We still have a choice; should we do it?

[contemplate]

Hi all. I am thankful to have found this thread. Would you mind giving me your opinion? We just met w/ a lawyer to examine our options. We have a combined income that is too high for ch 7. We are contemplating a ch 13 but might be able to survive w/out filing - so we have a choice (at this point.) We owe 200,000 on house (morgatge plus heloc.) The market where we are is terrible so it would be highly unlikely that we could get close to that if we sold! In fact our recent appraisel was 30,000 less than the one done a few years ago- soley because of the housing market! We owe about 120, 000 in cc debt and 40,000 in student loans. We are not behind in a single payment but living check to check. Additionally, there is a fairly good chance that I will be job hunting sometime in the next year (as my current one may be eliminated -nothing to do w/ my performance.) We are a family of 4 and bring home a combined income of around 100,000. Our BK lawyer said we are good candidates to file 13. Yet, obviously he is biased. (Can anyone else relate to these #s?) Could you share your opinion please? Thanks sooo much in advance!

[lrprn]

We have a combined income that is too high for ch 7.

Given that your combined income is around $100K, then yes, it is likely that a 13 will be your best option. However, depending on your secured debt load, ongoing expenses, and living costs, until an experienced bk lawyer completes the Means Test and Schedules to see how much disposable income you have, you really won't know for certain that you can't file Ch 7.

We owe 200,000 on house (morgatge plus heloc.) The market where we are is terrible so it would be highly unlikely that we could get close to that if we sold! In fact our recent appraisel was 30,000 less than the one done a few years ago- soley because of the housing market!

So what do you think your house is actually worth now in today's market? (Don't use Zillow - it's not reliable - and don't use your county appraiser's estimate for property taxes either - these are often inflated.) Have you checked to see what comparable houses in your neighborhood have actually sold for in the last 3-6 months? That will give you a pretty accurate idea of where you stand on the house.

We owe about 120, 000 in cc debt and 40,000 in student loans.

You can file Ch 13 to reorganize and wipe out the cc debt over the life of your plan - that's easy. However, even though student loans are unsecured, they cannot be discharged in bankruptcy. They will be placed in deferment during bankruptcy so you won't have to make payments while you in a 13, but you will still have to pay the $40K back in full (plus interest) when the bankruptcy is over.

We are not behind in a single payment but living check to check.

You are just one unexpected major cost away from falling off the financial cliff. I think you know this, or you wouldn't be here exploring your options.

Understand that until you are months in arrears paying your cc's, they won't negotiate with you, period. The hidden catch to the debt management approach is that any original amount owed that the cc's agree to forgive, the IRS considers income to you and will tax you for it. Ouch! This is why most of us end up filing Ch 13 because the alternative is just not acceptable.

All creditors are compelled by the bk court to agree to a Ch 13 - they have no choice. If you or a debt management company negotiates with each cc directly, the cc's do not have to make a deal - they can refuse, and many do. This is another reason why Ch 13 is preferable to debt negotiation.

Our BK lawyer said we are good candidates to file 13. Yet, obviously he is biased.

Why do you say the lawyer is biased? Everything you've shared so far points toward Ch 13 being your best option overall. It's not biased if the lawyer is just telling you the truth.

You've talked with one lawyer so far - that's a great start. Now set up appointments for free initial consultations with at least 2-3 more experienced bk lawyers who file 13s frequently.

If you are going to file a 13, you need to retain a really excellent lawyer to come up with a liveable plan for the next five years and protect your interests for the duration. This is not a time to automatically go with the lowest bidder, and also keep in mind that the most expensive lawyer isn't necessarily the best one for you either.

One more thing - *DO NOT* take any money out of your retirement accounts to pay bills before you file. Retirement money is completely protected when you file bankruptcy - the court and trustees can't touch it.

Do your research thoroughly, really understand how Ch 13s work, and keep reading the forum threads here to know where the potential problem areas in your own financial situation might be. Take a hard look to see if you can pay off the cc's and any other unsecured debt you owe in full within five years. If you can't, then it's far more likely that Ch 13 is going to be the right answer to deal with your debt. If you decide that Ch 13 is the right way to go, then interview, interview, interview until you find the right lawyer for you. Good luck! Keep asking questions here - we'll help you sort things out as best we can.

