Expert: Mark J. Markus- California Bankruptcy Attorney - 8/2/2011

Question
QUESTION: In a ch 7 where your easily under the median income but still have some disposable income, what is a reasonable expense for entertainment?

Also, would the fact that a car loan is a couple months away from being paid off have much bearing on the case?  

I dont want to file ch 7 and find out trustee thinKs I have too much disposable income left.

ANSWER: Both very good questions.  Schedules "I" and "J" do still factor into the analysis on whether or not you will be allowed to proceed in a Chapter 7 case (or more accurately, whether or not someone will object under 11 U.S.C. 7070(b)).  There is no magic number that tips the scale; it varies from judge to judge and district to district.   To the best of my knowledge, what they look at is the percentage of your unsecured debt that you'd be able to pay with whatever your surplus is over 60 months.  For example, if your budget shows a surplus of $200, then you'd pay out $12,000 over 60 months in a Chapter 13 case.  If you only have $12,000 of unsecured debt (and no superior debt, such as taxes), then you'd be able to do a 100% plan, and there's little likelihood of surviving in a Chapter 7.  However, if your total unsecured debt is $200,000, then you're only able to pay about 6%, and that isn't too high.  

Just to be clear, the above analysis is not necessarily what your judge/court will use.

If you only have 2 months to pay on your car loan, you're not going to be able to take a monthly expense for the vehicle on Schedule "J" for the full amount of your present payment.  You would need to put down the payment amount, and then at the bottom explain that there's only 2 months left (or whatever the amount is).   If this will give you a substantial surplus in your budget, you may want to consider trading that car in and getting a newer vehicle with a new payment (similar in dollar amount to the last one).

As for recreation expense, that is really an impossible one to answer.  I'd say definitely no more than $100 per person.

Mark J. Markus, Attorney at Law
Handling exclusively bankruptcy law cases in California since 1991.
http://www.bklaw.com/
Follow Me on Twitter:  @bklawr

---------- FOLLOW-UP ----------

QUESTION: Our gross median income income is 5k a month and were allowed 6900 month per new york household of 4.  We have actually been spending more then we take in the last few months and charge frequently on wifes credit card, which wont be part of the BK.  Only I will file.  Will there be any problems if our budget shows a monthly deficit of a couple hundred?  Once my car is paid off, we will be pretty close to breaking even.  Part of my budget expenses is her monthly credit card payment which wont be part of the BK and also a school loan of hers.  See any problems with this?  

Also, what if there anticipated future expenses?  I have rotator cuff tears in both shoulders and have extensive records to prove it and need physical therapy and surgery if that doesnt work and havent been able to afford it.  Costs 50 dollars copay each session.  Will that be something the court will consider?

ANSWER: There's no problem with there being a monthly deficit as long as you explain how it is made up (e.g. expected increase in income, family assistance, etc.).  You cannot use credit card payments as part of your budget.  Only necessary living expenses may be included.   If you have verifiable anticipated medical expenses, then you can put the estimated average monthly amount in Schedule "J".

---------- FOLLOW-UP ----------

QUESTION: The deficit has been covered by wifes credit card mainly and we plan to use her next tax return also until car is paid off and frees up income.

How come her credit card and school loan cannot be part of our budget?  Those payments will continue beyond our BK and also remember this is just a list of expenses the trustee will see when we file for our ch 7.  Its not the means test.  We wont need to do it since we already fall under the median income. Are you saying we cant even list them in our monthly expenses when we file ch 7?  Doesnt make sense because it is a monthly expense and will continue to be after BK since its not part of the BK

Answer
If you live in a Community property state, there is simply no basis to include debts which are discharged in bankruptcy as an expense.  If you live in a separate property state, there may be, but the expense is not the credit card--it's whatever was PURCHASED on the credit card.