chapter 13 under median income

[pittsburgh]

I'm a new poster, have not yet filed, but have been researching BK for a year. Credit card debt is approx $75,000. We have an atty who we are not comfortable with (he makes no suggestions, doesn't discuss options... seems more like a clerk handling the paperwork). We've already paid his $2300 fee and so are trying to stick it out with him. Our only choice seems to be a 13 because we own a rental home (husband is a carpenter so we purchased a large older home, spent a full year doing renovation. Lots of sweat equity and the mortgage and upkeep is covered by the rent. It's a great investment, always rents easily, but isn't an income stream yet. From what I read on this forum this asset must be affecting our 13 payments. We are looking at chapter 13 payments of $350/month for 5 years. We are a family of 6 with an income of $43,000. (Husband has 2 jobs, I have one, with 4 kids including a disabled child). The $350 is a difficult payment to commit to. I thought that under median income meant we would only have 3 years of payments... atty presented us with a 4 or 5 year payment plan; we couldn't afford the 4 year montly amount. The atty has added a $75/month fee for himself. Any thoughts? Thank you so much.

[forgotten]

income meant we would only have 3 years of payments... atty presented us with a 4 or 5 year payment plan; we couldn't afford the 4 year montly amount. The atty has added a $75/month fee for himself. Any thoughts? Thank you so much.

In a 13 you have to pay your creditors the amount of your non-exempt property. The same as they would have gotten in a chapter 7 liqudation.
So your total payments need to equal the value of the property over your exemption amount + attorney fees + trustee fees.

This is why you need 5 years of payments, as you can't afford to pay that amount back in 3 years. Plans can not run longer than 5 years so you can't stretch it out more than out.

[MSbklawyer]

I thought that under median income meant we would only have 3 years of payments...

Normally that is the case. But as Forgotten points out, under-median debtors are still subject to what is known as the liquidation test. In other words, in a hypothetical chapter 7, how much would your unsecured creditors get? They must get at least that much in a chapter 13.

I suspect you have some equity in your rental home that is non-exempt. Since your unsecured creditors would get this non-exempt equity in a chapter 7, they must get an equivalent amount in your 13.

But here's something to explore with your attorney: Can you take the equity out of your rental home by taking a second mortgage against it and then pay that money toward some exempt asset -- such as your home? You thereby convert a non-exempt asset (i.e. equity in a rental house) into an exempt asset (i.e. equity in your homestead). Whether that will fly or not will depend on laws and decisions of your local jurisdiction. But it is done fairly regularly here.

Of course you would then have payments on the second mortgage, but they would likely be less than what you would pay through the plan because you could spread it out over 10 years or so instead of just 5. Plus, you'd be paying it to yourself, so to speak, instead of unsecured creditors.

[Flamingo]

Normally that is the case. But as Forgotten points out, under-median debtors are still subject to what is known as the liquidation test. In other words, in a hypothetical chapter 7, how much would your unsecured creditors get? They must get at least that much in a chapter 13.

I suspect you have some equity in your rental home that is non-exempt. Since your unsecured creditors would get this non-exempt equity in a chapter 7, they must get an equivalent amount in your 13.

But here's something to explore with your attorney: Can you take the equity out of your rental home by taking a second mortgage against it and then pay that money toward some exempt asset -- such as your home? You thereby convert a non-exempt asset (i.e. equity in a rental house) into an exempt asset (i.e. equity in your homestead). Whether that will fly or not will depend on laws and decisions of your local jurisdiction. But it is done fairly regularly here.

Of course you would then have payments on the second mortgage, but they would likely be less than what you would pay through the plan because you could spread it out over 10 years or so instead of just 5. Plus, you'd be paying it to yourself, so to speak, instead of unsecured creditors.

MSBKLawyer offers you a good suggestion but with a family of 6, an annual income of $43,000 and a huge unsecured debtload, being able to obtain approval for a new home equity loan is probably nonexistent at this point. Since you've been investigating this already for a year or so, making any sort of financial move like that at this point would put you in a position of probably having waiting even longer to file.

Chapter 13 allows people to keep assets but unfortunately when people realize what's involved and realizing they probably may not be able to afford to actually keep an asset or house is difficuilt to handle. In your situation, it is difficult to let go of a possible future income generating source.

The $75 you mention that is included by your attorney per month may be the balance of whatever you owe him included in your plan and probably is all or part of the trustee's percentage fee of your Plan. Your Trustee is paid a certain percentage of the amount of your plan and that is included in your monthly payment. Question your attorney as to that amount if, as you state, you paid him in full ($2300).

[pittsburgh]

I appreciate the responses, and will (try to!) discuss some of this with our attorney. Very helpful, thanks to all.

[klandsb]

I am close to Pittsburgh and had my 341 there. Its a shame u paid all that money upfront to your attorney. I paid I believe $ 1200.00 an the rest is in the plan. The trustee fee is 3% which is considered on the lower end. Seeing how your attorney let you go ahead and pay him all that money I dont trust him to be looking out for your best interest.... Just my thoughts....

[pittsburgh]

cost for plan

I'm still trying to understand how the chapter 13 process in PA works.
**Were your monthly payments taken directly from your pay, along with your other expenses?
**I understand that the trustee will take over our car payment... do they pay the utilities as well? How much attorney fee did you pay each month?
** Did you keep your income tax refund each year?
** Any idea what would happen with an inheritance?

I'm nervous about this decision, though there doesn't seem to be much choice. I'm concerned that we won't be able to do any saving (say, for a furnace or roof repair), and that any money that comes in will just increase our debt. What has been your experience?

Thank you so much for your reply.