Make too much for 7, not enough for 13

[DeeKC]

I went to the lawyer yesterday to file, (husband not filing) still have one more piece of info I need to provide so we will be doing it next week. Anyway, here is my situation:

My husband and I together make about $94,000/year. He is on private disability and I am in IT at a telecom company. The problem is that I took out a $40,000 loan from my 401k and after the payments come out of my paycheck, I only net about $840 every 2 weeks. Husbands monthly check is $2800. So together we net about $3700 a month. The lawyer did the means test and we make too much for a 7, but when we went over the schedule schedule J (expenditures) we come up negative. (hence why I was buying gas, groceries and medicine on credit!!) Hub and I both take several prescriptions a month totalling over $400. We are not extravagant people, biggest mistake was that I bought a nice car last year, but I am surrendering that in the BK and going to get something for about $300/month. Anyway, as we were going over the schedule J, the lawyer said we need to shave several hundred dollars off of it. I am thinking to myself, there is nothing inflated on this schedule and he wants me to say that we can live on less than what we have already shown that we can? I am assuming it has something to do with the trustee fee. For the month of October it is 6.5%, my question is what is that fee based on? 6.5% of what? Just curious if anyone can answer that? Also, did anyone else have their lawyer ask them to shave off dollars on the schedule J to make the numbers work? I am wondering how can I sign this petition knowing that we may be in jeopardy from the get-go? I'm not feeling like this is really going to be a fresh start, just another 5 years of worrying how I am going to pay the bills.

[HHM]

Without more info...something doesn't add-up.

If your expenses can be documented, and are otherwise reasonable, then even if you are above the median income, you can still file a chapter 7 if you have no disposable income.

Are you trying to save an asset.

I suspect the issue is probably the 401K loan repayment.

[WorkingItOut]

I was under the impression that you couldn't count the 401k loan repayment as an expense? I am not sure why I think that, but it seems like I read it somewhere here. Could be wrong though.

[AngelinaCat]

I suggest purchasing the online version of nolopress.com's C7 book and read through and see if your situation fits in. I suspect it probably will. The downloadable version for nolopress costs around $17.00 and is well worth the investment. There is a freebie always given. Take that too.

Good wishes to you~~~

[AngelinaCat]

And I wish to #$^@$* that you had NOT touched the 401k, but you did. We did too. BAD, BAD, BAD move. Retirement funds and the like are exempt. There are some posts around here that indicate that payments made INTO a 401k, either as repayment, or employer deductions are exempt. But I am not up to speed on all the variations. This is something you need to explore.

[DeeKC]

From what my lawyer explains is that you can count the 401k repayment in a ch 13 but not in a ch 7, so that is also why I am not eligible for a 7.
Yes, I know, if I had known what I know now when I took out the loan, I wouldn't have, but BK always seems to be the last resort, so we don't research it until it is too late to know!!
I will look into the nolo info, thanks.
Anyway can anyone explain the trustee fee and what it is based on? 6.5% of what??

[krielly]

The trustee fee is the percentage they get paid of your plan base.

Let's say, for example that your total plan payments over the life of the plan are $30,000 ($500/mo for 60 mos). The trustee will get 6.5 (in your case) of that, or $1950. The rest ($28,050) is divided up between your creditors.

Make sense?

[mmenz22779]

your lawyers is right, you cannot count the 401k payment in a 7, only manditory payments, i work for the goverment so they force me to have retirement taken out.

We make above the means test but my daycare is 2000 a month and i can prove it just look at my statments do that pushes us into a 7

Unless we get some income in then next 6 months we will do a 7 unless i can strip the 2 on my main home (a different topic)

Keep in mind in a 13 you can count the 401k loan payment and the contributions agaist disposible income.

that may save you from a big payment in the 13.

[kornellred]

I can confirm for a fact that 401K loan repayments are an expense in Chapter 13 filings and that money is not considered disposable income. Otherwise, I would be paying about $500 per month more into the plan than I actually am.

This has been discussed in other threads. It's one of those "happenstances" that works to the advantage of the debtor in a Chapter 13 case, and also to the disadvantage of creditors for obvious reasons. Those loan repayments are going back into the debtor's 401K plan.

[mmenz22779]

Yup those repayments and contributions will save me anouther 1700 a month if i have to do a 13

[TiredandWeary]

I'm not feeling like this is really going to be a fresh start, just another 5 years of worrying how I am going to pay the bills.

