Car/House Chapter 13

[JBB]

My wife and I are meeting with an attorney to discuss filing Ch. 13 We actually have a nice home and newer autos, which we have been making payments on for 2 years. Our current house and car payments are significantly higher than the exemption list that we have viewed on the IRS allowable exemption website. Does this mean that we will be allowed these as reasonable expenses during the budget process or will we be expected to get rid of one or both cars or move to a different house?

[lrprn]

Our current house and car payments are significantly higher than the exemption list that we have viewed on the IRS allowable exemption website. Does this mean that we will be allowed these as reasonable expenses during the budget process or will we be expected to get rid of one or both cars or move to a different house?

When your figures are placed into the Means Test, your lawyer will use the required IRS figures for housing, transportation/utilities, etc, he/she will also show the extra you pay above that elsewhere in the Test and (if you could be headed down the Ch 13 path) on the Schedules. Trustees and the court look at where you live and how your housing, transportation, utilities, etc match to the neighborhood average. If yours are typical for your neighborhood, then you shouldn't have a problem.

Plan to meet with at least 3-4 bankruptcy lawyers. Most give free initial consultations. It's important that you get a sense of whether you can work with a specific lawyer, and you'll learn a great deal about your options this way as well. I'm guessing from your intro that you are may be higher income filers. Getting good legal counsel if you are going to file Ch 13 is particularly important.

If we have more information about your situation, we can help you sort your options out better. Which chapter are you hoping to file - 7 or 13? Which state do you live in? If you look back six full calendar months, how much income did you make from all sources? How much income did your spouse make? Do you have children or other adults living in your home? Do you have assets (home, cars) that you want to keep after filing?

Welcome to BK Forum - glad you found us! Ask questions, vent as needed, and share the good times - that's why we're here. We'll help you as much as we can.

[JBB]

Thanks for the post. I'll try and give you some more specific info. For starters, I'm a doctor...so yes, it can happen to anyone. Bad spending habits have plagued us before, but through hardwork we have previously dug ourselves out. Now it doesn't appear so optimistic. We do live in a very nice neighborhood. I drive a regular 2005 Jeep Wrangler (payment $525 paid on it for two years - originally a 72 month finance) my wife drives a 2005 Hummer H2 (payment $690 - "Smart buy" in 2005 - meaning we pay for 48 months and then were to have the option to trade it in or refinance the remaining portion).
Our unsecured credit debt has reached $109,000. I have remaining student loans of approximately $224,000. My student loans became so high because of deferment through residency and then the early years of practice. I have paid on them until a year ago and then the crunch began to hit. I took a hardship deferment and then interest began to acrrue - essentially wiping out the $40,000 that I paid throughout the past few years. My student loan payment is $1500 a month.
We don't have fancy furniture, antiques, anything special in the house, but we had our two oldest sons in private church schools for the past 4 years. We have children ages 5, 9 , and 12. My wife has not worked since the the year 2000.
Our kids have now all entered public schools and my wife is considereing returning to work.
We have tried to work with our creditors, but the "green card" has been very inflexible. For example, I paid $2500 over the past 3-4 weeks and they still added $1200 interest!
Credit counselors have told us that this particular card will typically not agree to a credit counseling program and because of this the other cards will not either.
I do make alot of money, but have no savings.

Thanks for any info.

[JBB]

My salary last year was $225,000 and I received approx. a $52,000 year end bonus. The bonus is never a guarantee. I could get the same this year or nothing.

[lrprn]

Thanks for the extra info, JBB. And you are right....bankruptcy knows no strangers. Rich, poor, and every income level between....all are welcome here.

My salary last year was $225,000 and I received approx. a $52,000 year end bonus. The bonus is never a guarantee. I could get the same this year or nothing.

You are most definitely high income filers. That means that unless you have some very unusual circumstances, you are most likely looking at Ch 13.

A few more questions for you....

Which state are you in? Once we know that, we can help you sort out home and auto exemptions and other state-based bankruptcy issues.

How much equity do you have in your home? In your cars?

Private school costs can be an issue in some bankruptcy districts. Until you speak with bankruptcy lawyers in your area, it's hard to know how this cost will be treated in your case.

And fyi...AmEx is notoriously difficult on bk filers after discharge. 99% of the time you will never be allowed to have an AmEx card again, ever.

Student loans in bankruptcy are a real catch-22. Since the early 1990s, federal student loans have not been dischargeable in bankruptcy. The current bk law makes private student loans non-dischargeable as well. Unfortunately in Ch 13, the current law also considers student loans unsecured. Since it's unlikely you can pay off your $225K student loans in full within your five year plan, then there's a split currently between districts and trustees about whether you can continue to make student loan payments 'outside' the plan yourself.

