in this form, you must list your family’s total monthly expenditures, even if you’re married and filing alone.
Be complete and accurate. expenditures for items the trustee considers luxuries won’t be considered reasonable and will be disregarded for the purpose of figuring your net income on this form. For instance, payments on expensive cars or investment property may be disregarded by the trustee. if this happens, you may be forced into Chapter 13 if you don’t want your case dismissed. reasonable expenditures for housing, utilities, food, medical care, clothing, education, and transportation will be counted. Be ready to support high amounts with bills, receipts, and canceled checks.
ExAMPLE 1: joe owes $100,000 (excluding his mortgage and car), earns $4,000 a month, and spends $3,600 a month for the other items listed on schedule j, including payments on a midpriced car and a moderately priced family home. joe would probably be allowed to proceed with a Chapter 7 bankruptcy because his monthly disposable income ($400) wouldn’t put much of a dent in his $100,000 debt load, even over a five-year period.
ExAMPLE 2: same facts, except that joe’s schedule j expenditures total only $2,200 a month. in this case, the court might rule that because joe has $1,800 a month in disposable income, he could pay off most of his $100,000 debt load over a three- to five-year
period, either informally or under a Chapter 13 repayment plan. the court could dismiss joe’s Chapter 7 bankruptcy petition or pressure him to convert it to Chapter 13 bankruptcy.
ExAMPLE 3: same facts as example 2, but joe is incurably ill and will soon have to quit working. the court will more than likely allow him to proceed with a Chapter 7 bankruptcy.
Dismissal for Abuse
As explained in Ch. 1, the new bankruptcy law created an eligibility requirement called the “means test” to determine who qualifies for Chapter 7 bankruptcy. Debtors whose “current monthly income”—their average income over the six months before they filed for bankruptcy—exceeds their state’s median income must take the means test. In the means test, debtors calculate their disposable income by subtracting certain allowable expenses (in amounts set by the IRS) from their current monthly income.
If they have enough disposable income to fund a Chapter 13 repayment plan, their Chapter 7 case will be a “presumed abuse” of the bankruptcy laws and their case will be either dismissed or converted to Chapter 13.
If you either pass the means test or don’t have to take it at all, your case won’t be a presumed abuse.
However, the court can still find that allowing you to file for Chapter 7 would be an abuse of the bank- ruptcy process if all of the circumstances show that you could afford a repayment plan. Some courts have dismissed Chapter 7 cases or converted them to Chapter 13 under this theory if the debtor’s Schedule I and Schedule J show that the debtor has significantly more income than expenses. Other courts have found that debtors who either pass or don’t have to take the means test are automatically entitled to use Chapter 7, no matter what their Schedule I and Schedule J say.
Because the law on abuse is unsettled, we sug- gest that you be very cautious of claiming expenses for luxury items. If your income exceeds your ex- penses on these Schedules by more than a small amount, you may want to talk to a lawyer before fil- ing. Either of these situations might result in the U.S.
Trustee challenging your right to use Chapter 7.
CHAPTER 6: COMPLETE AND FILE YOUR BANKRUPTCY PAPERWORK 177
review the sample completed schedule j and the guidelines below for completing it.
Once again, be accurate. Creditors sometimes try to use the information on these forms to prove that you committed fraud when you applied for credit.
If a creditor can prove that you lied on a credit applica- tion, the debt may survive bankruptcy. (See Ch. 9 for more information.) If being accurate on this form will substantially contradict information you previously gave a creditor, see a bankruptcy attorney before filing.
In re and Case No. Follow the instructions for schedule a.
Check this box if a joint petition is filed and debtor’s spouse maintains a separate household. if you and your spouse are jointly filing for bankruptcy but maintain separate households (for example, you’ve recently separated), check this box and make sure that you each fill out a separate schedule j.
Expenditures Items 1–17. For each listed item, fill in your monthly expenses. if you make some payments biweekly, quarterly, semiannually, or annually, prorate them to show your monthly payment. here are some pointers:
• do not list payroll deductions you listed on schedule i.
• include payments you make for your dependents’
expenses in your figures as long as those expenses are reasonable and necessary for the dependents’ support.
• utilities—other: this includes garbage, internet, and cable tV service.
• installment payments—other: in this blank, put the amount of any installment payments you are making on a secured debt or a debt you plan on reaffirming (agreeing to owe and pay the secured debt on basically the same terms as preceded the bankruptcy). do not put payments you have been making on a credit card or other debt that does not involve collateral and that you plan to discharge in your bankruptcy.
Item 18. Average Monthly Expenses. total up all your expenses.
Item 19. describe any increase or decrease in expenditures in the next year. For instance, if you plan to pay off a car note during the coming year, indicate that fact.
Item 20. deduct your total expenses on line 18 from your total income on line 15 of schedule i. if you have two totals on line 15 (one for you and one for your spouse), subtract your expenses from the combined total on line 16. this will show at a glance whether you have significantly more income than expenses.
Don’t underestimate your expenses. As indicated above, a significant net income might lead the trustee to challenge your Chapter 7 filing. Sometimes people give low estimates of their expenses because they don’t want to appear to be living beyond their means. If this describes your situation, go back over your expenses and make sure they are accurate.