Bankruptcy’s Eternal Struggle

greek wrestlersThe timeless questions asked by mankind include “why are we here“, “which came first...” and “coffee or tea“.

Bankruptcy lawyers wrestle with  “which controls, b-22 or Schedules I and J“.

Having argued and lost the Pak case when BAPCPA was new, and felt vindicated when Kagenveama reversed Pak, I have strong opinions.

If Congress wanted a means test, then the means test controls, unless you show special circumstances.

But if I minus J controls, then every time the means test doesn’t work as some trustee thinks it should, he resorts to the schedules and his value judgments about what the debtor ought to pay.

I see that as opening the door to a standard that, put baldly, reads: use the test that squeezes the debtor more.

If predictability and uniformity are goals, that sporadic resort to someone’s discretion isn’t the path to predictability.  Here in the 9th Circuit, the demise of discretion, post BAPCPA, is reflected in the Welsh decision, which held that the presence of Social Security benefits in the debtor’s budget didn’t require the commitment of those benefits to the Chapter 13 plan.

But it is clear that some trustees, some judges, and therefore some lawyers think that I minus J is significant for some reason other than establishing feasibility.

You did what?

Hence, when a lawyer friend laid out his means test vs. I&J problem, he was doubtless surprised when I told him he should be roasted over a slow fire if he truly left $1000 on the bottom line of J.

Unless the debtor really has $1000 every month left over at month’s end, he’s spending it somewhere.  The schedules should, in my view, reflect reality.  Where is that money going?  And why don’t the schedules show where it is?

Now, if your client really does have $1000 unspent at the end of every month, then you have a problem.  You have made it easy, and maybe even obligatory, for a trustee to object.

It is a rare client who knows what it costs to operate a car, or who can tell you the amount spent at the supermarket on things other than food.

As far as the official form goes, kids cost nothing beyond food, shelter and medical care.  What rock did those drafters crawl out from under?

But I don’t often see regular, left over money, in the real world of my client’s lives.  And if it isn’t so, then shame on you, as the bankruptcy lawyer, for going with the flow and taking the debtor’s numbers at face value.

To tell the truth

If the first pass through the numbers show significant money on the bottom line of your projected budget, go back and check your work.

Does the budget provide for delayed maintenance to the human body?  I can’t remember the last client who hadn’t put off dental work or other needed medical care because of a money crunch.  If you are projecting life after filing, make it include reasonable health care.

Drag the client in for interrogation.  Get real numbers.  Find out what home repairs have been deferred.  Where does the client stand for retirement savings?  What does he spend on vacations, birthdays, and after school activities?  What provision is made for repair or replacement of appliances and soft goods in the home?

You are not limited to the expense categories on the form.  Add ones that reflect your client’s budget.

If, in the end, he really has $1000 a month excess, then he does have the ability to pay creditors.

But don’t file those schedules until you have squared them up with reality.

Check out the updated version of Bankruptcy in Brief, my comprehensive layman’s guide to bankruptcy law, practice, and purpose.

Image courtesy of Giovanni Dall’Orto. and Wikimedia.