Utilities, Food, Entertainment Budget: Seems Wrong

[G-Dog]

Back Story. Recent medical bills + existing debt > Me and my wifes monthly income, so chapter 13 was advised. The day before we were to actually file, my boss cans half his workforce and our household income is slashed in half. My attorneys office scrambles to re-organize everything.

The problem is that last time we met, they couldn't find papers, copies, files and such because almost everybody in the office was on vacation. They pushed our filing date back a week and a half to 10-10-08. They seemed very impatient and pushed us out the door as quickly as they could. When I asked how much money we will be able to keep every month for utilities and entertainment, they quickly gave me a figure and moved on to the next subject, talking over me and shooting down any questions I had.

My wife and I have been going over the number they gave use to pay utilities, food and entertainment, and it isn't nearly enough to cover us. If we are lucky it would pay our utilities, leaving us $75 a week to feed a family of three and absolutely zero money for entertainment or other family expenses. Does this seem right? Were they just busy and need time to re-do our budget more carefully or are we going to be screwed? The number they gave us has no room for a monthly $13.99 Netflix subscription and $14 Basic Cable. I'm not asking for much here.

Other Ch 13 filers I know are living high on the hog, spending $560 a month for Digital Cable, Beer, Cigarettes, Videogames and constantly eating out (ironically, these big spenders used the exact same Attorney we are using). They also have nearly twice the utility expenses we do, as my wife and I use DIY cost cutting to reduce our Water and Gas bills to very low levels.

If I wore a hole in the socks I'm wearing right now, the $5.00 to replace them would break this budget. Somebody please tell me everything will be alright and the numbers will be re-worked, please?

EDIT - Yes, we told our attorney what we spent a month on utilities and entertainment. That number included our weekly $120 grocery bill, subscriptions to Netflix, Gamefly, and my $20 a week comic book habit.

[rrockinggramma]

The budget in a chapter 13 is the MOST important feature. If your attorney won't listen, find another one that will.

[PoGirl]

I agree with gramma.

[justbroke]

Much of the budget in a Chapter 13 is drven by Federal Standards also known as the U.S. Trustee Allowable Limits. (http://www.usdoj.gov/ust/eo/bapcpa/meanstesting.htm)

You only get so much for a family of four, but I'll be happy to tell you that the food and clothing allowance for a family of 4 is $1,370. You'll also get the Housing and Utilities allowance. Depending where you live, this combined allowance should be at least $1,500. If you own your home, then you'll only get a utility allowance as your house is "included" in your allowances at whatever the cost is.

There are allowances for cars too. The general national Car Allowance is $402 for 2 cars... and then you get an Ownership allowance (which averages $489 nationally) per car. You pay your car note out of this amount.

So, I don't know what number they gave you... a Family of four should be able to cover food, clothing and entertainment with $1,370 a month.

[NowImDownInIt]

Thank you justbroke... I think that I will use that when I amend my plan when new baby comes.

[justbroke]

I'll just add that Chapter 13 Budgets are complex! If you have non-exempt assets, this makes a Chapter 13 plan much more tricky, unless you're paying 100% to all unsecured creditors.

The reason is, despite being able to protect your assets in a Chapter 13, your plan would need to pay at least as much to the unsecured creditors, as they would get if you filed Chapter 7 and liquidated your non-exempt assets. That makes it complex.

So, I don't just casually say you'll have actual allowances as I listed above. (BTW, the National monthly food and clothing allowance is $1,151 for a family of 3 (filing after 10/1/2008)). There are other factors.

Hopefully, you're a "no-asset" Chapter 13, and you have sufficient income to pay secured arrearages (you didn't mention any property), and pay off your vehicles during the Plan term...

[G-Dog]

Thanks for the info everybody. Perhaps the number they gave us was not a final number? I do remember them saying we would be able to keep our house, maybe the number they gave use was just for our utilities, and we will work up from there this Friday?

Based on our utilities alone, that number seems correct.

Ok, worst case scenario we go in on Friday to finalize and they won't listen to or don't understand my concern. We've already paid them all the service charges. Do we walk? Do I start playing my "Getting What you Paid For" techniques I learned from various consumerist books? I understand that Bankruptcy isn't easy but nobody I've talked to, who used these attorneys, have had these problems.

[G-Dog]

So, I don't know what number they gave you... a Family of four should be able to cover food, clothing and entertainment with $1,370 a month.

The number was $1,500, but our utilities alone (Water, Gas, Electric, Trash and so on) eat about 60% of that number. Then add our phone bill, Day Care, gas for our cars and other expenses, and my family goes hungry.

Perhaps in their haste, they failed to mention a second monthly allowance number that covers other expenses. If the above number is so tight, that would make sense.

[justbroke]

The number was $1,500, but our utilities alone (Water, Gas, Electric, Trash and so on) eat about 60% of that number. Then add our phone bill, Day Care, gas for our cars and other expenses, and my family goes hungry.

Perhaps in their haste, they failed to mention a second monthly allowance number that covers other expenses. If the above number is so tight, that would make sense.

The $1,500 is an odd number. First, I'll say that your utilities totaling $900/month for water, gas, electric and trash (including basic telephone service, basic cable service and basic cellphone service), should be about $433 nationally. Not to get you alarmed. There are places on the forms where you can claim additional energy usage, you just have to supply receipts and a very good explanation. (Perhaps you live in the Northeast where home heating oil and natural gas are ridiculous.)

