Looking to Convert 13 to 7

[BuckeyeGuy13]

I am currently in a Chapter 13 (filed 3/24/09) where my payment to the trustee is $1056/mo, including a $392 lease payment. We are a family of 2 with a child due in the fall. I am 99% sure that I'm going to be taking another position with my company that will result in a pay reduction ($100K to $70K) in the next month or so. In addition to my income, my wife is employed and earns $48K per year. So, we are well over the median for Ohio.

When our child arrives, my wife will be going back to work and our estimates so far for daycare are approximately $250 per week. By my calculations, this will put us at a negative DMI using today's schedules and will definitely be negative if I move to the new position with a lower salary.

We surrendered a home in our filing and are currently paying $1800/month rent which is higher than the IRS guidelines for our area by $700 or so. However, trying to find a suitable place to live for what they consider the guidelines is nearly impossible, at best.

OK, my questions. Can I file to convert the 13 to a 7? If so, do I use the entire amount of rent as my housing expense -OR- since it's rent, am I forced to use the government guidelines? What about for other items? Do I use what is on my schedules or do I use IRS limits?

In my mind, it seems like an easy conversion. But, I'm sure it's not...

If I cannot convert, then what are my options?

Thoughts? Thanks!!


PS - I do have an attorney and I have reached out to them for their thoughts. However, they're on vacation and my mind is curious now.

[momofthree]

Even for a family of 3, since you have no mortgage payment and an income of around $118k per year, I think you're going to have a hard time converting to a ch.7. They're probably going to limit you to IRS standards (albeit for a family of 3).

I'm surprised your payment is so low. Were they using the housing payment from the house you surrendered when they calculated your current payment? It seems like a family of 2 earning nearly $150k a year with no mortgage would have to pay way more than $1000 a month!

[BuckeyeGuy13]

Well, when you take away for the 401(k) loan repayment, two vehicles that total nearly $900, and expenses for a non-filing spouse, you get a low payment amount.

And, no, the house that was surrendered was not factored in to the monthly payback.

[justbroke]

OK, my questions. Can I file to convert the 13 to a 7? If so, do I use the entire amount of rent as my housing expense -OR- since it's rent, am I forced to use the government guidelines? What about for other items? Do I use what is on my schedules or do I use IRS limits?

You would need to use the Trustee's Limits (based on the IRS guidelines). Some Trustees will let you go over if the rents are actually higher in your area. Mine were higher and they didn't question the additional $800/month that I was paying. Your mileage will vary based on your District and Trustee.

On Form B22A (the Means Test), you use the IRS guidelines. On Schedule J (Expenses), use the IRS guidelines or your actual, whichever is more. However, be prepared to defend the amounts! You will probably be put through an exhaustive UST review anyhow, so don't fudge the numbers.

If I cannot convert, then what are my options?

As for the conversion, you must have qualified for Chapter 7 at the time you filed the Chapter 13. In other words, your DMI should have already been less than $182.50/month upon filing the Chapter 13.

I don't see it given what you just wrote. At over $100K/year and only a family of 2 (even if 3), you are over the median income in every State. Generally speaking, there is no debtor that can receive a Chapter 7 discharge if they are over the median unless, they have a good-sized mortgage that they are keeping, or they are a non-consumer filer.

Some of the issues that the UST will certainly challenge is rent that exceeds the IRS guidelines by $700. That alone will probably push you into positive DMI territory. Second, if you're indicating that there is a 401(k) loan repayment, that won't be an allowed expense in a Chapter 7... although it can be used in a hypothetical Chapter 13 to rebut a presumption of abuse.

I make over $150K a year with a family of 4 and the only reason that I was able to convert, is because my two homes were purchased as investment before I sold my primary residence. The two homes accounted for over 50% of my total debt so I am considered a non-consumer filer.

[BuckeyeGuy13]

Thanks for responding, JB. Much appreciated. It sounds like that plan is shot... I'm definitely not a non-consumer filer.

So, it sounds like my only option at this point is to modify the plan to account for a) any reduction of income if my position is reduced and/or b) additional expenses for daycare. Correct?

[justbroke]

So, it sounds like my only option at this point is to modify the plan to account for a) any reduction of income if my position is reduced and/or b) additional expenses for daycare. Correct?

At this point, yes. You may want to wait for the income reduction and the new child, and then file a Motion to Modify Confirmed Plan. So long as your plan is still feasible, you should be able to modify the plan.