Household Income Over the Median - Expect a 2004 Exam

I recently appeared at a Rule 2004 examination in the case of a Chapter 7 debtor whose household income exceeded the median household income, but who filed individually. In Georgia, the median average for a family of 4 is $64,427.00. My client earns $48,000 per year, and his non-filing wife earns $33,500 which amounts to a total household income of $81,500. This household income is $17,073 over the median.

The issues in this case are:

• how much of the non-filing wife’s income should be treated as “household income?” and
• are there any special circumstances that would serve to rebut the presumption of bad faith?

The Rule 2004 exam was conducted by one of the U.S. Trustee’s staff counsel, who was very professional and patient with my client. I did note that the staff counsel was very focused on numbers - vague assertions about the wife’s contributions or payments made for a child with bi-polar issues were less than compelling.

Prior to the exam, the assistant trustee had served on us a voluminous request for documents - copies of bank statements dating back a year, check registers, copies of utility bills, grocery receipts and the like.

The assistant trustee also examined my client in detail about his bank statements - ATM cash withdrawals drew a lot of attention as did any deposit that was not a pay stub.

Knowing my client and listening to his testimony during the 2004 exam, I personally have very real doubts about whether he would be able to fund a Chapter 13.  My client works as a commissioned sales person in a commodities industry (computer hardware) and he and his wife are having increasing problems with a teenage son who appears to have some mental health issues.  My client describes himself as a “recovering addict” and I cannot imagine how he would handle the stress of living under a bare bones Chapter 13 budget.

At this point, we do not know if the U.S. Trustee will file a Motion to Dismiss on the grounds that the means test shows sufficient income to fund a Chapter 13.  I think that any lawyer who files a Chapter 7 when household income exceeds the mean needs to be prepared for one of these 2004 exams and should start the process of collecting supporting documentation early.

In the Northern District of Georgia, every Chapter 7 filing where household income exceeds the mean will draw a trustee inquiry and I suspect that this trend exists elsewhere as well.