Just about over the edge on this.

[SteveM]

Just the basics:

2900.00 – 1st
700.00 – 2nd
1400.00 Med Ins
1800.00 House Expenses (Gas, Elect, Food, Clothes, College Expenses)
900.00 Cars + Insurance + Fuel
2100.00 Credit Cards (About 60K in debts)
200.00 Misc Loans (Overdraft Protection)

This totals 10K in monthly bills

My Income = 10,120.00, leaving us with 120.00 for emergencies (tires, dentist, etc)

The house is now worth 280K, we owe 430K (3 years ago it was appraised at 780K)

We have been holding on like this for the last three years, hoping that the housing market would recover at least enough for us to get out even, but now it’s clear that’s not going to happen anytime soon.

My job is killing me (I mean literally) because in order to make the salary I am, I have to work 11 hours minimum a day 5 days a week plus 5 hours on Saturday (and some Sundays). We live 1-1/2 hours commute time (each way) from my job, so all I do is work+sleep.

I’m tired of this.
I know it’s all my fault, but I don’t have a time-machine so I’m out of ideas and running out of years.

I’m over 50 now, with zero in savings and, due to the type of job I have, I’m looking at the end of my working life in less than the next 10 years.

What I’m considering is to either “Just Walk Away” from the house and move into a rental, then file for bankruptcy.
-or-
Some people are telling me that I should just stay in my house and stop making the payments to see if there is anything the bank can do, is this legal (I know it’s not morally right, but we are getting desperate), and how would this effect the bankruptcy?

The company I work for is offering me a reduced hours job with less pressure and about 1/3 less money.


My questions:

Could there be a big issue with the court if I take the reduced salary job then file?

We have two daughters that really want to go to college; will the courts leave us enough to help them go?
(Right now they are attending a Jr. College, but they want/need/deserve better.)

What will happen if after 2 or 3 years I get a pay raise?

I read here about people getting sued for filing, is this a real possibility for us?

[jmac]

Just learning myself but if you walk away probabaly wont pass the means test and be able to do a BK...No reason to keep a house that upside down if you can't make the payment...whats the point besides a little tax break.

[SteveM]

@jmac, Thanks, I'll read up on that.
I don't know what a means test is, but I will learn now.


One more question.

Our local bank (small home-town bank) has been very good to us and we are thinking that we can pay off the overdraft protection loan (about 3k) before we file.
If we don’t pay the mortgage for one month, this would be no problem.

Are we likely to get into trouble if we do this before we file?

I read that you can’t take any new debt just before you file, but what about paying off just one loan like this?

[sheilaE]

I'm interested in the College question as well because we have a daughter attending Jr. College now, but next fall (2011) she'll most likely transfer to our local University. Thank goodness it's in town and she can still live at home, but I hate the thought of her taking out student loans to pay 100% of it when we could help some (if it were allowed). We're thinking that's what she's going to have to do.
In two more years we'll have another entering College. I wish we had filed when our kids were younger

[NoTomatoCan]

To quickly answer the question about paying for (adult) children's college expenses...

No. This generally would not be an allowed. I know this is difficult to hear, but it is not a "Necessary Expense".

You can help them out if you are able to pad other areas of your budget, but a CH13 is difficult, and you are going to have to be very careful with all of your expenditures.

[momofthree]

Few thoughts...

don't pay the overdraft protection off. If you pay any creditor more than $600 then the trustee takes it back from said creditor and distribute it equally among all your creditors. You'd be throwing money down the drain.

Stop paying the credit cards & overdraft protection. If you're going to file bk, then it's a waste of money. Stop paying the 2nd mortgage too. Whether you keep the house or not, they won't foreclose or they'd lose more money. Save that $3000 a month. Start your retirement fund--which is exempt in bk, save cash for an attorney, and take care of all the stuff you've been neglecting as you struggled to make cc payments.

If you file chapter 13, then you can strip your 2nd mortgage and would only be left with your first. Would the house be worth keeping in that scenario? If so, keep paying the first.

No, you will not be allowed to pay for any college expenses for your kids unless you are in a 100% payback plan (meaning you pay all your creditors everything that you owe them). Are you children living at home with you still?

Cut your hours and wait at least 6 months to file so that your 6-month lookback reflects the lower income. You really don't even have to explain anything about having a lower paying job--they won't ask...

If you get a pay raise, they may want to raise your plan payment, then again, they may not care. In our district, my attorney basically said they only want to hear about lottery winnings and inheritance, any extra money, they don't care. We don't even have to submit taxes each year.

[SteveM]

To the question Do the Kids still live at home?

