Ok. You're considering filing for bankruptcy relief under Chapter 7 of the bankruptcy code. You may have heard about the 'means test' and how the US Trustee can file motions or complaints under Section 707(b) to dismiss a case or force it to be converted to a Chapter 13. You might then ask, how and why would this happen, and how can you avoid it happening to you?
To address these concerns, it is useful to think in terms of what the US Trustee is looking for in your petition. The answer is, in a word, income (In a later article we'll consider what the case/interim trustee is looking for, which is something entirely different from the concerns of the US Trustee). That is not to say, of course, that your petition can be inaccurate with such other information as assets and liabilities. The US Trustee's overriding focus, however, is the debtor's income. Let's take a closer look at the process.
When your attorney first files your petition, an electronic copy is forwarded to the office of the US Trustee for that district. An initial screening is performed by a 'bankruptcy paralegal' or 'bankruptcy analyst' in the US Trustee's office. This screening will consist first and foremost of an examination of the debtor's B22 means test calculation. If the debtor's annualized gross income calculation, as set forth in the petition, is well under the applicable median, then the US Trustee will probably never even bother to look at the petition himself.
If it's a close call, however, i.e. if the debtor's gross income is either above, or just under, the applicable median, then the US Trustee will conduct his own examination of the debtor's B22 means test calculation to make sure that it is accurate. That is, the US Trustee will make sure that the debtor's computation of gross income is accurate, that the debtor has used the correct standard IRS expense deductions, and that there are no impermissible expense subtractions in calculating disposable income.
If the US Trustee believes that the debtor's calculation is inaccurate or even questionable, he will take a still closer look by sending to the debtor's attorney a letter warning that the case is under consideration for possible action under Section 707(b), and that to assist in deciding upon such action he would ask that the debtor provide such additional documentation as paystubs, tax returns, bank statements, etc.
If the additional documentation supports the debtor's B22 calculation, indicating that there is no presumed abuse under Section 707(b), then the US Trustee will notify debtor's counsel that no 707(b) action is currently intended. Otherwise, get ready for some unpleasant consequences, inasmuch as in most districts the US Trustee prevails in the vast majority of 707(b) actions it files, succeeding in having cases either dismissed or converted to Chapter 13. For this reason it is vital for debtor's counsel to be knowledgeable of and very precise with his B22 means test income calculations, so that potential US Trustee actions under section 707(b) may be avoided before they happen.
David Romito is an Attorney based in Pittsburgh, PA. He handles Chapter 7 Bankruptcy matters in the Western District of Pennsylvania. For more answers to your Chapter 7 Bankruptcy questions, please visit his website at Pittsburgh Bankruptcy Lawyer .
Tags: irs, closer look, disposable income, s gross, gross income, assets and liabilities, chapter 13, bankruptcy code, filing for bankruptcy, paralegal, chapter 7, means test