I don't want to assume, but since you didn't mention illness, divorce, or job loss, it sounds like you've ended up here mostly through money mismanagement. If I'm right, join the club - you have plenty of company here. With your income, it's all too easy to get in the habit of not thinking how your money is being spent. There's this sense that there's plenty, so why worry? As you have discovered, the well does dry up eventually. Have you sat down to work out a budget together?

Looks like I've given you plenty of questions to ask when you meet with potential lawyers in your area. We recommend meeting with at least 3-4 different bankruptcy-specialty lawyers in your area. Learn as much as you can about bankruptcy, especially Ch 13, before then. Find out what they see your issues as and see what they recommend in your situation. You'll learn a great deal plus get a sense of who you can work with for five long years.

When you are high-income filers, your case is looked at closely by your local trustee and also by the US Trustee as well. You need the best legal representation you can afford to ensure your case goes well.

I think we've loaded you down with enough info and questions for now Hang in there - keep asking questions - we'll help you sort things out as best we can. Welcome to BK Forum!

[SinkingFast]

Welcome to the Forum, JBB!!

Just wanted to say Hi!!

And to reiterate what Lrprn said,............ Definitely, chat with at least 3-4 attnys that specialize in BK.

We've had a few other higher income filers post on the Forum. The BK road is never easy for anyone, but most especially higher income filers. As Lrprn said, the Local Trustee and the UST's Office will probably scrutinize your case much more closely than a lower income Filer. Definitely seek out THE best legal representation you can find.

Personally, I wouldn't move to do anything about your home just yet. Wait to see what attnys in your area have to say about how the Court might view your particular situation. If attnys advise you to move, do so then.

If you've only just started missing payments, nothing may be showing in your Credit Reports just yet. Sometimes it takes Creditors a couple of months to start posting Lates. You can go to http://www.annualcreditreport.com and pull all 3 Agencies reports on both you and your wife for free. Most attnys will want you to do that anyway, so you'll just be getting a head start in that area. Be sure to print out copies to give to the attny you decide to retain.

If your Credit is still clean,.......... You might consider a quick trade of the Hummer for a more "reasonable" family vehicle. Perhaps a sedan, a van, or a mid sized SUV. Something less gas thirsty with a lower monthly payment. Sounds like an oxymoron but,.......... You'll be set for the long haul of a 5 year Payment Plan vehicle wise. You won't have to worry about the "turn in time", not being able to refi, and having to seek the Trustee's approval to purchase a replacement vehicle 2.5-3 years into Ch 13.

[JBB]

Thank you both for posting. It's good just knowing that we are not the only people in the world facing bk...although it sure seems like it somedays.
We are in Arkansas.

We have, unfortunately, never lived on a budget. Even throughout medical school we used tons of credit - did eventually pay it off like I mentioned in our previous post. Then we had two of the worst things that "non-budgeters" can ever have...great credit and a high income! You're right, the well has dried up.

We are still trying to determine if bk is for us. We have always paid our bills and have no problems saying we owe all of the debt that we have incurred. Especially the student laons. I have tried talking with Am.Ex, but they have been less than receptive. Overall we are caught up on the majority of our bills. I will just throw out some info below. We have already adjusted many things. No private tuition. Carrying my lunch. Very little eating out, etc. If we are frank with AmEx and our other cards and tell them we are at the point of filing will they be more reasonable with interest, etc.

1. I'm worried about "everyone" finding out. Especially my employer.

2. I have a retirement account through my employer. I have never put any money into it myself, but my employer has. I am full vested in it and I believe it's around $212,000. Is this safe.

3. If we do file, is there any money left to do anything? Will our kids be able to sign up for local football when it costs $65?

4. If we file, how quickly do we stop paying everything that is unsecured and when do we start paying in the plan. A large portion of our monthly income is to credit cards. If I only had to pay secured debts for awhile I would definately be able to "shoebox" a chunk of cash for the emergencies that might arise during the plan.

5. I own a single share in two different surgery centers. Neither one of these has been profitable. One share is valued around $4000 and another around $8300. The first I have owned for about 4 years - the second about 4 months. Because the centers - especially the first - have not been profitable it is very unlikely these can be easily converted to cash. There are no buyers.

6. We have a first mortgage and a second mortgage which is a home equity line of credit. The first mortgage is $2035 a month and the second is one of the "interest only" mortgages which is autmatically deducted every month from our account. The interst rate is adjustable and has risen significantly in the past two year. The interest payment last month was $557. We have not made our August payment yet - so our mortgage is fairly current.