[Pandora]

I believe you also need to look at what your state allowances are for a family of 4 - and if you can even include your daughters given their ages ( I think you may be able to for the 18 year old if she was in school, the 21 year old might be questionable however given her age, but dont quote me). Alot areas are "capped" when it comes to monthly allowances like food, utilities, cars, etc, unless you can prove that things must be as high as they are. Like for us, our medical (not our health insurance) but actual medical expenses total approximately $350 a month for medications, drs visits, etc. We had to provide proof of our expenses to the trustee to be allowed that allowance; had to get all claims from insurance from co-pays for drs. visits to RX medications for the entire year. It all added up just as we stated it did, so we were allowed that allocation.

We also have a college aged daughter and we are not allowed to include her in our monthly allowances because she is able to work and provide for herself. Trustee did not allow for college at all, as someone else stated, its not a "necessary expense" to the courts and after the age of 18, they're considered adults in the courts eyes, so they cannot be counted as a dependent (or thats what we were told).

I thought the trustee could take any payments that were considered "preferential" within a 12 month period? I know ours looked back 12 months, not just the standard 6.

[woeisme]

On the part about the trustee taking back the payoff to the local bank, how far back do they look?

If I pay it off next month then wait 6 months (while my new salary ages), will they still go after it?
I know it sounds strange, but this is a small town bank and we live in a small town.
They really were the only ones trying to help us stay afloat.

I believe they look at any amount over $600 paid to a creditor within 90 days of filing. Our minimum payments on some of our cards were over this amount so we had to let them go into 90+ days overdue before filing. I believe the 1 year look-back is for payment to an "insider" like a family member or friend. For creditors it is 90 days, so yes, if you pay them off then wait 6 months you should be fine. I don't think you should let your emotions about a banking institution trump doing what may be best for your family, which could be putting that $ to use somewhere else as you pre-plan your ch 13, but that's a separate issue. keep asking questions! the more you know the better prepared you will be to successfully navigate these troubling time.

[StartingOver08]

Steve, you and I have very similar situations. I had two daughters in college at the time I filed. It is a time to sit down with your daughters and explain the financial facts of life. My eldest has since graduated and she had to finish the last two years using student loans and grants. (Fortunately her student loans are less than $14k total).

For my youngest daughter she is working and going to school as we do not want to have student loan debt and saddle them with large debt just coming out of school. Both of my daughters appreciate the education. Both the financial education and the formal college education. BTW it didn't hurt my daughters in the least to be responsible for the cost of their own education. My eldest graduated Magna Cum Laude from U of A and now works for IBM. My youngest is still exploring her opportunities. Turn this event into something that will benefit the entire family, especially your grown adult/children.

Stay in your house as long as you can without paying. Check with your attorney to see if you can still claim the mortgage payment even if you aren't making it. If you can not, then you will have to use the rental allowance for your area.

If you want to pay the bank then do so, as you are the only one that knows the ramifications of a small town and the relative power of the local bank. Just put at least the 90 days between the payment and the filing date as woeisme points out.

Get your Schedules I and J put together so you know if you can file the Ch 7 or Ch 13. There are lots of posts on expenses for these schedules. Filling out the petition correctly is one of the most important aspects of filing. That, and timing. Most of the issues here have come from people not understanding the budget aspect of these schedules or not understanding that the timing in a BK is critical. Your income will be based on the 6 month look back period. If you are currently not able to show your DMI to be less than $105/month, then make sure you have enough months in the new job to reflect a lower DMI (to stay out of a Ch 13).

In the meantime, sock away cash either in a retirement account that you can access after BK or as much cash as your exemptions will permit. Check your exemptions here:

https://www.legalconsumer.com

[flyinbroke]

I can tell you that the CCs and the Misc loans will be bumped out in BK, freeing up 2300 a month. College expenses will not be figured into a means test, from what I understand (I had student loans that are not figured in) which frees up more.

Could there be a big issue with the court if I take the reduced salary job then file?

They look at the last six months. A lot of people here saw reduction in pay. Just make sure you work the reduced rate for six months before filing, if at all possible.
We have two daughters that really want to go to college; will the courts leave us enough to help them go?
(Right now they are attending a Jr. College, but they want/need/deserve better.)

From what I understand, no, the courts will not leave enough to help them. They will be on their own. I can't vouch for this but I know my S/Ls are NOT figured into the means test though they are not dischargeable.

What will happen if after 2 or 3 years I get a pay raise?

Depends on your trustee, how much the raise is, and other things. If big enough, then the trustee can demand it.

I read here about people getting sued for filing, is this a real possibility for us?

Don't think so...most lawsuits from creditors are killed by the BK.

