What Lifestyle Is Permissible after a Chapter 7?

As part of the process of filing a Chapter 7, I as your Austin bankruptcy attorney will help you determine the correct information to put on what are labeled as Schedules I and J.  Read on for a bit of explanation of these forms.

Schedule I is a statement of your current income.  Both you and your spouse must provide detailed income information, unless you are separated and are not filing jointly for bankruptcy.  However, even if you are separated and are jointly on the hook for any of the debt you are seeking to discharge, you will both have to fill out the form.  This schedule is pretty matter-of-fact.  It’s looking for average monthly income going forward as best you can calculate it.  And, you are asked to disclose any anticipated major changes, like an expected bonus somewhere down the road.  The point is to be sure you convert all numbers to monthly averages, keeping in mind simple things like there are 4.33 weeks in a month if you get paid weekly.  The right answers to this form are accurate answers.

Schedule J is the flip side – expenses.  Here again you are looking for average monthly expenses for you and your family.  At the bottom of J you are asked compare these expenses to the net income shown on Schedule I.  If you are filing a Chapter 7, the Trustees are expecting to see something on the order of no more than $100 per month in positive monthly cash flow.  

Your expense calculations deserve very careful attention to be sure you are including everything reasonable for you and your family.  In the 17 stated categories there are 5 headings or sub-headings labeled “other.”  So, if you have expenses not specifically requested, use those other lines.  Look closely at what it costs your family to eat properly and healthy, to cover your medical out-of-pocket expenses, keep your house clean and maintained, take care of your pets, keep your vehicles in good shape, pay for your children’s educational expenses, attend to your personal appearance, and buy all the other many little consumables that you need monthly from your neighborhood grocery or drugstore.  You can add some costs for reasonable vacations and holiday gift giving and for modest retirement deductions from your salary.  Keep in mind too that you will need to allow for all the expenses and deposits related to moving if you are surrendering your house in the bankruptcy.  If your first pass at the calculations shows too much monthly cash flow, I’ll help you look again to be sure you have taken into account all the expenses that are appropriate.

Fair warning, however:  I recently observed a hearing on a case (not mine) where the Trustee objected to Schedule J because it provided for an overly lavish lifestyle.  You probably can’t get away with budgeting for private school tuition for 4 children, country and hunting club dues, and lease payments on a Porsche and a Jaguar.  If you are entitled to Chapter 7 relief from your debts, you are deserving of a truly fresh start under reasonable living conditions, but you can’t produce Schedules I and J that show a large income being consumed by too much luxury spending.  The Trustee will use that excuse to bump you to a Chapter 13, where you sacrifice those luxuries and use the cash for years in a structured payout plan to satisfy your creditors