December 15, 2019

Budgets in Bankruptcy Cases Must be Based on Real Numbers

One of the trends I have noticed over the year and a half since the bankruptcy law changed is that we can no longer rely on guesses or estimates when it comes to creating a budget.  My experience in a recently filed case illustrates this point.

My case involves a man in his mid-40’s who lost his sales job and went through a divorce within the last two years.  Although he is well educated and has an extensive background in sales, he currently works as a cashier at a grocery store.   The income he earns at the grocery store does not cover his expenses, which includes rent, a car payment and child support.  As a result, his parents have been helping him with his monthly cash flow needs.

When I prepared the median income test, I only included his employment income as well as some residual commission income.   The median income test result with these numbers showed his six month average to be well below the median for a single individual in Georgia.

I then turned to the actual budget at Schedules I & J.  Here, too, my client’s income was far less than his expenses.  We discussed the situation and my client acknowledged that he was receiving financial support from his parents as needed.  I added "support from parents" as a source of income and prepared a budget that showed $1 left over at the end of the month.

Earlier this week I received an email from an analyst at the U.S. Trustee’s office asking me to modify my means test to show include "support from family" as an income category.  This extra "income" may throw my client into a means test situation.

I don’t foresee this extra "income" to be a problem in this case, but I can easily see how it would be a problem in other cases.  Specifically, if you need to reaffirm a car loan or furniture debt, you cannot show a negative budget – the court will deny the reaffirmation on the grounds that you do not have sufficient money to afford keeping the secured collateral.  On the other hand, if you show "support from family" as a way to bring your budget to zero, that support will need to count as income for median income/means test purposes as well.

The big picture here is that you have to look at your finanical data as a whole.  Your tax returns figures need to correspond to the yearly totals shown on the statement of financial affairs.  Your Schedule I & J budget needs to agree with your means test numbers.  This is why I tell all of my clients that every figure on their peititon – and on the budget in particular – may require backup evidence.  If you rely on estimates or hunches, your case may end up being a lot more complicated than you expected.

[tags] means test, median income test, budgets, Schedule I & J, income and bankruptcy [/tags]

About Jonathan

Jonathan Ginsberg represents honest, hardworking men and women in the Atlanta area who need personal bankruptcy protection. In practice for over 25 years, Jonathan teaches bankruptcy law and practice at legal continuing education seminars and he is a founding member of the Bankruptcy Law Network. Jonathan lives with his wife and children in Atlanta.


  1. Claudia Ivey says

    I moved to Greenville in 2002 and have had nothing but a series of unemployment. I am now working, but only part-time, and have been in a debt management program since April 06, but can no longer afford the $138.00 a month.

    I am in a real bind. Cannot get caught up, can’t afford the doctor or dentist, which I need.

    Can you help me?

  2. Claudia Ivey says

    Can I get an appointment to talk with you? Or how does this work?

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