Bankruptcy Filing Will Depend Upon The Means Test

This is the case of Jeffrey and Debra Miller who live in Gilberts, Illinois which is in Kane County Illinois.  They were here for a consultation on either Chapter 7 or Chapter 13 bankruptcy.  As we run through the facts here, they have not filed a bankruptcy before.  They do own a home with a first and a second mortgage on it.  The houses valued at approximately $165,000.  They owe $135,000 to the first mortgage and $63,000 to the second mortgage so there is effectively no equity in the property.  They are not renting from anybody and nobody is renting from them.  They have three vehicles, a 2003 Toyota Siena which is paid in full valued at approximately $2000.  They have a 2006 Hyundai Sonata which is paid in full valued at approximately $4000.  And a 1996 Toyota Camry which is paid in full valued at approximately $1000.

In terms of personal property, they have a checking and savings account at Oak Trust Credit Union with approximately $1200 on account.  They have normal household goods worth approximately $5000 and normal clothing worth approximately $2000.  They do have a 401(k) with a substantial $135,000 on account.  They also have three animals, domestic pets, worth approximately $150.  They cannot sue anybody for any reason, personal injury or Workmen’s Compensation and they do not expect to inherit any money in the next six months.

They are a married couple with two children living in a house; one a minor, one an adult.  They are both working.  The husband has been working for 15 years at IFS North American and the spouse, wife, has been working for six months as a clerk at J. Jill in Algonquin.

In terms of monthly income, the couple is bringing in net take-home pay $6194.  When we go through their monthly expenses, including the first and second mortgage, transportation, clothing, utilities, insurance, student loan installment payments, they have approximately $6100 going out.  So this couple is really at the borderline of having money available for a Chapter 13 and not having any money available for Chapter 7.

In terms of the Statement of Financial Affairs, the husband has been making approximately $106,000 per year for the last three years whereas wife just started working and she does not expect to make anything more than $10,000 for the year.  They do not have a safety deposit box.  They have not closed a bank account in the last year.  They have not been involved in any lawsuits to date.  There are no co-debtors, there are student loans of $45,000 and there is no tax debt.

Let’s move on to the actual debt in this case.  The couple has $135,000 worth of credit card debt.  If they can qualify under the means test for Chapter 7, they may be able to eliminate all of the $135,000 in credit card debt.  On the other hand, if the means test determines that they have the ability to repay, then we are looking at a Chapter 13.  A 10% Chapter 13 plan would be approximately $350.  A 100% Chapter 13 plan would be approximately $2500.

What we are going to do for this couple, the Millers, is we are going to run the means test.  We are going to take the information that they provided based on their income and their expenses in their debt and we are going to determine whether or not they qualify under Chapter 7 or whether or not the means test is indicating that they have the ability to pay under Chapter 13.  From there, I will advise the clients on which Chapter is best and most appropriate under the Code and then help them make a decision on whether it’s worth it to file or whether it’s worth it to try to deal with the credit card debt on their own.


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