[andy158]

$120k in cc debt should be a no brainer. It would take you at least 2 lifetimes to repay them at the exhorbitant interest rates now charged. We were living paycheck to paycheck and just barely holding our own with very little being paid to principle on the cc's. I can now breathe a sigh of relief and plan for a better future knowing my $100k in cc debt will be gone in 4.5 years. I will never put mysellf at the mercy of these banks again. After bk you can concentrate paying off the student loans with the money you were paying on the cc's.

[contemplate]

Thank you so much for your responses! 1.To answer some of your questions: The lawyer (after putting our numbers into his computer) told us we make too much for a 7 according to the means test in our area. 2.Our house was just appraised at 170 (ouch) when we refinanced recently. 3.Um, about the biased question: I just assumed bankruptcy lawyers are pro-bankruptcy because that is how they make their living.

Regarding the student loans, I knew they were non dischargable (we don't qualify for hardship with those) but I did not realize that none of our plan money would go to student loans. So you are saying I would still owe 40,000 on those after the 5 years? I cannot tell you how much I appreciate your responses. I cannot stop thinking about this decision. We have known for a long time that things were bad. Yet, this year we finally stopped using our c.cards. So that gave us hope that we could beat this debt w/ out bankruptcy. Yet, my job is insecure and I don't know how long it would take us to pay all the cc's off. DH thinks if we put every penny twords them, maybe 8-10 years but I am not sure where he is getting his estimate. This is such a scary decision! Five years is a relatively long time considering, I don't know what they will give us to live on. Thanks again for all advice and opinions!

[NoTomatoCan]

Contemplate - I think the student loan situation varies by district.

In the Eastern District of Michigan the trustees treat student loans as any other unsecured debt - except for that whole being able to discharge them thing... In other words, that $40k would get lumped in with the $120k of unsecured CCs and they would get a % of what you pay back. That may or may not cover the interest that accrues, but at least it is something.

Others have posted that their trustees have allowed them to include student loans as an expense and can pay them outside of the BK.

The majority, as lrprn states, simply put them into forbearance and you don't pay on them at all.

Also, they go into forbearance not deferment, if the BK (financial hardship) is longer than 3 years. That only impacts if you have a borrower benefit like an interest rate reduction for on time payments. The borrower benefits survive a deferment, but not a forbearance.

Your mileage may vary, but it might be good to get some input from your attorney on this (and other attorneys in the area if you haven't done any comparison shopping yet).

[Scott50]

I highly recommend pulling the trigger on a CH13.. Visit a few more attorney's and find one that you feel comfortable with. Payment #23 out of #60 has been received by the trustee and I'm starting to see a debt free life (except for my student loans) at the end of tunnel. I had to make lifestyles changes when I first started but I'm able to contribute to my 401K; put money away in the bank...

[Scott50]

my unsecured (inlcuding my student loans) are getting roughly 45%- so at the end of the five years I won't be taking a big hit with interest accumulating...

[Flamingo]

Time to face a bit of reality here. Facing a big debt load is like facing a loaded gun once you have it all spread out on the table in front of you and realized exactly what happened, and you can't run and hide anymore. It's an awful sinking feeling and dealing with it seems enormous and everyone wants instant gratification when it comes to filing - Chapter 7 is way quicker than a Chapter 13 but you have to meet certain standards/requirements to file a chapter 7 and if the attorney you consulted is a decent BK attoroney with a good track record, you will not be able to file a chapter 7. Facing the music is hard.

Note everyone's house has dropped in value whether or not one is in a position to file BK. It's whether or not you can make the payments and want to keep the house. No one has a crystal ball as to what your job circumstances will be over the coming years so you have to take the time to weigh out your personal situation at the present. I certainly believe Chapter 13, while seeming daunting to you, would benefit you more than if you did not file and contiued racking up interest charges on your outstanding debt while struggling to pay it off.

Visit a few more attorneys for a consultation. You will probably find they will also recommend Chapter 13 but it will give you a larger perspective on the entire situation.

Best of luck to you...