[Universal]

SteveM - I know none of these answers are what you want to hear. This Chapter 13 is going to be rough and your household is going to have to make a lot of adjustments. You will probably have many eye openers as to what is a 'necessary expense' and what is not. Remember, you will no longer be in control of your finances. The control will be handed over to someone else. Take all the information you get here, and map out your plan. Take it one step at a time. Some steps are a little harder to swallow than others. You will survive but the 'do it all, get it all, pay for it all' days are over. Keep us up to date with your status. You will have accomplished more than you ever imagined by the time you get deep into your 13.

[NoTomatoCan]

I agree 100% with what others are saying about the payment to the local bank being a business decision, but also keep in mind that the 90 day look back for payments made to creditors only matters in the sense that the Trustee has the ability to reclaim that payment and redistribute it based on your payback % to the other creditors. So it really becomes something between the trustee and the other creditors. Not something you can get in trouble for, just something for your trustee to deal with. That being said, $3k would go a long way for other, necessary expenses as you prepare for BK...

Also, no, you can not get sued for filing BK. Not sure where you read that, but as Flyinbroke pointed out, BK is a tool to actually prevent creditor lawsuits.

[SteveM]

Thanks for all the replies, as is well known, misery loves company.

I'm a bit confused by reading the Schedule J form.
What do the mean by Recreation, Clubs and Entertainment?
We haven't had money for anything like that for years.
Is this something they would actually allow us to have money for, or is this just a field they immediately exclude?

Also, how does paying for this work.
Speaking to a relative that filed about 15 years ago, they wrote a monthly check to a trustee, but now it sounds like the money goes straight to the trustee and they give us an allowance?

We have already come the the conclusion that if we proceed, our over sized pets (two older horses) will have to be put down because they are non-essential, but if we keep the house, what about the swimming pool?

If costs about $100.00 a month to maintain with the electricity for the pumps, chemicals, repairs and such.
Our other option is to pay someone about $1500.00 to fill in the hole.


Lastly, on the expenses, it sounds like they will expect us to kick the kids out of the house and let then fend for themselves. If we really thought they could do this, we would do it for their own good.

Unfortunately, despite their age they are not prepared to live on their own.
They are not what the medical profession would consider to be developmentally challenged, but they are in reality about 3 or 4 years behind where they should be for their age.

This last part makes me think that I'm going to have to continue to struggle a few more years and keep going the same as before at least until they "grow up" a bit more. As their parents, we are morally obligated to protect them until we know they can fend for themselves.

[momofthree]

Thanks for all the replies, as is well known, misery loves company.

I'm a bit confused by reading the Schedule J form.
What do the mean by Recreation, Clubs and Entertainment?
We haven't had money for anything like that for years.
Is this something they would actually allow us to have money for, or is this just a field they immediately exclude?

Also, how does paying for this work.
Speaking to a relative that filed about 15 years ago, they wrote a monthly check to a trustee, but now it sounds like the money goes straight to the trustee and they give us an allowance?

We have already come the the conclusion that if we proceed, our over sized pets (two older horses) will have to be put down because they are non-essential, but if we keep the house, what about the swimming pool?

If costs about $100.00 a month to maintain with the electricity for the pumps, chemicals, repairs and such.
Our other option is to pay someone about $1500.00 to fill in the hole.


Lastly, on the expenses, it sounds like they will expect us to kick the kids out of the house and let then fend for themselves. If we really thought they could do this, we would do it for their own good.

Unfortunately, despite their age they are not prepared to live on their own.
They are not what the medical profession would consider to be developmentally challenged, but they are in reality about 3 or 4 years behind where they should be for their age.

This last part makes me think that I'm going to have to continue to struggle a few more years and keep going the same as before at least until they "grow up" a bit more. As their parents, we are morally obligated to protect them until we know they can fend for themselves.

At this point, you should be consulting attorneys. Guidelines and standards tend to vary from district to district across the country. Just because something is true for one person doesn't mean that it would apply to you and your circumstances. Meet with 3-4 attorneys and take with you a list of your expenses, income, & assets, and see what they have to say about your situation. Don't make any decisions until you have spoken to several bk experts.....

As far as your new questions....

You will not have to kick anyone out. You should be able to count them as a "household member" for the means test and monthly expenses. That said, you will not be allowed to pay for their college any longer.

The pool expenses will simply go under the "home maintenance" expense if you're planning to keep the house.

As far as your trustee payments go: you either send in a certified cashier's check each month, or they automatically withdraw the payment from your paycheck each month. You may be given the choice, or your trustee may require garnishment, it varies by district. Rest assured, you do not have to mail your entire paycheck to the trustee each month and then live off of the allowance that he sends back to you.