Should we dismiss?

[Yankeegirl]

This is a bit long, so bear with me...

We relocated to Texas from PA in June of 2006.

We filed Chapter 7 on 3/1/07 - we are well over the median income; have about $60k in CC debit, had a house in PA that we couldn't sell; and have about $80k in student loan debt.

UST filed motion to dismiss for abuse. We asked the judge for two opinions on issues of deductability on the means test:
1. Can the mortgage of the house be deducted if we surrender
2. Can we claim the ownership costs of a car that has no lien

Judge JUST issued ruling on 4/16/08:
1. No
2. Yes

We had also been trying to argue for "totality of circumstances" related to the Student Loan. There have been rulings (not in our district) that state we should be able to get the discharge because the non-payment of the student loan ($600/month) would add over $30K in interest over 5 years. The UST wants to battle that out in court.

Add to all of this that our income has increased significantly in the past year!

So fast forward to today: we now have to decide what to do about our case. The UST suggested to our attorney that we should let the case be dismissed, "go out and get a house and a car" and the refile as a Chapter 13!!!

I don't know what to do! We have 2 cars with high mileage (95k and 114k) that won't last 5 years. We had hoped to get a discharge under Chapter 7, re-build our credit, and then get at least one new car.

Should we do what has been suggested - dismiss, buy 2 new cars and then refile? What are the risks associated with it? The house in PA was foreclosed on 9/2007. The credit cards have all been reported as included in bankruptcy. We've already gotten 2 new ones! I realize that the dismissal means that the automatic stay will be lifted, but isn't there also a chance that the debt has already been "charged off" the books at the CC company since it has been so long?

Sorry if this has been long and confusing. We have a meeting with our attorney tomorrow, but I want to be mentally prepared for everything!

[HHM]

First...good luck getting 2 new cars....the BK is ON your record at this point. I wouldn't make a bad deal on 2 cars just to file BK. Granted, sounds like you need new"er" cars, but I think you need to set your sights a little lower on the cars. Ultimately, BK is about getting your finances back in order and making "sound" financial decisions.

The mortgage issue could probably be appealed (if you have the resources) as other districts have ruled the opposite.

Charge off means nothing. All that means is the CC companies have reported the accounts as a loss (which they are required to do 180 days from the last received payment). The debt remains fully collectible and is either assigned to a collection agency or sold to a junk debt buyer who will relentlessly try to collect the debt (and possibly sue you).

I think before anyone weighs in on this forum, go meet with your attorney and THEN report back that conversation, that will probably give us some more context to advise you. Also, be sure to get a clear explanation from your lawyer about the consequences of letting your case get dismissed "for abuse" and what that would mean for refiling.

[Yankeegirl]

Thanks for the input HHM.

I understand that getting the loans maybe difficult. But if we can get them, we would. The way we look at it is if we convert to a 13, we will have to pay the trustee X for 5 years and it will be very difficult to get even one new(er) car. If we dismiss, even with prejudice, then we will get the new cars, and then pay the trustee what ever is left.

We are high income filers and our income has gone up significantly in the past year. So we can afford the payments.

So if we are dimissed with prejudice, we can't refile for 180 days and collections will resume. Correct? We live in Texas so I'm not worried about garnishment.

If we are dismissed without prejudice, then we could refile sooner?

We're pretty much tired of fighting at this point. We've spent about $10,000 fighting this so far and just want it to be done. Our attorney also mentioned that the courts can look at changes in circumstance up to the date of discharge when deciding to discharge the case. So even if we win the mortgage issue on appeal, our income is so much higher now that it might not matter.

[lrprn]

So if we are dimissed with prejudice, we can't refile for 180 days and collections will resume. Correct?

If your case is dismissed with prejudice, that means you cannot file bankruptcy on those debts again until whatever time frame the court imposes is past. In extreme cases where fraud is suspected (not saying this is the case for you), the court can decide the debts can never be filed on again ever.

If your case is dismissed without prejudice, then your lawyer could refile a new Ch 13 any time. If you try to file Ch 7 again (probably not advisable given what you've shared about your judge's rulings and your income increase), then it's typical to have to wait six months. Your lawyer can advise you what to expect in your situation.

[Yankeegirl]

At this point, a Chapter 7 is pretty much out of the question.

The dismissal and refiling was the UST's idea, so I don't think we're looking at dismissal for suspected fraud or bad faith. I honestly get the impression that the UST is trying to help us!

We're fine with waiting for 6 months. Just want to be sure we understand the options. I guess we'll know more tomorrow after meeting with our attorney.

