totality of the circumstances" or if you filed chapter 7 "in bad faith".

Now, what does "totality of the circumstances" and "in bad faith" mean?

No one knows. This is the part that the BK judge gets to make up. This is also why people are still saying that the $100/month in disposable income makes you do a chapter 13.... because a lot of attorneys (and judges) are lazy and won't do something different than "it's always been done" if no one makes them do so.

I'm not a lawyer, but I worked as a computer nerd at a firm for about 7 years and one thing that I found is that a good lawyer can do a LOT if he just READS THE DAMN LAW.

At the very minimum, an attorney should be able to force a court to explain why giving you a chapter 7 fits under section 707(b)(3) WITHOUT using the "you have 100/month left over" statement because that statement is blocked by the section 707(b)(7).

I can go into this more if you like but I doubt everyone wants to hear it all again.

[SinkingFast]

Lost,................

You are correct that Broke could have some sort of Lease agreement drawn up showing that he pays his parents rent on a monthly basis. And that payment covers rent, utilities, phone charges, whatever.

A potential problem is,.......... And, at least this is the way our attny would go it,......... The Court may want to see copies of Mom and Dad's previous years' income tax returns and most recent bank statements showing the rent check deposits.

If Broke is paying Mom and Dad AND they are claiming the rent as income, then everything will be fine to follow that path.

If Mom and Dad are not claiming that rent income, then it may be "Houston. We have a problem."

Just working off our experience with our attny taking copies of Mom's bank statements to show to the Court where her SSI goes. That she does not contribute to the Household expenses. He also wanted copies of her most recent income taxes filed, but Mom hasn't filed in years. She doesn't make any money outside the SSI to have to file. Not required to by law.

And the recent Court Decision in Western District of Washington State regarding a couple who filed for BK as a Ch 7, well under the Median for a family of 4. They have 2 "adult" children living at home while attending college. The Trustee did not want to allow them to count the children to start with. Which threw them over the Median for a family of 2. US Trustee said the children count. Trustee came back with "the children earn money" so the petitioners' attny had to ammend their Means Test to include some income from each of the children.

I'm not saying it will happen. Just this may be one of the many grey areas of the New Law that is not yet defined.

[SinkingFast]

I read it as he made $24K total in the past 6 months--equivalent of $48K yearly, and now is making less. Either way, still under the $54K median income for his state.

Okay, Lost, I'm lost and want to understand this. Of the 5 attorneys I spoke with, all said that if I had over $100 disposable income when doing schedules I & J, then it would go to a Ch 13. Please explain how someone can have $1000 disposable income per month and still file Ch 7?

The attnys you spoke with, Anon, said pretty much the same thing our attny told us back in March.

To that point, the Court here was pushing ANYONE with a disposable income in excess of $100/mo into Ch 13. I said, "But what about the $100-$166/mo calculation and being able to payback 25% of your debt?" Our attny said there is none of that calculations going on. If you have in excess of $100/mo disposable income, the Court is forcing filers into Ch 13. That was being pushed by the US Trustee's office and the Court here was following their direction.

I know it's not the way the Law READS, but it's how the Law is being ENFORCED.

[anonymuse]

LostOne, thanks for taking the time to explain--that was a part that always seemed flaky to me, but I just went along with what the lawyers kept telling me. I'll go look back at some of your old posts since I find this very interesting. If we're talking "in the spirit" of the whole BK law, you'd think that someone with $1000/mo disposable income should be paying something back to creditors instead of having all the unsecured debts discharged. Would like to see Scammers take on this one.

SinkingFast, that calculation ends up saying something like 25% of the debt or $10,000. I almost looked at it as it being "is it worth it to the creditor and trustee to go through all of this" test. If someone only has $100 a month and is below median income, that would be paying back $3,600. If they owe $50,000, then that's only 7.2% before the trustee and everyone else gets their cut. So, if we go by the letter of the law, that's less than 25% and less than $10,000 so there shouldn't even be a Ch 13. Certainly doesn't jive with 0% payback plans either.

[Brokeandbeat]

Thank you everyone for your discussion and help, I am so glad that my thread has created so much discussion.

1. I am going to be below the Median, so I am hoping that the disposable income question will not even come into play.

2. Should it come into play, I will be in trouble, Although I have paid my parents rent money to cover the utilities (they don't make a profit) they did not report this as "income" on their taxes, so I beleive this could be a problem.

3. I am hoping that purchasing a used auto will help cut a lot of disposable income down. I will finance it over 36 months to create a car payment of around $250 a month. Then I will be able to factor in matinenence, gas, insurance, repairs to give me less disposable income.

4. My cheif concern, is that trying to cut down on disposable income pre-chapter 7/13 may be considered fraud.

[LostOne0069]

Lost,................

You are correct that Broke could have some sort of Lease agreement drawn up showing that he pays his parents rent on a monthly basis. And that payment covers rent, utilities, phone charges, whatever.

A potential problem is,.......... And, at least this is the way our attny would go it,......... The Court may want to see copies of Mom and Dad's previous years' income tax returns and most recent bank statements showing the rent check deposits.

Actually, no, I don't think they can. They CAN ask to see copies of the cancelled checks.. but since his parents are not part of the bankruptcy and their income is not a question on his support etc. then I can't see the court going after their tax records. This would be akin to the court asking sears to profide it's balance sheet showing that they claimed the payments you have been giving to them.

Once again, I'm not a lawyer, but I'm pretty sure that he'd be safe with it. Besides, even if the Trustee COULD get the tax records... so what? What does it tell them? Only that the parents didn't claim it on the taxes... not whether or not he's been paying them. The cancelled checks, on the other hand, WOULD prove that he's been paying them the sum shown on the lease agreement and that they've been cashing the checks.

[LostOne0069]

Just working off our experience with our attny taking copies of Mom's bank statements to show to the Court where her SSI goes. That she does not contribute to the Household expenses. He also wanted copies of her most recent income taxes filed, but Mom hasn't filed in years. She doesn't make any money outside the SSI to have to file. Not required to by law.

The difference here is that you were claiming her as a dependant. I am assuming here that his parents do NOT claim him as a dependant and that he does NOT list himself as a part of their "houshold".