New Here...Many Questions

[lovemyhouse]

1st let me say how happy I am to have found this site...I will try to keep it as brief as possible, as I have a mtg w/attorney tomorrow and have many questions:

I spoke with an atty last night about filing Chapter 13. We have a house and a car that we want to keep. I itemized our gross incomes and listed qualified living expenses. At the end, we were in the red about $500. In other words, no disposible income. He said that we do not qualify for Chp 7 and under Chapter 13, our monthy amount to repay would be $800...I am lost here? How can we be in the red and have $800 a month to pay out??? Listed as my qualified living expenses were: Fed/State withholdings, Child Care, Mortgage, Car Payment, Electric, Heat, Hot Water, Groceries, Medical Health Benefit Contributions, Life Ins., 401K Loans (2 - which he said was ok), Property Taxes, Fire Taxes, Auto Taxes, Homeowners and Auto Insurance.....What am I missing here? How can we pay all these AND $800/a month. He also said it would be $800 a month for 5 years. This totals roughly $48,000...he also said they would grab our income tax returns ($5,000 a year)....okay so this totals approx. $73,000....yet we only owe $39,000 in credit card debt????

PLEASE....PLEASE...PLEASE....Can anyone explain this or tell me what I am misunderstanding? I know nothing about Chapter 13 and am so confused. THANK YOU SO MUCH...

[JollyGG]

Okay we need more information before we can help much.

What state do you live in?
How much gross income did you have over the last six months?
How many are in your household?
Are you married? Are you filing together?
Do you own a home? How much equity do you have in it? Are you current? Do you want to keep it?
Do you own vehicles? Are you current? Do you want to keep them? How much equity in those?
Do you own any othe significant assets?

Additionally, you should make appointments with several more bankruptcy lawyers. Meeting with several will help you find one you are comforatable with and will give you a more complete idea of your options and where you stand.

Here is an online means test you can take to help you figure out if you qualify for a chapter 7 or a 13. http://www.legalconsumer.com/means-t...ator/index.php

[Minnymouth]

Very important - you have hired an attorney, let him explain all this too you in your meeting.

Make you a list of all your questions, get answers (let him earn his money)....

Then come back on the forum, and we'll help explain some of his answers....

If he's not gone over everything with you yet, then he doesn't have all the facts he needs to determine yet, what you need to do.....


Good advice JollyGG,

Keep us posted....

[HHM]

At this point, with the info provided, any comments we have would be pure speculation.

Do you have significant equity in your home, are your expenses over the allowed maximums, do you have substantial non-exempt assets, maybe your income is way over the median.

[lovemyhouse]

What state do you live in? RHODE ISLAND
How much gross income did you have over the last six months? $42000
How many are in your household? THREE
Are you married? Are you filing together? YES AND YES
Do you own a home? How much equity do you have in it? Are you current? YES. NOT SURE ABOUT THE EQUITY (We owe approx. 250K) and CURRENT YES. Do you want to keep it? ABSOLUTELY...THIS IS MY BIGGEST CONCERN
Do you own vehicles? YES Are you current? NO Do you want to keep them? YES How much equity in those? NONe

[lovemyhouse]

At this point, with the info provided, any comments we have would be pure speculation.

Do you have significant equity in your home, are your expenses over the allowed maximums, do you have substantial non-exempt assets, maybe your income is way over the median.

Our income is over the median and our expenses aren't above the allowed maximum...Please don't take this the wrong way cause I really don't know anything when it comes to this stuff, but what does the equity in your house have to do with it if you can't take out a home equity loan to pay off your bills? I just don't understand how you get $800 from a negative number, unless your not paying all allowed expenses. Thanks for your quick replys!!

[JollyGG]

What state do you live in? RHODE ISLAND
How much gross income did you have over the last six months? $42000
How many are in your household? THREE
Are you married? Are you filing together? YES AND YES

The median for a family of three, that I found, in Rhode Island is 65,666 (http://www.census.gov/hhes/www/incom...eandstate.html)

Do you own a home? How much equity do you have in it? Are you current? YES. NOT SURE ABOUT THE EQUITY (We owe approx. 250K) and CURRENT YES. Do you want to keep it? ABSOLUTELY...THIS IS MY BIGGEST CONCERN

The amount of equity is important. In order for file chapter 13 bankrupty creditors must get at least as much as they would have gotten had you declared chapter 7. Therefore if you have more equity than you can exempt you run into problems.

Do you own vehicles? YES Are you current? NO Do you want to keep them? YES How much equity in those? NONe

Can you get current before you file

See my answers in blue.
Did the lawyer say why you would not qualify for a chapter 7?

[HHM]

It sounds like this meeting with the lawyer was an initial consultation, so the lawyer was probably making some assumptions based on limited information, i.e. you are over the median, dividing the difference by 12 and coming up with a figure.

As for the equity issue. There are 2 factors that go into determining your monthly payment in a chapter 13.

1. The amount of your disposable income. Disposable income can be a complicated issue, because it is NOT just based on your income vs expenses, there is an aspect of whether your "actual" expenses are reasonable, are your "actual" expenses within the established guidelines for your area etc. Thus, even though you may be showing an "actual" deficit in your income vs expenses, the BK court and trustee may not see it that way based on the legal requirements for disposable income.

2. The second aspect of your plan is that, your unsecured creditors must get paid at least as much as they would receive in a chapter 7. This issues goes to "non-exempt" assets. So, for example, if your home equity exceeds the exemption amount allowed by your state law, your plan must fund at least that amount over the life of the plan. For example, if you have $75,000 in Equity in your home, but your state only allows you to exempt $25,000, then you have $50,000 of NON-EXEMPT equity. Thus, if you were to file a chapter 7, the trustee would be entitled to that $50,000. Therefore, in a chapter 13, your payment plan must AT LEAST provide $50,000 worth of payments over 60 months.

[lrprn]

I just don't understand how you get $800 from a negative number, unless your not paying all allowed expenses.

Your income is over the median for your family size in Rhode Island. That forces you to complete the mandatory Means Test to see how much disposable income (if any) you have every month.

Here's the bad part. When the bankruptcy law was overhauled in Oct 2005 and the Means Test was mandated, the new law forces you to use some IRS-averaged costs for housing, utilities, and transportation in your state and local community. You don't get to use your actual costs for these three areas. That's how your income minus expenses can show $800/month in "magic money" that doesn't really exist in real life (thank Congress for this neat trick....grrrr!! )

The good part is a good bankruptcy lawyer can help soften this blow. Interview 3-4 in your area - most give free consultations.

And before you go, find out everything you can about how bankruptcy works. Here's a few good websites to get you started -
All about Ch 7 - http://www.uscourts.gov/bankruptcyco.../chapter7.html
All about Ch 13 - http://www.uscourts.gov/bankruptcyco...chapter13.html
Differences between Ch 7 and Ch 13 - http://www.mroselaw.com/CM/Custom/Ch...Comparison.asp

The best and most reliable information you are going to get about filing in your unique situation is going to come from experienced bankruptcy lawyers in your area. Keep us posted about what you find out, ok? Good luck!!