New Development

[ConfusedinOC]

I've been reading and posting the last couple months and have a new development. My wife had to resign her job this week due to high amount of strees and hostile work environment. Luckily her being a registered nurse she was able to get a job today. She will be working 3 days a week and can work some more at her disretiion. Her monthly salary will go from $7800 per month to $4100 per month. My salary is $7220 per month.

I filled our the means test on the legal consumer web site with the following:

Mortage: 3900 (Principal, Interest, Tax, Insurance) Currently paying 3300 but will go up to 3900 in March '11 to include Principal. Its a pick a payment monthly adjustable loan

Vehicle 1 : 810 (Monthly Payment, Insurance, Registration)
Vehicle 2 : 500 (Monthly Payment, Insurance, Registration) Currently Leasing Car at 870 payment which ends March '10 and will buy car for the lower payment

Child Care: 560 (Grandma takes care of son and we pay her by check)

Charitable Contribution: 400 (No reciepts available due to cash donations but have been claiming the deduction the last few years)

Federal Tax: 200 (Expect to owe 12000 for this year divided by 60 months)

By inputing the values above along with expected tax deductions my DMI Line 50 is -705. If I wait the six months and file BK will there be problems getting confirmed? Will the trustee want my wife to work 5 days instead of 3?

As far as property. We do have jet skis under both my wife and my name valued at 10000. My wife has a vehicle under her name valued at 15000 (it is paid for) but her mom has been using it and insuring for 3.5 years. Actaully we owed mother in law 20000 back in 2006 so we gave her the car but never changed title. Any tips on what we should do with this property?

[lrprn]

Wow - lots of issues here. Where to start? Let's go through one by one....

Her monthly salary will go from $7800 per month to $4100 per month. My salary is $7220 per month.

You mentioned kids - how many adults and kids are living in the house with you? What state do you live in?

Given your gross salaries even with your wife's reduction is $11,320/month = $135,840 - unless you have some very unusual circumstances you haven't shared, it's very likely going to be Ch 13 for you.

Mortage: 3900 (Principal, Interest, Tax, Insurance) Currently paying 3300 but will go up to 3900 in March '11 to include Principal. Its a pick a payment monthly adjustable loan

That's a very high mortgage. Is this the norm for your neighborhood?

Also, if you have a 'pick-a-payment monthly adjustable loan', how are you going to accommodate a constantly changing mortgage payment for five years?

Vehicle 1 : 810 (Monthly Payment, Insurance, Registration)
Vehicle 2 : 500 (Monthly Payment, Insurance, Registration) Currently Leasing Car at 870 payment which ends March '10 and will buy car for the lower payment

What's the actual car payment for each car? Insurance and other car-related costs like registration and property taxes (if your state has those) are split out separately on the forms.

Your car payments (even after the lease ends) are high. Are these typical for your neighborhood/city? Did you roll previous car loans over into these car loans?

Child Care: 560 (Grandma takes care of son and we pay her by check)

This should be ok. It's actually quite reasonable for sitting 3-4 days/week.

Charitable Contribution: 400 (No reciepts available due to cash donations but have been claiming the deduction the last few years)

Are you saying you've contributed $400/month to charity? Unless this is church tithing, if this gets challenged by your trustee and you have no receipts, it's going to be very difficult to defend continuing this as a part of your plan. In fact, unless it is church tithing, most trustees are going to object to this amount. Did you list these contributions on your annual IRS forms the last few years?

Federal Tax: 200 (Expect to owe 12000 for this year divided by 60 months)

All federal, social security, etc taxes are included in your gross income - Line 2 on the B22C forms. Line 30 asks for Other Necessary Expenses: Taxes - federal, state, and local taxes go there, not just federal.

Are you saying you are going to owe $12K in federal taxes for this year that you aren't going to pay before you file?

By inputing the values above along with expected tax deductions my DMI Line 50 is -705.

Ummmm....Line 50 is for figuring your trustee's administrative expenses. What matters is Line 59 Monthly Disposable Income. What's showing on that line? And did you do the Schedules A-J? Schedule I minus Schedule J is another determination of Monthly Disposable Income in some courts.

