Before You File a Chapter 7….
Now that we have a few month's worth of experience with the new law, I am getting a sense of what fact patterns are attracting the attention of the U.S. Trustee in Chapter 7 cases. If your situation fits one of these patterns, make sure to discuss same with your lawyer.
Fact pattern 1: debtor(s) whose gross income exceeds the median income. If you end up in a means test, you can be sure that the U.S. Trustee will look at your case. The trustee has bankruptcy analysts who plug all of the data from your filed Form 22A into a spreadsheet then they look at each category in an effort to find an expense allocation they can challenge. As one of the trial attorneys in the U.S. Trustee's office told me, the Trustee is trying to move more people into Chapter 13.
2. Fact pattern #2: Do you have a 401(k) loan in your means test calculations? If so, the U.S. Trustee does not consider this loan as a secured debt and they will object to any allocation for a 401(k) repayment in your means test. Presumably they would object to a 401(k) repayment in your Schedule J as well, as the Trustee contends that you are repaying yourself at the expense of creditors. Obviously be defaulting on a 401(k) loan you will lose part of your 401(k) and you will have tax issues. The Trustee takes the position that creditors should come before a 401(k) repayment. I am not aware of any Northern District Court rulings on this issue.
Fact pattern #3: Are you paying for a child's vehicle? In several of my cases, the U.S. Trustee has objected to this budget allocation both in the means test and on Schedule J. Their position is that creditors come before your child's car payment.
Fact pattern #4: Are you paying for your child's tuition and/or room and board at college. The Trustee's position is that these expenses are discretionary and should be counted toward "disposable income" available to fund a Chapter 13.
Fact pattern #5: Are you claiming the full permitted expense figures for budget allocations such as food, telephone, clothing, etc. If you claim the full figures for all of these categories, the Trustee might object and ask for documents to prove same. This issue – whether you are supposed to use the lower of your actual expenses vs. IRS standard expenses is undecided to my knowledge.
Fact pattern #6: Is your actual mortgage payment more than the IRS budget allocation for a family your size. Remember that Form 22A only allows you the IRS allocation. So, if your actual mortgage is $1,900 but the IRS gives you $1,500, the Trustee will conclude that you have $400 disposable.
Areas where there seems to be some wiggle room
1. Cell phones – the Trustee's attorney advised me that the Trustee has backed off objecting to cell phone and Internet allocations in most cases.
2. Bonuses that result in a median income over the State mean. If you can show that your bonus was a one time event, and preferably not likely to recur, the Trustee may not oppose your argument that the means test unfairly reveals disposable income. I suspect that the same would hold true if your median income calculation reflects a job that you no longer have.
[tags] Chapter 7 trustee, U.S. Trustee, United States Trustee, objections to Chapter 7, means test, median income test [/tags]