Central District Consumer Bankruptcy Attorney's Association

Please help me analyze this situation:
Chapter 11 Debtor needs to present his projected budget for a status
conference. This question concerns with whether the means test applies and
the amount of the claim. The so-called problem is that debtor's income has
increase substantially postpetition.
Debtor moved out of his residence before filing the petition. After filing
the petition, he rented out his former residence, which has become an
income property. Debtor's goal is to bifurcate the mortgage balance per
506(b).
Prepetition Debtor was barely making ends meet, but not that we filed
(post-petition), his business income improved substantially and we may be
facing the means test.
1. The first question is whether a postpetition increase in income could
trigger a means test. I am not sure if the statute authorizes this
explicitly, but my gut feeling is that under Lanning, an argument might be
made that ignoring a post petition increase in income is wrong.
2. The second question is whether the debts are primarily consumer debts.
The mortgage is $450K. Unsecured business debts are $200K while unsecured
consumer debts are $50K. Since the mortgage is the 1,000 lb gorilla in
this scenario, how the mortgage is characterized will determine whether the
debts are primarily consumer debts or not. The original purpose of the
mortgage was to finance a purchase of a residence so originally the debt
was a consumer debt. However, currently the debt is secured by collateral
that is used to produce income. What is the determinative time period--1)
when the debts were incurred or 2) now? Does the change in the use of the
collateral affect the character of the debt?
3. Assuming post-petition change in income applies and the mortgage
counts as counts as consumer debt because is was originally incurred to
acquire a personal residence, how will the cumulative dividend or the
monthly payment be determined? Will there be a budget battle with the
UST?
4. Let's say that based on the deals currently in the works, Debtor is
projecting $5K of disposable income (after business expenses and living
expenses) for the next six month. However, this number is based on
expected contracts and it may not materialize. In fact, Debtor did not
make a dime for the year and a half immediately before filing. Should the
$5K projection be presented in the status conference report? Should
speculative income be presented in the status conference projections?
Alik Segal
Alik.Segal@gmail.com
310-362-6157
California Central District
Please help me analyze this situation:Chapter 11 Debtor needs to present his projected budget for a status conference. This question concerns with whether the means test applies and the amount of the claim. The so-called problem is that debtor's income has increase substantially postpetition.
Debtor moved out of his residence before filing the petition. After filing the petition, he rented out his former residence, which has become an income property. Debtor's goal is to bifurcate the mortgage balance per 506(b).
Prepetition Debtor was barely making ends meet, but not that we filed (post-petition), his business income improved substantially and we may be facing the means test.1. The first question is whether a postpetition increase in income could trigger a means test.ling is that under Lanning, an argument might be made that ignoring a post petition increase in income is wrong.
2. The second question is whether the debts are primarily consumer debts. The mortgage is $450K. Unsecured business debts are $200K while unsecured consumer debts are $50K. Since the mortgage is the 1,000 lb gorilla in this scenario, how the mortgage is characterized will determine whether the debts are primarily consumer debts or not. The original purpose of the mortgage was to finance a purchase of a residence so originally the debt was a consumer debt. However, currently the debt is secured by collateral that is used to produce income. What is the determinative time period--1) when the debts were incurred or 2) now? Does the change in the use of the collateral affect the character of the debt?
3. Assuming post-petition change in income applies and the mortgage counts as counts as consumer debt because is was originally incurred to acquire a personal residence, how will the cumulative dividend or the monthly payment be determined? Will there be a budget battle with the UST?
4. Let's say that based on the deals currently in the works, Debtor is projecting $5K of disposable income (after business expenses and living expenses) for the next six month. However, this number is based on expected contracts and it may not materialize. In fact, Debtor did not make a dime for the year and a half immediately before filing. Should the $5K projection be presented in the status conference report? Should speculative income be presented in the status conference projections?
Alik SegalAlik.Segal@gmail.com310-362-6157California Central District

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