The debtor passed the means test but lost a motion to dismiss for abuse of the bankruptcy system. Schedule J, the debtor’s projected future expenses, showed a monthly excess of $500. Dollars to doughnuts, the debtor’s bankruptcy lawyer followed the form and the budget provided by the client. Dismissal resulted.
What happened here? Two things: debtor’s lawyer accepted the categories on the official form as the only allowable expenses. Then the debtor, either out of inattention or a desire to be seen as living frugally, put minimalist numbers for expenses. Lawyer doesn’t see the bombshell in having a self declared excess and files the schedule.
How to avoid such disasters? First, the official form is not an exclusive list of expenses. Note that there are no categories for vacations, kids school activities, repair and replacement of household goods, pet care, grooming, yard care, etc. If you look at the elements that make up the IRS standards, you find allowances for housekeeping supplies (cleaners, toilet paper, etc.). Add those to the Schedule J expenses. Look at the expense categories on the B-22. Several of them don’t appear on J.
Local culture and the world view of trustees will color what is seen as acceptable expenses where you practice. But remember that trustees, panel and UST, are only advocates for their position. They are not the ultimate decision makers; the judge makes the final call. Don’t be afraid to present a realistic budget for your client and be prepared to advocate it to the judge.
The second problem is the client who thinks that he gains credibility by proposing a budget that is unrealistically spare. Consider that the budget here is the yardstick for whether the debtor spends 3-5 years in a Chapter 13. While a debtor might get by with $75 in health care expenses for a while, chances are that over 5 years, there will be some event that will blow that number as an average monthly expense. Same scenario for car repairs, clothing, etc.
An effective bankruptcy lawyer is not bound to accept without question the debtor’s figures on these issues. You can’t replace the client’s input with your own, but the value you add to the process is your critical review of the client’s submission. Probe and question numbers that seem unrealistic.
I start from the proposition that if my client’s budget leaves a fat figure at the bottom of I and J, I have just challenged the various trustees to contest my client’s right to a Chapter 7 discharge. A good result for the client is much more likely to result if I put real-world budget numbers on J, and prepare to defend them if necessary.