Large income large expenses - file?

[johninred]

I've been a lurker for a couple weeks. I have visited a local lawyer and have researched online for hours and hours. I went 60 days behind last summer and made current after a little bonus. I'm behind this summer again mostly because of child care goes crazy without school.

So bottom line I'm in a pickle here. I had a business failure and I stupidly lived off credit and equity lines for too long before finding a proper job. My job now is great except that it requires out of pocket expenses for client meals and meetings which is $700-1000 month (well it's key to keeping the success and current pay)

I have the following incoming monthly now:

Me - 8100 gross 6500 net
Wife - 4500 gross 3000 net

401k ~ 11% for each

Total net 9500

I have the following outgoing big expenses monthly:

Business Meals = 800
mortgage = 3250
equity line = 500
CC 1 = 115
CC 2 = 166
CC 3 = 385
Car 1 = 250
Car 2 = 450
Fuel = 550
Child care = 2000
Food = 500
Insurance = 200 (Cars)
Utility = 250 (Ele+Gas)
Cable = 150 (Internet + Cable)
Cell = 300 (I cover my parents and my mother in law)

Here are the outstanding balances of major items

mortgage $498k
equity line $107k
CC Total $26.5k
Car 1 $6k (worth $6)
Car 2 $14k (worth $10k)

So it's a weird situation (in terms of 'by the book'). Bankruptcy Means test says we are far above the $84k yearly income yet the expenses are right at our net income. Between the 1st and 2nd we have $610k in our house but it's likely worth $350 on the real market. Less in foreclosure. We are in an interest only plan at 5.75% now.

I've struggled to find much online for how far a person can stretch the limits of the 'disposable income' or what this situation means for us filing as a 13 and having it converted to 7. The lawyer I visited seemed to hate 13's and frankly downplayed the chapter 7 mean test rules until 1 hour into the conversation. He himself was actually in Chapter 7 as his cash supposedly went into real estate rentals.
==================================

Here are some links I've tried online specifically around the disposable income and trying to figure out how I could possibly calculate or even know the government guidelines:

http://www.google.com/search?q=bankruptcy+disposable+income+calculator

My next considerations.

• Find another lawyer and talk more about Chapter 13 vs 7
• Continue to work with Wells Fargo on a reduced principle but that has been not working out
• Consider short sale again (tried without success previously)
• Foreclosure without bankruptcy (they can take a judgement for at least the secondary.... maybe even the primary...
• others?????

I'm really looking for advice on other considerations or resources I should consider. Thankfully our jobs are safe and we are successful in work so that part is stable.

We have an attachment to the area, not the house and there are a ton of rental houses in the area that would meet our needs.

I greatly appreciate anyone's thoughts and assistance.

[momofthree]

How many kids do you have? Is that $2000/mo for child care just for summer time or is that year around?

A few thoughts, from adding up the expenses you have listed here (not including the credit cards or 2nd mortgage which would be stripped), they total $8000, leaving approx $1500 left over for a plan payment each month. That would total $90k paid in to a ch.13. However, there are a few expenses that the trustee will probably question: business meals, child care, cable & cell phones.

That said, there are also other areas that you can "pad" to make the budget look more acceptable. Depending on your family size--I'll just assume family of 4 as that is average. IRS standards for food/clothing/personal care, etc is $1371 a month. Healthcare is $240/mo ($60 per person) and doesn't include insurance--just out-of-pocket expenses. And you're usually also allowed a small recreation expense as well as home maintenance.

Do you normally break even at tax time? If you normally receive a refund, they will also make you change your withholdings to increase your net pay each month, meaning more money to pay into your ch.13.

If you haven't already, you may want to fill out the means test and see where you end up on it. Based on your income & expenses, you *might* end up in a 100% payback plan, BUT it would be interest-free so you'd still end up ahead in the long run.....Plus, if you do end up in a 100% payback, they tend to be more lenient as to your monthly expenditures.

[NoTomatoCan]

Seems like you are already thinking about this (since you mention a short sale and other properties available for rent in the area) but you need to let the house go.

Even with stripping the 2nd lien, you are looking at still being underwater almost $150k. Plus, being in an interest only loan, you aren't even making any dent in it!

The flip side of that is I am sure renting a home would be less than the $3250 a month you are paying for your mortgages, so that means more to your CH13 payment if you can't find other legit expenses to offset some of it.

[johninred]

@momofthree - thanks for the quick help and thoughts. I have 2 beautiful daughters.

To answer your questions:
Day Care:
The day care cost @$2000/month is easily documented.
Summer is higher @ $2250 while winter is $1750.
It is ~ $285/week and $225/week for my 2 and 8 year old respectively. In the school year it's reduced to $285/week and $115/week which covers before and after school care due to the distance I drive and work hours.
Tax Time
I normally break exactly even. I withhold very little but my sinking business had some loss forward on the taxes for the next couple years reducing my taxable income by quite a bit.

Question: what exactly gets paid back in the 100% plan? Just the unsecured? I can't imagine I would be able to pay back the $300k I'd have between the sale price of my house and what I owe.

[johninred]

The flip side of that is I am sure renting a home would be less than the $3250 a month you are paying for your mortgages, so that means more to your CH13 payment if you can't find other legit expenses to offset some of it.

Likely we would rent something in the same school district. That would mean ~ $2500-3000/month. We could get away with less by doing a town home but I'm not sure it's worth it just to pay it back into the 13 fund.