So, the food and clothing allowance is separate and is $1,151 as I wrote earlier.

You'll then get an operating expense allowance for your car of about $402 for your two cars (generally speaking). This is supposed to cover gasoline and other operating expense. Then you'll get the Ownership Allowance for the two cars... it will be about $489 each (depending where you live) and is used to pay your loan off and "maintenance" insurance. If your cars are less than $489, you can get the difference and use it for other general expenses.

For example, say your car is $201.00/month in your 5-year plan. Since you get $489, the difference is $288.00/month. That money is yours. However, you need to budget and save for a rainy day, so I don't suggest you just blow the $288/month extra. You never know when you'll need new tires, pay a deductible on an accident, etc.

You're just starting out... many more things to work on for your budget. I will re-iterate that your $900/month in utility expense is excessive and will need to be documented and explained. Yes, my utilities at my home run about $600/month (electricity mostly, water) so I can see it very high in the Northeast or other places with dramatic winter heating months. But remember, the keyword to use is average... not what you pay "today" or "tomorrow".

Daycare is a separate expense in a Chapter 13 Plan!!! Luckily this is a line item expense and you just put that number in. (Have supporting documentation if it's excessive. Please don't ask what excessive is. I would say anything over $1,000/month could be considered excessive for daycare.... unless it's for 4 children.) It's all in the context.

There's also another category (line item expense) for telecommunication expenses above and beyond that included in yoru Utility expense. You can put $100.00 in that box easily and no one will question you. If you put more than $100.00 you'll have to prove it, and it needs to be reasonable. For example, cell phones for the kids, easily justified as that's a SAFETY (health and welfare) issue for your family! If you use a lot of minutes for work, then you can justify it because it's used to generate the same income, used to pay the creditors. Without it, you'll have no work, and no creditor gets anything.

There are also many other expense categories, including special medications, special needs, education, yada, yada, yada.

You're fine for now!

[justbroke]

Ok, worst case scenario we go in on Friday to finalize and they won't listen to or don't understand my concern. We've already paid them all the service charges. Do we walk? Do I start playing my "Getting What you Paid For" techniques I learned from various consumerist books? I understand that Bankruptcy isn't easy but nobody I've talked to, who used these attorneys, have had these problems.

Your best defense is going through the Form 22C with them (if you're in a Chapter 13 and subject to the Disposable Monthly Income calculation) and line by line tell them what you spend in THAT category. Make them listen.

Besides, you have to sign that form under penalty of perjury. Make sure it accurately reflects your true necessities. Going out and spending $200/week on entertainment is not a necessity. However, having some money for entertainment is necessary! What your lawyer attempts to do with the Plan and form is to avoid any "objections" to your Plan.

[G-Dog]

Again, thanks everybody. I'll just make them start over with our Form 22C this Friday. I'm always very skeptical and a bit of a worry wart, so I'm going to look on the bright side of things and assume the number they gave us was NOT our Utilities & Expenses combined, but one or the other. It could also just be a calculation error.

In any event, I'm sure my wife and I will walk out of their office on Friday happy, or as happy as you can be when filing bankruptcy.

[flower04]

This a great thread. So, I looked up the links and the allowable amounts you are talking about are based on the amount from the IRS? Is it in your best interest to always put down that amount?

FOr example, we are a family of 4 and the allowable amount for food is $752. We currently have a $600 food budget set up while we are waiting to file in Dec. SHould I change it? Do you have to show proof or documentation of your expenses?

[justbroke]

This a great thread. So, I looked up the links and the allowable amounts you are talking about are based on the amount from the IRS? Is it in your best interest to always put down that amount?

FOr example, we are a family of 4 and the allowable amount for food is $752. We currently have a $600 food budget set up while we are waiting to file in Dec. SHould I change it? Do you have to show proof or documentation of your expenses?

The nice thing about the IRS Limits (UST Limits) is that it's already been argued and there is good caselaw around it. Whatever that amount is, no matter if you spend less, you get that "allowance".

It has been argued that it should be exactly what you spend (up to the limit). However, there are many appeals court ruling which state that it's an "allowance" and not a guideline. Therefore you get the allowance.

If you can eat with $600/month, keep that as your "personal" budget and save the difference between the allowance and your budget. I say this, because there's no way to really save in a Chapter 13 plan, unless you're saving from one of the allowances.

It's always in your best interest to put down in your real amount or the IRS limit, whichever is higher.

If you use the IRS limit, you don't have to prove anything. When you go over the limit, that's when you'll get a fight.

[G-Dog]

Update

So, everything is ok now! Here's what went down.

Our lawyers have suggested we wait a month to file. When calculating our income they take an average of the past six months. My wife makes about $75 less a week these days, so if we wain until Nov. then her lower pay will have more impact. Like paying our creditors $400 a month less!

About our budget at hand, everything will be right as rain. After all utilities and non-fluctuation bills have been paid (ie my Sons Pre-School), we will have $1,800 for entertainment, food, gas, clothing and such. All things we can cut back on if need be. We will have more disposable income to place in savings that we've had in 7 years!

Thanks for you help, everybody. You guys helped me ask the right questions, and I hope this thread can help someone else out down the road.

[justbroke]

We are very glad we could help. It's always nice to know what to expect when going in. Keeps you calm, has you pay attention to the detail, and in the end, it's an amiable informed decision!