Probably Filing Chapter 13 - Utterly Stressed

[euphoria124]

Hi all,

I'm reaching out for some help and hopefully some information on filing Chapter 13 bankruptcy. I hired a lawyer a few weeks ago, but amid this Coronavirus Pandemic, we haven't been in touch too much yet with the exception of me doing the means test, which I was well above the median income for the state of PA so Chapter 7 is out of the question. I am married, however I will be filing individually. My lawyer mentioned my wife's income will not count towards the payment of the Chapter 13 plan because she left me shortly after the situation I'll describe below.

I have over $250K in unsecured credit card and unsecured personal loan debt. I always had excellent credit, with high income ($170K/year) which is derived from a base salary plus commissions. Further information below.

I will be completely honest with you, I have developed a gambling problem (using legal PA online casinos) and just made deposit after deposit with my credit cards. I have very high credit lines on most of my cards $30K+ and have utilized pretty much all of it on 5 different cards, plus I took out 4 personal loans at the end of February that total $112K. The total unsecured debt I currently have stands around $250K.

How bad is this situation? I basically ran up my credit cards gambling like an absolute fool. Before the gambling, I would say I had about $40K on my cards in total which would fluctuate up or down depending on my commission earnings.

Assets:
Home - Owe $234K, house is worth about $257K.
2 Cars - Owe $19K on one that is worth about $22K and owe $34K on another which is worth about $47K.
Cash - Have about $8K cash in the bank.

1.) How bad is my situation? Is this chunk of unsecured debt insurmountable for a Chapter 13 case?
2.) Does gambling the money away reflect poorly on my case? (Important: I have all of the statements from the online gaming sites showing over $300k in losses, so there should be no issue with proving to the judge or trustee that I gambled the money away).
3.) Payment plan - It is my understanding that the creditors must get at least what they would receive if I hypothetically filed for Chapter 7 bankruptcy. So, equity in home plus cars. My lawyer told me the equity in my home is exempt because it's around $22K, he also said that the equity I have in my 1 car will have an exemption but not all of it.
4.) Should I make any payments on my cards or loans? The loans I took out are all less than a month old, I know I cannot file yet because it will be deemed fraud, however shouldn't I at least make a payment on each to show good faith?
5.) Would it be better for me to avoid Chapter 13 and call each creditor individually and try to negotiate a settlement? The reason I say this is because I am deathly afraid of being tied up for 5 years under Chapter 13. My income varies greatly depending on commissions that are paid quarterly. Some checks can be $25K for a quarter.
6.) Any commissions I make, will the trustee try to take all of it, a portion of it, or none of it?
7.) Lastly, once a plan is confirmed, for example $1,500/month for 60 months; which would equal $90K, is that all I will ever owe or can the total number be increased with increased commissions/wages? Or is it simply just paid quicker if I was to take home a large commission check?

My goal along with my attorney is to get my expenses high enough that there is little to no disposable income left, hence the creditors would only receive an amount of equity in my cars and non from my house because of the home equity exemption in PA.

I GREATLY APPRECIATE any help you may be able to provide. If you have any additional questions, please feel free to ask.

[zelkin]

Hi, I am really sorry to hear about this financial hardship. I am continuing to learn about bankruptcy myself, but yeah, how high can the attorney get your expenses to minimize your disposable income to limit the plan payment?

For settlement, I have actually worked in the industry before, so you can attempt a blended % of around 50%. It take a lot of time though because you have to navigate payments and savings and everything. You can do settlement on your own though if you are decent at negotiating.

For question #6 and #7, that may be a good question for the attorney. Can you let me know what he says? I am very interested in the response whether they would try to extract more from you if your commission check is high one month.

[euphoria124]

Hi, I am really sorry to hear about this financial hardship. I am continuing to learn about bankruptcy myself, but yeah, how high can the attorney get your expenses to minimize your disposable income to limit the plan payment?

For settlement, I have actually worked in the industry before, so you can attempt a blended % of around 50%. It take a lot of time though because you have to navigate payments and savings and everything. You can do settlement on your own though if you are decent at negotiating.

For question #6 and #7, that may be a good question for the attorney. Can you let me know what he says? I am very interested in the response whether they would try to extract more from you if your commission check is high one month.

Thank you for your reply! Much appreciated.

I will find out the answers to questions #6 and #7 once I hear back from my attorney.

As far as negotiating the debts down, I think I can be pretty good at it because I negotiate for a living. I work in enterprise technology sales.

A question for you though about negotiating settlements, once a settlement is negotiated to a number agreed upon, does this need to be paid in full or can I make payments for a determinate amount of time? I'm guessing some creditors will take a lump sum payment if they negotiate really low.

[zelkin]

My pleasure! You generally can do both, but it's dependent on the creditor. For example one creditor A may take x% over 18 payments while creditor B takes y% in a maximum of 3 payments. There's lots to consider going this route like which creditors sue and who to prioritize for maximum debt reduction and how to route payments, but it's definitely possible to do on your own! If you do on own, I'd suggest using a Google doc or Excel to manage it all. If you decide to go this route, I can put one together a quick google doc to help you get to manage the payments and negotiations and everything.

