Chapter 7 & Chapter 13 Differences

Form 22 Means Test & Automobiles

One would initially not recognize a significant difference in the preparation of documents for Chapter 7 bankruptcy and for Chapter 13 bankruptcy. After all, it seems relatively simple. In a Chapter 7 bankruptcy case, the contract rate of payment for the auto is listed in schedules J and Form 22 Means Test. Not much of a difference from bankruptcy pre-reform. However, with Chapter 13 bankruptcy preparation, the fact that the auto is paid through the Chapter 13 is not that simple. This article will describe the difference in detail so that mistakes can be avoided in the preparation and calculation of bankruptcy documents.

There is a significant difference in the preparation of Form 22 as to automobiles depending upon which chapter of the bankruptcy code a case is filed under. For example, under Chapter 7 bankruptcy, the actual auto payment signed to on the contract is the amount listed in the Form 22 Means Test. Thus, if the contract payment for the auto is $450.00 per month, that figure is what is listed in Form 22. It does not matter how many payments remain under the contract nor does it matter what the value of the auto is at the time of preparing Form 22.

Contrast that information with the preparing of Form 22 Means Test for an auto in a Chapter 13 bankruptcy case. In a Chapter 13 case, the contract rate for payments is not important. What is important is the following:

Total amount of future payments due within the next 60 months. This is calculated by taking the outstanding loan balance divided by 60 months and adding any interest. Whatever that figure amounts to must be placed in Form 22 Means Test. This figure is typically less than the contract rate of payments since must auto financing completes prior to the completion of 60 months.

If Form 22 Means Test is prepared incorrectly, the debtor is likely not providing the correct computation for his disposable monthly income. The United States Trustee has brought this to the attention of debtors' attorneys and will continue to do so until the form is completed correctly.

The above difference between Chapter 7 and Chapter 13 of the new law illustrates the complexities of preparing bankruptcy petitions. Long gone are the days when a pro se debtor could simply purchases forms from the local office supply store and easily answer questions about their income, expenses and debts.