When the debtor’s Schedules J shows a significant number on the bottom line, that “excess income” may suggest the case is an abuse. The first question should always be: “How real are the projected Schedule J expenses”?
In districts where the difference between I and J retains some significance in Chapter 7, bankruptcy attorneys need to cast a critical eye on what the debtor says it costs them to live going forward. Even clients who have been paying their credit cards up til filing don’t generally find gobs of cash in their bank accounts post discharge.
So, where to look to get the schedule aligned with reality?
Here’s my list of starting places:
- Food– can a family of this size really eat for the listed amount
- Housekeeping– have the debtors broken out cleaning supplies, lawn care, etc.
- Repair & replacement- is there provision to repair appliances and replace soft goods like linens
- Maintenance for homeowners– is there money for new roof, a plumber, paint
- Health care- what health needs and dental care have been postponed to repay creditors
- Vacations & celebrations does budget provide for birthdays, Christmas, and some vacation
- Transportation – does budget provide for repairs, maintenance, & tires as well as gas
- Non dischargeable claims – is there provision for debts surviving the bankruptcy
- Retirement- are debtors saving for retirement
- Current year taxes – is sufficient money provided to pay the current year taxes come April
- Cost of moving- those surrendering houses need to move and put up rental deposit
- Pet care – capture not just food, but grooming and veterinary care
The list of expenses on the form Schedule J is not exclusive. Consider what the client has slighted while struggling with debt and help them construct a budget that deals in a real world fashion with the cost of living after bankruptcy.
While not all of these expenses are immune from challenge in every venue, leaving significant money on the bottom line invites a challenge.
Don’t ask for trouble; use up the money.
>In districts where the difference between I and J retains some significance in Chapter<
I'm curious why "other" districts don't consider the difference between I and J significant.
My sense is that modest amounts of money at the bottom of I and J draw more attention in some districts than others. 707(b)(3) always provides the powers that be the opportunity to challenge the case as abusive.
I often noticed that a significant number of clients who smoked neglected to account for cigarette money. Not that I advocate smoking. I’d personally be delighted if evey smoker quit smoking tomorrow. But that is not realistic. And cigarettes can be a very substantial household expense. If 2 smokers each smoke 2 packs/day, this can amount to nearly $15,000 per year in states with moderate-to-high cigarette taxes. Sometimes pointing that out can serve as an additional incentive to quit smoking. But many people who smoke fully intend to stop but are unsuccessful in doing so, and that means they still need to account for that expense in their budget somehow.
Ok. I get this but how do you do this exactly? How do you schedule anticipated expenses that the debtor knows they will need but may not know the cost? A new roof for example or future medical expenses for a debtor who is just found out they are diabetic. Or at my old job, a debtor’s daughter was diagnosed with some disease (don’t remember what it was) and there would be future medical expenses that she couldn’t begin to tell us how much they would be, only that they would be incurred down the road.
All you can do with future medical expenses is estimate. When it’s postponed dental work, I ask the client to get an estimate from the dentist. When it’s something where one can’t know the course of the disease or its treatment, I simply guess. If it’s so uncertain that we are guessing, it’s probably serious enough that it will eat up whatever money the debtor has. I’ve never had a trustee balk when they find the debtor has an illness or condition that is serious and subject to uncertainty.