I hate to be the pessimist here, but your quote above is PRECISELY what our lives have been like since the moment we filed Ch. 13 back in July 2006! Nothing but scraping by and not making ends meet and trying to find ways to make them meet with no success time and time again...only to make myself feel more ashamed and more frustrated and more like a failure than ever before. And since there is absolutely no such thing as any more credit cards or credit lines allowed while in Ch. 13, the constant nail-biting emotional roller coaster from week to week trying to make it to the next payday is too much of a mental distress for us. It is my firm belief that Ch. 13 IS NOT A FRESH START IN ANY WAY, SHAPE, OR FORM!! How can it be when you are given no reprieve, they take your tax refunds every year and don't allow you to have any money left over each month to save for a rainy day...and we all KNOW that rainy days are always right around the corner!

[BnkrptcyLwyr]

Ok, it is not always true that you cannot deduct 401k loan repayments (and even 401k contributions) in the means test. They may be deductible as a "special circumstance". Of course, it's going to matter what bankruptcy judge you're in front of, but there is plenty of case law following a case-by-case "totality of the circumstances" approach to deducting 401k loan payments and 401k contributions.

I'm interested to know why you took out 40,000 from your 401k when you guys were making 94,000/year.

The other thing is ... if you need to shave off "a couple hundred dollars" in a 13, why not just forgo a car payment and buy a cheap used car outright (and please don't tell me you can't handle driving a beater - chapter 13 means scaling back so that you can get your financial life back in order - no more "nice cars" during this period).

Also, did your attorney look at adjusting your tax withholding so that you have very little in the way of tax refunds? This is one way to find money to fund your plan.

Did you consider surrendering your house too? Don't just react "no" ... I tell my clients all options are on the table ... and downscaling on the housing payment can be a huge money saver over the long term.

In short, there are a plethora of things that can be done, and you need an attorney who will look at all the options.

[BnkrptcyLwyr]

I hate to be the pessimist here, but your quote above is PRECISELY what our lives have been like since the moment we filed Ch. 13 back in July 2006! Nothing but scraping by and not making ends meet and trying to find ways to make them meet with no success time and time again...only to make myself feel more ashamed and more frustrated and more like a failure than ever before. And since there is absolutely no such thing as any more credit cards or credit lines allowed while in Ch. 13, the constant nail-biting emotional roller coaster from week to week trying to make it to the next payday is too much of a mental distress for us. It is my firm belief that Ch. 13 IS NOT A FRESH START IN ANY WAY, SHAPE, OR FORM!! How can it be when you are given no reprieve, they take your tax refunds every year and don't allow you to have any money left over each month to save for a rainy day...and we all KNOW that rainy days are always right around the corner!

Let me take your post here to say what I think is the biggest problem that debtors make with regard to Chapter 13 .... "I need to save my house!"

To me, if that is how you view Chapter 13, as the only means to save your house, then you are the type of client whose case will (unfortunately) end in failure.

In approaching bankruptcy, you should consider all options ... even the option that you should give up on trying to keep your house. Usually, clients just cannot let go of their house (and of course, it's easy to understand why - the whole American dream thing). But I tell my clients this ... I care more about you feeding your kids then keeping your nice house over their head. Nowadays, (at least here in Michigan) there are plenty of options with regard to housing - and for clients, the house is just gobbling up too much of their income. I encourage my clients to take advantage of the current market.

Trying to keep a house in a Chapter 13 (when you are really having trouble affording it in the first place) is a recipe for failure because you need a minimum plan payment to keep the house.

A debtor who can unload secured debt, rent housing and downsize, to me, is far more likely to ultimately succeed in a chapter 13 (as there are just more options later if you encounter problems).

[krielly]

Of course, it all depends on where you stand with your house.

We are very fortunate to NOT be upside down on our home, and it is definitely within our means. We were lucky enough to buy at the right time (2001).

In our case, we would not have been better off letting our house go. It's all dependant upon individual circumstances.

[john_smith]

My question is:
If you are in chapter 13, can you then get some cash back every time you shop?
This way you can save several hundred dollars per month cash for a rainy days.
Yes, it may mean that you will live with less food money, but I think there are still some creative ways to save in chapter 13. Hey, in a year you may save let's say 3K, and for the 5 year 15K, if you "save" cash 250 per month. Also, it will not show on your bank statement as cash, but as regular transaction in a store.