Arturo Cisneros is a chapter 7 trustee in the Riverside Division on the Central District of California. Among his duties are to review the debtor’s petition to scan for errors and to make sure the debtor qualifies for a chapter 7 instead of a chapter 13. If the debtor should be in a chapter 13, then the matter is referred to the US Trustee’s office for determination of the proper class.
Here are some “red flags” that will trigger a referral to the United States Trustee:
Schedule I and J have disposable income of over $195 a month.
At the bottom of Schedule J, there is a line that says how much disposable income the debtor has at the end of the month. If the client has more than $195 per month then it is presumed that he can fund a 60 month chapter 13 plan by paying more than $11,000 back to the creditors. This is a tricky problem as the form B22A (means test) may say he qualifies for a chapter 7, but the “I & J” show that he is a chapter 13 candidate. Review your clients expenses to make sure that you did not forget an expense like homeowner association dues or student loan payments. (While the student loan payment is not an allowable expense on the means test, it is allowed in schedule J expenses.)
line #23/24 ownership expense without a car payment.
The means test (Form B22A CHAPTER 7 STATEMENT OF CURRENT MONTHLY INCOME AND MEANS-TEST CALCULATION) would seem to allow a car payment for ownership expense when the debtor does not actually make a car payment. This is known as a phantom payment. However under In re Ransom, this deduction is not allowed. If you place then number in your software, then it may make the debtor appear to pass the means test, but if the expense is denied then you client may be forced into a chapter 13 by the US Trustee.
Review the Schedules I & J ‘s disposable income to make sure the amount is less than $195 and do not take a car ownership expenses if the car is paid off. It is still ok to take a transportation expense, but not an ownership expense. This actions will avoid the trustee’s red flags.