7. Both cars 1 month behind.

8. AmEx about 120 days behind.

9. Other cards around 60 days behind - meaning the full "minimum" hasn't been paid.

10. Have been paying most to AmEx and at least some every two weeks to all cards - even if it's not the minimum.

Talk to them and "dig out" again or give up and file.

Thanks again for the info. JBB

[arkienurse]

Well, first, welcome from SEArkansas

1. from personal experience, yeah they will talk about you for a while. Last year one of our docs filed a chapter 7 (still hasn't been closed d/t abuse issues, he would have been better off w/ ch 13 ) It was a very hot topic for like a week. All my coworkers know that I filed bk, so they asked me about what his chapter type meant. Then everyone forgot about it- on to the newest gossip of which doctor is having an affair with which nursing supervisor, you know. Our doctor had been very moody and snappy at everyone in surgery prior to his filing. About the time he filed he got very happy again. so I guess he was very worried about his financial situation.

2. Someone correct me please if I am wrong, but Retirement plans are safe I believe.

3. A chapter 13 budget is very tight. But you can pad it in areas where you don't spend so much to cover other things. Our lawyer let us have $100/mo for entertainment. We never go out, so that is how I pay DD's dance lessons. We were allowed $300 month for clothing- family of 6 at the time we filed. Now, except for school clothes shopping ,I have never spent that much on clothes in one month. There is nothing wrong with yardsales, or goodwill/salvation army thrift stores. And maybe you have family that can pass down clothing to your kids in exchange for returning the favor. When I was a kid, the clothes went from my oldest 2 cousins to me, back to their younger sister, and then to another cousin on their side of the family. If it has already lasted through one kid, it will more than likely survive yours.

Be careful when preparing your budget that you think of everything- car tags, license renewals, property taxes not included in mortgage, car repairs, drycleaning, etc.

4. Once you make the decision, and I would talk to several lawyers first before deciding definitly to file, stop paying those cc. Even if it will be a few months before you file.
5. Don't know about that one.

6. It is good that mortgage is current. You might be able to keep it paid outside the plan. Mortgage is the only secured debt that I pay outside my 13.

7. Not sure on the vehicles here. We weren't behind when we filed, and to top it off, laws have changed since then. I read in your other post that wife had a 600 note on her car. I know she probably loves it, but you might consider getting a good used car or van for her that either has a much lower payment or could be paid outright with cash ( god, I sounded like Dave Ramsey on that one didn't I? ) . Definitely ask the lawyers you consult about vehicle issues and go on their advice.

8-10. Not much advice on the CC. Again, we were upto date on some of ours, but not all when we filed. Because of our income, everyone who bothered to file a claim is getting all of their money. Afraid you might be the same way, but look at it like this- They have to stop charging interest, so what you owe on the day you file is what you end up paying, and In 5 years they will all be paid off. If you keep going like you are now, it will be what, 40 years before you have those credit cards paid off. And you will have given them untold thousands in interest.


I would definitly take a good look at budgeting, perhaps even attempting to live on one that looks similar to what you will probably be allowed in a 13. And look under the lifestyles area here for a multitude of ideas on saving money. And try to avoid the bankruptcy mills, and find an individual lawyer that knows what they are doing. If you look on the cover of your phone book, I bet you will see the firm I used (Dickerson law firm) I am still waiting on them to return a call for the last question I had, a year ago. And I probably could have done better on my payment plan if I looked around, but-- I didn't have this forum at the time to give me advice.

Good luck, and stick around for the advice, and friendship, even if you should decide not to file. Lots of good people here.

[SinkingFast]

BK is a matter of Public Record. Many local newspapers post BK filings.

Our newspaper posts them weekly, on Sundays, of course. And not a small, discreet section, like Obits, that no one reads. BK filings are right there with the Police Reports, Restaurant Health Code violations and such.

Honestly, tho,........... Most people aren't interested or simply don't look. For Ch 13'ers tho,......... Employers are often involved. Some attnys prefer to use a Payroll Deduction Order to make the Ch 13 Plan Payments. Some Trustees require the use of a Payroll Deduction Order to make Plan payments. It's a way to "guarantee" that the plan payments are made. So that's an issue you'll have to address with prospective attnys as you Consult around.

If you do choose to file, you could stop making payments to your Unsecureds at any time. Unsecureds are gonna get a piece of your Ch 13 Plan Pot. Arrears on your home can be placed into the Plan as well. The Trustee could take care of getting your home caught up.

