Chapter 13 & 5 yr. payment plan

[sheilaE]

Hi again,
I keep asking questions here and I thank you all who have answered. We still have yet to file 13, but it looks like it's getting closer as we received 2 letters from collection agency saying a judgment would be filed soon if we didn't pay up.

The atty that we retained stated at our initial meeting that our payment would be around $1300.00 for about $80,000.00 worth of debt. There is also a $60,000 2nd which we will be stripping. At that initial meeting we (husband & I) weren't prepared for the means test and gave the atty low figures going off what we were spending then because our credit card payments were eating up all our cash and we had nothing left for groceries & gas, so we were charging those items. Once I returned home I posted my shock at the payment amount here on this forum. We then found out that we could/and should be claiming more then what we he told us-which he didn't really tell us much, probably because it was a free initial 1hr meeting which was going on 2hrs.
So now when I do the calculations, I come up with a much smaller repayment amount-it's around $550.00, which is what our 2nd payment is now. Keeping in mind-this is after I deducted the following.

Mortgage
electric bill
water bill
groceries
gas
small amount for kids clothing x3
school supplies
school lunches x3
meds
Dr. co-pays
pet food/vet
phone
Cable/internet
Car registration x3 divided by 12.
Life insurance

My figures were not high-I tired to come as close as possible to the actual amounts.

Now to the question:
What happens if the payment amount is TOO low and they aren't happy with it? Can there be a too low or is any payment fine as long as there is a payment? I mean, it is what it is. We can't squeeze something from nothing. Will it get kicked out? will they say sorry you can't repay enough so you can't file?
Thanks for any advice,
Sheila

[SMinGA]

The payment can be 'too low' if:

a) you have nonexempt assets that you want to keep
b) you have priority debts

In either of those situations, you must be able to pay enough to create a feasible plan. Such as if you have $20,000 in nonexempt assets, you must pay enough to cover any priority debt PLUS trustee fees PLUS $20,000 to unsecured. Unsecured must get at least as much as your nonexempt assets. (Same rule for insider payments, such as if you repaid $5000 to your mom 3 months ago, at least that much needs to go to unsecured to keep the trustee from taking the $ back from your mom.)

If you have no requirement to pay $X to unsecured, then you just have to pay enough to cover priority debt, atty fees (if not paid in full in advance), and trustee fees.

The max trustee fee is 10% - if yours is at the max, then of $550/mo then $495/mo would go to creditors. Priority debt/atty fees are paid first, what remains goes to unsecured.

[mrslick]

it depends on your trustee as far as how much is too small. did you compare your expsnses with National Standard and what your state allows your family to have as expenses? Fro example national standard allows you to deduct $60/month for each person for out of pocket medical expenses. it also allows you to deduct house maintnance expenses whether or not you have them now. One adive i can give you is to get yourself or your husband a good car if your cars are old because car repairs can hurt you. i find out that the worse way, both of my cars are 2002 and just this year alone i've spent over $2k to fixed them. it's harder to get a car loan once you file for bankruptcy.

[sheilaE]

Hi SMinGa,
Can you give me an example of priority debts vs nonexempt debts? As you already know we recently purchased a used vehicle. We're making payments of $388.00 towards a 2006 chevy. The other 2 cars are paid off. We have 3 drivers in the family and use all 3 vehicles.

Another thing, 2 months ago I used some of our tax return and deposited $1000.00 into my daughters savings so she could pay for her Jr College classes. (we don't qualify for financial aid) She paid for the classes and is getting ready to purchase her books. When I spoke to the atty about the T/R he said spend it. Do not let it sit in our account. He also said don't take a cruise or buy a big screen TV.

We're located in California. Everyone has said that CA is a good place to file, so hopefully that will work in our favor.

[sheilaE]

Thanks Mrslick,
Yes, we did the car thing as well, but now I'm hoping it doesn't come back to bite us in the butt. It's taking $388.00 that could have gone into our payment. But we needed a reliable car-last year we paid over $1700.00 in auto repairs. Never had the cash to pay for it, so we had to charge the repairs.
I didn't add in house repairs or car repairs either because it looks like we are already over. The $60.00 per person for medical would be another $250.00 per month that the trustee is going to want to take.
Sheila

[SMinGA]

If the car loan is paid within the plan, it will be priority debt. If that is the case, instead of paying $388 car payment and $550 plan, you'd pay $938 plan where the car gets paid off in full. (Assuming you were counting the $388 to arrive at $550 dmi.)

Non exempt assets would be: lets say you have a car worth $10,000 but can only exempt $6,000. Your unsecured creditors would need to get at least $4,000.

Priority debts would be things like taxes, secured debts that are being paid thru the plan, mortgage arrears.

