When a trainer of bankruptcy paralegals writes about clients failing the Chapter 13 means test, I blanch, or worse.
We had a couple who originally wanted to file a Chapter 13 so they could keep their home. However, they were unable to pass the Means Test.
The calculation of the debtor’s monthly disposable income on the B-22C form is a necessity. It is supposed to measure the debtor’s obligation under a Chapter 13 plan to the unsecured creditors. There simply is no pass or fail, here. There is only a target number created from Congress’s belief that there is an objective measure of what a debtor “should” pay in 13.
You might encounter a barrier to 13 if the debtor’s actual income going forward or expenses not deductible on B-22C produced insufficient income to make the payment they “should”, but that is entirely different than not “passing the Means Test.”
Ms. Ring, the paralegal, went on:
The Means Test was developed to provide a way for the legal system to determine if a client is eligible to file a Chapter 7 or 13.
The means test in Chapter 7 exists to trigger a presumption of abuse of bankruptcy. Not so in Chapter 13. Eligibility for Chapter 13 is determined by a number of things, but the means test isn’t one of them. Debt limits and regular income in excess of current living expenses are eligibility factors. Sufficiency of disposable income might impact feasibility, but not eligibility.
Careful use of words is important in law, and, particularly if one holds oneself out as teacher in the field, it is incumbent on the author to write with care, not just for dramatic impact. The distinction between eligibility and feasibility is important and should not be conflated.
The piece goes on:
when the debtors qualify for a Chapter 7 on the Means Test but want to keep their home, attorneys will do a wide variety of manipulation to either lower expenses or raise the income, just to satisfy the debtor. This is FRAUD and the attorney and possible the virtual bankruptcy assistant can get in a lot of trouble. Here are some things that could happen if the debtors qualify for a Chapter 7 and the attorney places them in a Chapter 13 just to save their home:
I’m sorry, but there is nothing WRONG with filing a Chapter 13 when you qualify for Chapter 7. This is a choice allowed to a debtor. The choice may be foolish or overly optimistic, but it is not wrong, and there is nothing wrong with an attorney filing a 13 for a debtor who could elect 7, so long as the schedules are truthful. There is something pretty pretentious about the phrase “just to save their home”.
I’m sure I’ll have more to say another day about the statements in this post, but it is chilling to have a paralegal announce that she was hired by an attorney to talk the client out of their choice of relief. I cannot imagine how a paralegal could do that without giving legal advice.
One thing Ms. Ring got right:
Many attorneys who are practicing consumer bankruptcy today did not obtain proper training before starting their practice. Many of them opened up a Chapter 7 and 13 practice because they wanted to make extra money without realizing the consequences of that decision. Besides, the majority of attorneys believed that preparing the bankruptcy petition was nothing more than filling out a set of forms.
My two cents is that you need to pick the source of your education carefully. Just because you read it on the internet doesn’t make it so.
Image courtesy of Lee Mclaughlin