Many people stop paying their Unsecureds to take care of other things prior to filing BK. Pay the attny. Get caught up on vehicles or their mortgage so those payments can continue to be made outside the Plan. Make some necessary house or car repairs. Buy clothes. Things you haven't had money for because you've been paying your CC's.

You might want your mortgage and cars caught up prior to filing so you can keep them outside the Plan. If the Trustee pays those payments for you, you'll pay the Trustee a %'age of the total $$$ amount to make those payments for you. Generally, you're looking at a Trustee Administration Fee of 6%-10% on your case. That's why many people try to keep their mortgage and car payments outside the Plan.

When you file Ch 13, your first payment to the Trustee is due within 30 days of the date you filed BK. Even if 30 days falls before your first scheduled 341 Meeting, you'll need to make your first Plan payment to the Trustee.

The Retirement monies will be safe IF the plan is an ERISA qualified plan. BK Code specifically Exempts ERISA qualified Retirement Plans. If your Plan is not an ERISA qualified Plan, your State Exemptions may allow for the Retirement Plan to be covered anyway.

I found that contributions to an IRA during the period exceeding 1 year prior to filing BK, up to $20K, is Exempt in Arkansas.


http://www.totalbankruptcy.net/state...s_arkansas.htm

As far as budgeting money for your kids' activities,........ You'll need to chat with attnys in your area. A lot depends on the Trustees in your Court. Some Trustees will allow those types of expenses. Others don't.

Some attnys resort to "hiding" some types of expenses by padding things that are acceptable to the Court. If activities fees aren't acceptable in your Court, your attny may pad a bit extra into your food, clothes, and transportation expenses to allow for monies for the kids' activities.

As far as strong arming AmEx by telling them you're on the verge of filing,......... I don't know if that will work or not. AmEx is notoriously not BK Friendly. The bigger CC's have attnys on retainer everywhere. Attnys in your area may give you insight as to what to expect from AmEx. If AmEx will work with your or not. Keep in mind tho, BK attnys give BK slanted advice. So carefully phrase how you fish for that info.

I'm not real saavy on business concerns in BK. Maybe others with more experience will chime in for you on that issue.

[BKOnce]

Many decades before, doctors filing BK are unheard of... but nowadays even high-profile movie stars, millionaires, or billion-dollar industry/companies (i.e., airline, Enron, MCI, Mortgage/bank lenders, etc.) filing BK themseleves again & again... so welcome to new world financial chaos.. where nothing is stable & predictable anymore!... Better save now for our coffins/funeral ... or doom altogether later...

[CityGirl]

They post them in our newspaper but none of my friends and family would read it because it's in the big paper not small town.

[rrockinggramma]

I would make a couple of appointments with lawyers (preferrably not patients of yours) and get some expert advice. I would go with a really good lawyer because he would know how to protect all of your assets. And the nurse is probably right, you would be paying back probably 100 percent but without the fees and the interest tacked on, all but student loans could be paid off in the plan. Keep your mortgages out of the plan if you can, but I would recommend putting your vehicles in the plan if you can. The interest stops and you pay off only principal owed on the loans. Plus I think I read that you have had them longer than the 910 day rule and if that is the case, they can be crammed down to FMV, also providing a good savings. A chapter 13 will teach you how to budget real quick. LOLOL But good luck and keep us all posted. My dad was a doctor. He gave up his private practice to go work in the ER trauma unit so he would have a retirement and benefits. Being self employed, my mom always said "no workie, no eatie," LOLOL Good luck.

[CityGirl]

I was told by my attorney that if I put my car in the plan, I pay about 7% interest on it. It's not interest free. Can anyone jump in?

[SinkingFast]

The Trustee can set a pay back interest rate. Evidently the Trustees in your Court typically set that rate at 7%.

[CindyLou]

Hi JBB,
Welcome!! I'm in Healthcare also. Nursing Admin to be exact. BK happens to everyone. I was "lucky" enough (if you can consider anything about BK lucky) to be able to file right before the laws changed and was able to do a 7, but my brother, is going through a 13 right now is a relatively high income filer. I know right now things sound out of control, but I bet even a couple of weeks from now after you meet with a few attorneys you will feel MUCH better!! Honestly a 13 does seem like your only option at this point, but I don't think that is such a bad thing. 5 years isn't such a long time and it will give you the opportunity to get you affairs in order to start planning your life for retirement in the next 20-30 years (just guessing based on the ages of your kids ) Think about it, you can't really afford to pay for much now, so having the trustee take the pressure off you for a while and organizing this confusion may be just what you need. Even though the student loans seem out of control too, there are a few different options that they can work out for your during the BK. This will all work out. You just might have to make a few adjustments....hang in there and stick around!! We are here to listen!!!