This question was posted by a blogging debtor recently on a bankruptcy forum website: “What do you guys think? It was advised that I rent something more expensive than I currently have to decrease my DMI. I’m not that off but I was just wondering if I did this, how long do I need to stay in this place before filing bankruptcy?”
Disposable Monthly Income (DMI) is used in a means test to determine if you can qualify for a Chapter 7 bankruptcy instead of a Chapter 13. Bankruptcy laws, changed in 2005, made stricter rules for who can file a Chapter 7 bankruptcy, the simplest form of bankruptcy that requires a liquidation of your assets.
Because a Chapter 7 is simpler, less expensive, discharges more debts, and is less time consuming, it is an advantage for the greatest number of filers to file this type of bankruptcy. Therefore, it is in the interest of potential filers to decrease their DMI before filing so they will qualify for the Chapter 7, but should you increase rent to decrease DMI in bankruptcy before filing?
Technically, whatever you do to decrease your DMI must be done so legally. The idea of decreasing your DMI right before filing can potentially carry with it the idea of increasing your standard of living. Increasing your standard of living to the point of extravagant living in the eyes of a bankruptcy court can cause you problems after filing, especially when the changes are made inside of six months prior to filing. There is a six month look back period in determining the means test for filing a Chapter 7.
Increasing your rent right before filing might not be a good idea, but here are some things you can do to decrease your DMI right before filing that the bankruptcy court may not take exception to:
Buy life and disability insurance policies. Every family needs these types of policies and the payments for them are easy to cancel when needed and once begun.
Buying a reliable car is another purchase that does not raise too many eyebrows when filing for bankruptcy protection. The court understands the necessity of a good reliable vehicle to get your children to school and you to work. Like rental property, though, there is a danger in buying an extravagant vehicle instead of a reliable one.
You can increase limits of liability on home and car insurance, and you can lower deductibles. Any of these type moves can be easily defended. Most people under insured in these areas, and most insurance agencies are willing to help you prove the point.
You can use this opportunity to buy better health insurance for your family, insurance with better deductibles and lower co-pays.
Should you increase rent to decrease DMI in bankruptcy before filing? With all these other options, it is probably not a good idea. Besides, rent will continue on after you have successfully filed a bankruptcy, and the added costs can provide you with future problems. In some cases, it may be best that you just file a Chapter 13 bankruptcy in lieu of a Chapter 7. A bankruptcy lawyer is the best place to go for consultation on which bankruptcy is best for you to file.
- Filing a Chapter 7 With and Without Assets (betterbankruptcy.com)
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