Chapter 7 Trustee Robert Whitmore’s job as a bankruptcy trustee involves reviewing the means test and the schedules I & J to make sure the client qualifies for chapter 7 bankruptcy. The bankruptcy rules also state that the last sixty days of pay stubs must be filed with the petition. The Trustee and the United States Trustee match the paystubs with the income stated in the petition and the means test.
One common problem that occurs in figuring the paystubs of a client is that some people are paid twice a month and some people are paid every two weeks. These two people must be treated differently for figuring the monthly income. If you calculate the income for them the same, then the one client may have income that is under-reported on the schedule I and the Means Test. This under-reporting could cause an presumption of abuse to be triggered in the US Trustee’s analysis.
For example: If the client is paid $2000 twice a month, then the monthly income is $4000. This is $2000 multiplied by two.
If the client is paid every two weeks, then the weekly pay stub would not be multiplied by 2 since the client is paid 26 times a year. The better way to compute this amount is to multiply the gross weekly paycheck by the 26 pay periods in a year and then divide by 12.
For Example: If the client is paid $2000 every two weeks, the monthly amount is not $4000 as there is more income to be calculated. Take $2000 and multiply it by 26 which is $52,000 paid over a year. Then divide by 12 to get the monthly amount. Here $52,000 divided by 12 months equals $4,333 for monthly income.
The difference between $4000 and $4333 is $333 and could place your client into a chapter 13 as the $333 disposable income would be enough to fund a plan. This $333 could tip the case in favor of an presumption of abuse.
Practice Pointer: If client says he is paid twice a month, make sure that he does not get paid every two weeks. The difference between those two pay periods equal out to two extra paycheck every year. The extra paystubs could make your chapter 7 client a chapter 13 client.