I understand where you're coming from - you want to have a feasible plan (to satisfy the BK trustee) but also make sure you can live with that plan payment for 5 years.

[sheilaE]

Exactly SMinGA so what happens if the payment is not enough for them? What if that's all we can come up with after everything? Does it get denied and if so, then what do people do? I'm just trying to prepare myself for the worse.

[SMinGA]

I don't remember - do you have assets that will be not covered by exemptions? I'm guessing no since CA is more generous than many states. And I know you don't have tax debt, since you've mentioned your refund going to a down payment on the newer vehicle.

I'm guessing the only priority debt will be your vehicle loan (if its paid in the plan) and any atty fees if your atty was not paid in full in advance.

Meaning for you, the end result is submit a reasonable schedule J, and your plan should go well. I think its not uncommon for trustees to haggle a little, and if I were you I'd make sure there was something in to account for medical (occasional copays, over the counter medicines, etc.) and maintenance. Don't worry about how much you're proposing to pay back to unsecured - you may be cutting valid expenses to falsely boost your DMI.

Exactly SMinGA so what happens if the payment is not enough for them? What if that's all we can come up with after everything? Does it get denied and if so, then what do people do? I'm just trying to prepare myself for the worse.

[sheilaE]

I'm just afraid that if I put something in for medical and such, that it will definitely lower the amount they will get, and then the whole thing might get dismissed I still don't know what happens in that case.

Also, I just read on a BK question & answer site that payback amounts are normally 10% of the dollar amount-so if the amount is $1000.00 then one would pay$100.00 of that back over 5 years, so a few dollars per month. We have $80,00.00 debt, so would the payback at 10% be $8000.00 over 5 years + trustee fees? Or is this outdated information?
Thanks!

[NoTomatoCan]

Also, I just read on a BK question & answer site that payback amounts are normally 10% of the dollar amount-so if the amount is $1000.00 then one would pay$100.00 of that back over 5 years, so a few dollars per month. We have $80,00.00 debt, so would the payback at 10% be $8000.00 over 5 years + trustee fees? Or is this outdated information?
Thanks!

The % you see quoted on some site have no relation to your actual plan (see the wonderful sticky "Payback % - It does not matter)

Your plan will be your available DMI. As SMinGA pointed out, you simply need to cover your priority/secured debts. If your expenses are legitimate and you are covering your priority/secured debts, then you will be fine.

It sounds as though you are concerned that if you put in a number too high for a particular expense or are not paying back a certain % then your case will just get dismissed. It doesn't work like that. Your attorney will know the minimum you need to properly fund your plan before it goes to the trustee. If the trustee disagrees with anything they will either work with your attorney directly or file an objection (perfectly normal). It is a back and forth process. You will not just get your case dismissed.

[momofthree]

If they feel the payment is too low, then they'll object, they won't dismiss.

A few things missing from your budget that I feel are necessary if you're going to survive 5 years in a ch.13: home maintenance, car maintenance, and car insurance.

At this point, just work on putting together a budget that is accurate enough to get you thru the next 5 years. Let the trustee object if they want to, THEN you can tweek it and figure out where to cut back. But there is also a good chance that they won't object as long as the budget is reasonable, and the expenses that I listed above are necessary living expenses--especially car insurance. One of the few questions at our 341 was whether our vehicles were insured...

We are only paying our car payment in our plan and the trustee didn't object. Our payment is only $98 above our car payment.

[SMinGA]

There is no such thing as a 'normal' payback %.

Your plan must commit all of your DMI during the plan, and it must be feasible. The feasibility relates to making sure you pay enough into your plan to cover priority debts, trustee fees, and also enough to unsecured IF there is a matter of non-exempt assets, preferential payments. (And in the event of non-exempt assets, you could always choose to surrender them...) The trustee can file to dismiss due to lack of feasibility also if your schedule of expenses is ludicrously low. 1-2 months ago, there was someone who posted about that experience. His plan left something like $200-300 for utilities/groceries/transportation after paying mortgage & plan payment. I think he was trying to save his house but truly could not afford it...

To appropriately commit your DMI, you need to accurately account for your DMI. If you say you have no maintenance or medical expenses to inflate your DMI, you run the risk of having your ch. 13 ultimately dismissed when you start falling behind on your plan payment because you're spending more $ than your schedule J indicated. HEre and there you could have a lean grocery month, or skip buying needed clothes, but can you cut expenses below what you actually need to spend every month for 5 years?

[sheilaE]

Thanks, great advice everyone! I guess I'll just have to wait until the actual time is here before knowing for sure what the payment is going to be. You can bet I'll be posting about the experience here.
Thanks again!