[euphoria124]

My pleasure! You generally can do both, but it's dependent on the creditor. For example one creditor A may take x% over 18 payments while creditor B takes y% in a maximum of 3 payments. There's lots to consider going this route like which creditors sue and who to prioritize for maximum debt reduction and how to route payments, but it's definitely possible to do on your own! If you do on own, I'd suggest using a Google doc or Excel to manage it all. If you decide to go this route, I can put one together a quick google doc to help you get to manage the payments and negotiations and everything.

Can the creditors threaten or sue just by me calling them and asking to negotiate down? By the way every single card and loan is current, at the moment. However, my attorney said to stop paying everything except the items I want to keep (cars, house).

[zelkin]

Not likely. Creditors will often use predetermined logic to determine who they sue. Creditors will only negotiate when you're behind.

[zelkin]

I know most of the creditors who sue or who are likely to sue, so if you decide that route, I can provide that info as well in the spreadsheet.

[euphoria124]

I know most of the creditors who sue or who are likely to sue, so if you decide that route, I can provide that info as well in the spreadsheet.

That would be fantastic! Their predetermined "logic" I'm assuming goes after people that make high incomes?

[justbroke]

Welcome to BKforum. I'll try to answer some things as I've filed both chapters of bankruptcy.

I have over $250K in unsecured credit card and unsecured personal loan debt. I always had excellent credit, with high income ($170K/year) which is derived from a base salary plus commissions. Further information below.

I will be completely honest with you, I have developed a gambling problem (using legal PA online casinos) and just made deposit after deposit with my credit cards. I have very high credit lines on most of my cards $30K+ and have utilized pretty much all of it on 5 different cards, plus I took out 4 personal loans at the end of February that total $112K. The total unsecured debt I currently have stands around $250K.

How bad is this situation? I basically ran up my credit cards gambling like an absolute fool. Before the gambling, I would say I had about $40K on my cards in total which would fluctuate up or down depending on my commission earnings.

Overall, I don't think this is that bad, but you're going to be asked, and I'm going to repeat it, you really need to get the gambling out of your system. The Trustee is going to be very concerned about the gambling, because bankruptcy will never fix a gambling addiction. I too was a gambler, once, but I mostly have it out of my system (except for the nearly non-existent purchase of a scratch ticket or lottery).

1.) How bad is my situation? Is this chunk of unsecured debt insurmountable for a Chapter 13 case?

If you're asking about the Section 109(e) debt limits for Chapter 13s, is about $360K in unsecured debt max. I don't think you are going to meet this level.

2.) Does gambling the money away reflect poorly on my case? (Important: I have all of the statements from the online gaming sites showing over $300k in losses, so there should be no issue with proving to the judge or trustee that I gambled the money away).

As I wrote above, it's a major issue. The Trustee will want proof that you no longer gamble, have sought help, and that you self-excluded yourself. Distance from the last bit of gambling will be important. it's important for your case, but more important for you.

3.) Payment plan - It is my understanding that the creditors must get at least what they would receive if I hypothetically filed for Chapter 7 bankruptcy. So, equity in home plus cars. My lawyer told me the equity in my home is exempt because it's around $22K, he also said that the equity I have in my 1 car will have an exemption but not all of it.

That may be the minimum, but you will need to pay your disposable monthly income (DMI) x 60 months or the Chapter 7 liquidation value, whichever is more. If you have no children and other major expenses, this could mean a large amount of DMI (unless you're paying alimony, support, separate maintenance, or paying for the spouse's other home)

4.) Should I make any payments on my cards or loans? The loans I took out are all less than a month old, I know I cannot file yet because it will be deemed fraud, however shouldn't I at least make a payment on each to show good faith?

It depends. It depends on whether you took out large (I can't define large but think $750+) cash advances on the eve-of-bankruptcy or with the intent to never pay back. Delaying the bankruptcy and making some payments are good faith. I can't direct you how many payments or whether any of your creditors will care. It is too fact and creditor specific. You won't know unless and until you file.

5.) Would it be better for me to avoid Chapter 13 and call each creditor individually and try to negotiate a settlement? The reason I say this is because I am deathly afraid of being tied up for 5 years under Chapter 13. My income varies greatly depending on commissions that are paid quarterly. Some checks can be $25K for a quarter.

Even if you negotiate a settlement, yo could be hit with large tax debt due to a 1099-C being issued. Not all creditors will negotiate. With equity in your home and decent income, a creditor would be crazy to settle at least at this point. As far as commission checks, your plan will need to somehow account for the large swings in income. Chapter 13s are better when the income is steady and regular.

6.) Any commissions I make, will the trustee try to take all of it, a portion of it, or none of it?

It depends on how your plan is fashioned. I really don't like plans like this because the income varies too greatly.

7.) Lastly, once a plan is confirmed, for example $1,500/month for 60 months; which would equal $90K, is that all I will ever owe or can the total number be increased with increased commissions/wages? Or is it simply just paid quicker if I was to take home a large commission check?