There are a LOT of gray areas in Ch 13, so it's possible you've overlooked something or made an innocent error or two. However, assuming you've filled out the form correctly and have a negative monthly disposable income, then you can't support a Ch 13 plan and you can't file Ch 13. That throws you into Ch 7 - a whole different ballgame if you want to keep your house and cars you have now.

If I wait the six months and file BK will there be problems getting confirmed?

As I said, if you really do have a negative monthly disposable income, you can't support a Ch 13 plan and can't file Ch 13.

Will the trustee want my wife to work 5 days instead of 3?

Your trustee has no control over how much your wife works. She could stay home full-time and the court can't order her or you to do anything.

As far as property. We do have jet skis under both my wife and my name valued at 10000.

Do you have loans on the jet skis? If they are paid off, then no state bk exemptions can protect $20K in non-essential luxury items like jet skis - with so much equity and such easily sellable items for your trustee, you could lose both when you file.

My wife has a vehicle under her name valued at 15000 (it is paid for) but her mom has been using it and insuring for 3.5 years. Actaully we owed mother in law 20000 back in 2006 so we gave her the car but never changed title. Any tips on what we should do with this property?

Well, you've made a big mistake here that is going to haunt you. Since you didn't transfer the title to your MIL, legally your wife still owns the car. It doesn't matter to the court that your MIL drives it or that she insures it.

If you intend to file in the next year, then it's too late to remedy your mistake and transfer the title now. Unfortunately you will have three cars to include in your bankruptcy, and worst of all, this one is paid off. No state's bk exemptions are going to protect all three cars, especially one with $15K of equity.

Bottom line is there's no way you can protect this third car if you file 13 or 7 (and since we don't know what you actually owe vs what each of the other two cars is worth, they could be at risk too).

For your MIL's car, you'll either have to bargain with the trustee to 'buy' the $15K car back inside your bankruptcy by paying your trustee $15K before your case can be discharged, or give the car over to the trustee to sell and distribute the funds equally with your creditors. Either way, there's a world of sadness waiting for you here.

If you can share a little more about your financial situation (# of kids, state you live in, other secured assets you haven't mentioned yet, how much equity you have in your home, how much secured vs. unsecured debt you have, etc), we can help you sort things out better.

The next thing to do is to set up 3-4 free initial consultations with 3-4 experienced bk attorneys in your area. You want to talk with bk lawyers who frequently file Ch 13, because you want to retain one who really knows how to set up a liveable Ch 13 plan and is willing to push back against any objections your trustee or creditors might have. It's more an art than a science.

Hang in there.....you are here finding out what you need to know, and that's the best way to start on this painful journey.

[ConfusedinOC]

3 people in household (one child)
Live in Orange County CA
Mortgage is normal for area. If I can file CH7 then won't need to worry about changing mortgage amount.
Car 1: 710 a month, 60 Insurance, 40 Registration (Tax), Owe 41K worth 38K)
Car 2: Lease is 870 but wishing to return and buy car with 400-500 payment
Charitable contributions have been listed and deducted in Tax Forms for the past 2 years at least.
I will owe 12000 in Federal Tax when I file next year for this year and will not pay them at once. Will do an installment plan. Therefore will include as an expense
Actually Line 50 on the Legal Consumer Web Site Means Test is for DMI at -705. The administrative is line 45c at 541. There is no line 59.
J
et Skis are paid off. They are valued at 5000 each 10000 total. Can I sell the jet skis and use proceeds to pay BK lawyer and lower Federal Tax?

I know we totally blew it on not transferring title to MIL for car but wife had her reasons and we never actualy thought we would go BK. Live and learn I guess. Can we sell the car to MIL and transfer title now and use the proceeds to pay Federal tax and have left over cash that could be exempt?

Home loan is 620K value is 600K.

Thanks for your replies

[walkthaplank]

I would preface this by saying you really need to talk to a lawyer ASAP. If you sold the jet-skis and paid off your tax bill with the proceeds, you aren't going to get any grief. Then using California's exemption plan 2, you could exempt MIL's car since that is the only real asset left hanging out.

Trustees will probably really hassle you over the car payments, expect them to object to that payment amount and let you use the IRS amount of 489 for each. Of course if you end up in a 100% plan, none of this matters as 100% payback cures all.