I honestly feel like we're trapped. Yes, our income has gone up and we're willing to pay what we can. However, we're not going to be allowed to pay the student loan while in a 13, so we'll be paying back somewhere between $30k and $60k (depending on claims) in CC debt all the while we're racking up that much in interest on the Student Loans!

[HHM]

Your case will not be dismissed with prejudice (or, at least I highly doubt it). Being dismissed with prejudice is a punitive action that is really only used for people who have actually attempted to defraud the system.

You probably are better off just letting the case get dismissed and re-evaluating your circumstances.

[ichb]

Did anyone tell you specifically that you would not be able to make payments on the student loans? Or did they tell you that you wouldn't be able to include their payment in the plan? It is my understanding that you can certainly continue paying on debt that is undischargeable.

I would reverify this particular question with your attorney or trustee.

[Yankeegirl]

We were told the the student loans would be put in deferrment while we are in the 13. The trustee does not allow for student loan payments outside the plan. Our current payment is almost $600, so that would eat up a big chunck of money that would otherwise go to the credit cards.

[ichb]

I'm sorry to hear that. It kinda stinks that you won't be able to make payments on the student loans. Ours will go into deferment too but both the student loan company (I live in Vermont) and the attorney said that we'd be able to make payments. As a matter of fact, they said that if we put the student loans in the plan they will get priority payments during the plan and that we will just pick up paying at the end with whatever balances are left over.

Strange how this stuff varies from state to state so much.

[Yankeegirl]

How does that work? Doesn't the student loan only get a % of your monthly payment just like the unsecureds? If so, you could still end up accruing interest.

Or are you paying the full monthly amount and then your other creditors get what's left? Our district is not in support of that.

We tried to argue with our Chapter 7 that while we did have money left over (means test and schedule J) that we had a student loan that was entitled to the money and that if we converted to a 13, there wouldn't be anything left to send to the unsecureds. While there are opinions in other districts to support that position, without a Judge ruling on it, our UST didn't like it.

[ichb]

One thing I should clarify, is that our student loans, at least most of them are federal Stafford loans. I don't know if that makes a difference or not.

I was told it would be like this in repayment in a Chapter 13.
1. Administrative which is assume is court costs, trustee fees and any attorney fees that are included in the plan.

2. Priority debts which are like child support and back taxes and such. We don' t have any of those.

3. Secured debt.

4. Priority unsecured debt, the student loans.

5. Last would be the unsecured debt.

Also, we are probably going to be in a 100% repayment plan, which is different than paying 100% of the debt (otherwise we wouldn't need the bk ), but I do not entirely understand that aspect yet.

We are hoping that the student loans get enough paid against them so that we are not buried in extra interest by the end. But in our state we are also allowed to make extra payments IF we ever get any extra money.

I'm also still in school so my subsidized Stafford's interest gets paid while I'm in school.

[Yankeegirl]

Thanks for the info and clarification. Ours too are federal stafford loans but we have been out of school for many years!

I'll verify with our attorney tomorrow if they work it like that in our district. The problem is that we owe over $80,000 (with interest) on the student loans. We owe about $60,000 in unsecured. If they all file a claim and our plan calls for about $1,000/month then all of that would go to the student loan and none would go to the unsecured. In essence, this is the same as granting us a Chapter 7 discharge for the unsecured debt and then letting us pay the student loans as normal (at least that has been our argument). This is why there is alot of uncertainty in this area!

[MOMof3]

My student loan debt will be paid at the same percentage as other unsecured debt. I wish that it was paid first, but that's not what is happening in our case.

[rrockinggramma]

I have had 2 dismissed chapter 13's. It takes about 6 weeks for the creditors to crawl out of the woodwork and wham! fees, interest etc adds up quick. If you can do it, I would refile immediately. I doubt that you will be dismissed with prejudice (6 month wait) If without prejudice you can refile as quickly as it takes for you to gather up all that paper work again. But what sucks, you will have to include those 2 new credit cards, a further hit to your credit. Make sure they are zero so you can leave them off your creditor list.

in addition, by all means, while in dismissal go get 2 nice cars that can last. Then include them in your chapter 13 payment and reduce the exorbitant interest you will be charged. My trustee gave the car company 6 percent. Some give as much as 10 so it varies but will not be the 28 percent you will be forced to pay with your poor credit history.

[Yankeegirl]

Can they reduce the interest like that if you JUST bought the cars?

Also, we use the credit cards for work travel expenses (lost the company ones when we filed Chapter 7) so they are always pretty much at zero. But we will make sure they are when we re-file since we absolutely have to have them!