Thanks for the quick assistance. I can see this forum is quite helpful.

Is there a place to find recommended bankruptcy attorneys? I really didn't like the first guy I met.

[momofthree]

When I mentioned 100% payback, I was referring to the 2nd mortgage + credit card debt. If rents run the same as your mortgage it's a toss up as to whether you should stay or go. In an interest-only loan, you're pretty much renting, but with the expenses of owning....

[johninred]

With my second at 107 and cc at 26. At 100% payback my monthly payment would be $2200. Do you think it would really be that high?

Can the primary (same lender as secondary...Wells Fargo) come after me as well considering I'd be 150+ in the hole to them?

[momofthree]

With my second at 107 and cc at 26. At 100% payback my monthly payment would be $2200. Do you think it would really be that high?

Can the primary (same lender as secondary...Wells Fargo) come after me as well considering I'd be 150+ in the hole to them?

From the above budget you posted, you have $1500 left over each month, all the trustee would have to object to is your business meals or 401k contributions and *poof* you're paying back 100%.

Although...using IRS guidelines, you could be looking at:

$3250 mortgage
$400 utilities/cable
$300 cell phone (they may question this)
$2000 child care
$1372 IRS standards food/clothing/personal care
$550 fuel
$200 car insurance
$240 medical out-of-pocket
$100 home maintenance
$100 recreation
$400 business meals (count on them questioning this, but depending on your defense, they may allow it)
=$8912

((as you see, you can kind of "hide" your business meals in the allowable expenses, but try to list some too, worst they can do is say no))

discretionary income: $600-ish.

Since you're also contributing around $1400 to 401k each month, that brings you to right around $2200/mo. However, they may still let you continue contributing, but probably not 11%.

Was the 1st mortgage used to purchase the home (haven't refinanced or taken cash-out)? What state are you in?

The reason I ask is because if you are in a non-recourse state, then the bank cannot hold a deficiency balance against you if the loan was used to purchase the home.

[johninred]

Was the 1st mortgage used to purchase the home (haven't refinanced or taken cash-out)? What state are you in?

The reason I ask is because if you are in a non-recourse state, then the bank cannot hold a deficiency balance against you if the loan was used to purchase the home.

It was a bad situation to start where I nearly didn't get the house due to lack of selling the old one so the loan officer asked me to have a family member sign a "rental agreement" on my old house to still qualify me. I sold the old house fairly quickly after that but greasy.

The mortgage is still the primary that was used to purchase the house with Wells Fargo. The secondary is also with Wells and was taken out immediately to cover yard/moving and other expenses. Obviously expanded since moving in due to my own irresponsibility.

I'm in Minnesota where I believe we have recourse... or I believe we have recourse at the very least on the second.

Any idea if the situation with the loan officer having me have a family member sign a rental agreement could play into it? Obviously I went along with it at the risk of not getting my new house...Young and stupid.

[momofthree]

You are correct, Minnesota is a recourse state, so if you walk away from the property they can hold you liable for the deficiency. That is a non-issue if you stay in the home though....

[starr4law]

I wouldn't go so far to say that you wouldn't qualify for a Ch 7. You would be surprised as to how many "over median income" people actually do qualify for Ch 7s - especially those with large house pmts and two car pmts.

You are in MN, and have no equity in your home so you would use Federal Exemptions, which is good.

The Trustees in MN ARE more anal than other districts about your means test expenses and although I don't think you would have a problem with the daycare, the business meals you could probably kiss goodbye.

I would find a lawyer who is very experienced in Ch 13's and can work your means test numbers to the fullest benefit. They do exist, although are a little tougher to find (in MN, the atty fees are capped for Ch 13s so many lawyers do not want to do them anymore).

If you walk away from your home, the first mortgage lender will likely waive the deficiency, but the second mortgage will almost certainly pursue a deficiency.

Keep looking for a good attorney. Also, in MN, not as many lawyers offer free consultations (well, the good ones don't) so be prepared to pay something for a one hour meeting. However, they usually put that toward your final fee if you hire them.

Good luck!

[johninred]

I wouldn't go so far to say that you wouldn't qualify for a Ch 7. You would be surprised as to how many "over median income" people actually do qualify for Ch 7s - especially those with large house pmts and two car pmts.

How exactly does someone go about taking a chapter 13 and converting it to a chapter 7?

I would find a lawyer who is very experienced in Ch 13's and can work your means test numbers to the fullest benefit. They do exist, although are a little tougher to find (in MN, the atty fees are capped for Ch 13s so many lawyers do not want to do them anymore).

What is the atty fee cap?

If you walk away from your home, the first mortgage lender will likely waive the deficiency, but the second mortgage will almost certainly pursue a deficiency.

Why would you say the first would likely waive a deficiency? It would likely be more than the secondary in terms of dollar amounts.

Finally, I know I signed it but my mortgage consultant made my mother in law sign a rental notice on our old house in order for us to "afford" the new house. Stupid looking back but does this play into any suggestions you may have?

BTW< thank you for your assistance. It's wonderful to have someone experienced like you helping us!

[iv65536]

The county in Minnesota with the largest housing allowance for a family of 4 is Carver County ($1,626/mo), and the others that allow over $1,000 per month are in a swath that runs through the Twin Cities area, stretching from St. Cloud to Rochester.

They may question your housing since there are attempts at a short sale and the fact that the mortgage itself is twice the highest allowable livable expense of any county in the state.