Yes, unless a creditor seeks to have their debt as non-dischargeable and you're required to repay the entire debt. I can't speak to your plan as it will require a lot of work. I don't know if you'll be in a 100% plan or you'll have some creditors file complaints about the gambling debt or what.

My goal along with my attorney is to get my expenses high enough that there is little to no disposable income left, hence the creditors would only receive an amount of equity in my cars and non from my house because of the home equity exemption in PA.

That's a non-starter. Most expenses are quite fixed and the more you try to pad, especially with very-high (well-compensated) income, the more the Chapter 13 Trustee will nit-pick at any nuisance expense.

[shipo]

euphoria124, to say there are a lot of parallels between your current situation and mine back between 2013 and 2015 (when I filed for a Chapter 13) is an understatement. The only significant departure between our situations is the "gambling" which sank me was both my wife and my (former) business partner opening small businesses during the recession and spending a few hundred grand in my name. The businesses were shuttered in 2012, however, by then the damage was done; I was a contractor and working two contracts 75 miles apart daily and billing upwards of $25,000 per month, a sum which was barely able to feed the beast. When my best client told me my position was going to be converted to a full-time employee, I was given the option of taking a 47% pay cut to go to work for them or to say bye-bye to my contract. I took the gig in 2013 and started exploring my bankruptcy options. It took me over a year and a half to find the right lawyer and work through the hundreds (seemed like thousands) of pages of my filing and get it in place.

Unlike many other married folks here who file individually but still live with their spouses, like you, my wife left me, which in the end, made stuff a heck of a lot easier as there were no questions upon the split of who paid for what.

Now, to your questions:

1. Your debt and income levels were very similar to mine and, with the right lawyer, a Chapter 13 is manageable. No you won't be living high off the hog, but you can get through it, I know, my discharge came through almost four weeks ago.
2. I don't remember my Trustee ever asking how the money got spent.
3. That advice sounds reasonably accurate.
4. In your shoes, I made a few good-faith payments.
5. In your shoes, I'd strongly advise against a negotiated settlement, if for no other reason than the dreaded 1099-C which deems the write-down of any debt as income, TAXABLE income.
6. I'd imagine most, if not all of your commissions will be directed into the Chapter 13.
7. If you are confirmed at $1,500 and get no commissions, then that $90,000 figure is all you will ever owe. That said, it is my understanding commissions and tax returns and such are fair game for your Trustee to go after.

A few other comments:

• When it comes to lawyers, shop, shop, shop, and then shop again; it took me over a year to find an attorney I was comfortable with. The job she did on my Chapter 13 was a work of art.
• Now, for the elephant in the phone booth, what are you doing about your gambling addiction? Will the monkey suck you back in and destroy any chance of you finishing your Chapter 13? If you survive that, will said monkey grab you by the balls and destroy you once you are discharged?

Keep us posted on your progress.

[shipo]

One other comment; my wife and I kept talking through everything and we are now on the verge of getting back together.

[justbroke]

Unlike many other married folks here who file individually but still live with their spouses, like you, my wife left me, which in the end, made stuff a heck of a lot easier as there were no questions upon the split of who paid for what.

When I finalized the divorce 2 years into the Chapter 13, the Trustee didn't even question the numbers. The numbers were very clear on the MSA (marital separation agreement).

Best wishes for your re-connect.

[euphoria124]

What happens if my I do not have any DMI after using all the national standards and deductions of secured assets?

[justbroke]

What happens if my I do not have any DMI after using all the national standards and deductions of secured assets?

Then you'd be in a $0 Chapter 13... also known as a back-door Chapter 7. (Some Trustees hate these as they may make very few $$$ unless there are significant amounts of secured debt being paid through the plan. My Trustee liked my $0/month DMI Chapter 13 because she earned over $700/month in commissions writing 3 checks monthly.

The question would be whether you need a Chapter 13 for a specific reason. For example, saving a home or other property would be the reason to do a Chapter 13 where you have no disposable monthly income (DMI).

Now, here's the real deal. If you have a Chapter 13 and $0 DMI, then you are likely trying to keep or protect property which you really can't afford (or shouldn't be trying to preserve, such as investment properties). I know this, from experience.

[euphoria124]

Then you'd be in a $0 Chapter 13... also known as a back-door Chapter 7. (Some Trustees hate these as they may make very few $$$ unless there are significant amounts of secured debt being paid through the plan. My Trustee liked my $0/month DMI Chapter 13 because she earned over $700/month in commissions writing 3 checks monthly.

The question would be whether you need a Chapter 13 for a specific reason. For example, saving a home or other property would be the reason to do a Chapter 13 where you have no disposable monthly income (DMI).

Now, here's the real deal. If you have a Chapter 13 and $0 DMI, then you are likely trying to keep or protect property which you really can't afford (or shouldn't be trying to preserve, such as investment properties). I know this, from experience.

I am trying to keep my house and 2 cars.

My house payment including escrow is $1,779/month, my 1 car is $600/month and the other is $458/month. Those are the only assets like care about. No other assets.

Also, how was your trustee making $700/month in commissions only paying your secured debt? I read that in PA the trustee fee is 8.7%. Unless your secured debt monthly payment was around $8-10K with similar trustee fee.