Newbie to the board and to bankruptcy - preparing to file Chapter 13

[cspa522]

[SMinGA]

There is alot in your post, so I may not cover it all. But some basics...

Things like property taxes & insurance: include in your budget. Figure out what you normally pay each year, and divide by 12. List as an expense and each month you MUST set that aside so you can pay those bills when they come do. You can possibly include your current/next taxes/insurance bills in your plan depending on when they're due. (If so, they would get paid from your plan but you'd need to set aside $ monthly after that.)

Entertainment, gifts, etc.: yes but it must be reasonable. Its hard to say what each trustee will find reasonable, but that's something you can discuss as you're interviewing local attorneys.

Home maintenance (lawn care, pest control, preparing for things like furnace repairs) should also be a monthly expense.

Take care of what you need to right now for vehicle maintenance, etc. Then also be sure and account for routine maintenance in your expenses.

Some things vary widely by district - such as tax refunds & how they are handled. In general, though, if you normally receive a refund it means you're having too much withheld. You may need to adjust withholding to correct.

The 401k is something to discuss w/ your atty in advance. It might not be an issue to increase your deduction, depending on how much you contribute now. But discussing before you take action is probably best.

If your house is worth $170k and you owe $180k on the first, you should be able to strip the 2nd. Meaning you'll no longer have a 2nd mortgage payment, they'll get some $ from your plan disbursement. If you're certain to file, and you're certain your 1st is more than the value of your home, its probably safe to stop paying the 2nd mortgage payment. You can possibly even stop paying the 1st for now, allowing the arrears to be paid in the plan, and use the extra cash flow to catch up on things you may have been neglecting. Doctor visits, car & home maintenance, etc.

There is usually not a limit in a ch. 13 to what cash, etc. you can have on hand when you file. Each state has exemptions - amounts of assets you can protect. IN a 13, anything you cannot protect with exemptions can create a minimum amount you'll need to pay into your plan. Like if you have $50k equity in your home, and only a $40k exemption, you'd need to pay at least $10k into your plan not counting what goes to things like mortgage arrears.

[SMinGA]

General rule, I think, for budgeting in a 13: consider everything you must spend/buy/pay in a year. For things you don't do every month, divide by 12.

Most months you should have $ you did not spend. Save it for the months when you need to spend more. Things like the taxes & insurance, you know there will be a bill due at a certain point - so you need to be firm about setting that $ aside.

Other things are more variable. Like clothing, home maintenance, vehicle maintenance. We don't know exactly when we're going to make big expenditures so months when we don't spend $ on those things we should have extra. Set it aside for the months when we do need to spend in those areas.

This is all assuming you go in with a realistic budget. If you leave out things, you will quickly run into problems when things are needed and you can't afford to pay them.

[cspa522]

Thank you for responding. Do you ever have room in a Chapter 13 to save up anything? I'm not talking thousands, but I'd definitely like to have a $500 savings account for the unexpected.

[SMinGA]

Yes & no.

You cannot claim an expense like 'savings' but if you take the time to consider everything in your budget, or everything that should be in your budget, then you should be able to save a little here & there by cutting back in small ways from time to time.

And if you start with an extra $500 in a savings account, it should not have a negative impact on your case.

Thank you for responding. Do you ever have room in a Chapter 13 to save up anything? I'm not talking thousands, but I'd definitely like to have a $500 savings account for the unexpected.

[momofthree]

When you put together a thorough budget and are vigilant to stick to your budget, you will be able to save money every single month. The reason for this is that there are expenses built into your budget that are variable. You'll be allowed a home maintenance expense, a transportation expense, medical expenses, clothing, etc. Those are not expenses that will be used every month, so you should easily have several hundred dollars extra each month.

This is where you test yourself. For your plan to be successful, it is IMPERATIVE that you set this money aside for those purposes. It would be very very easy to tap into that money to eat out, splurge on a weekend away, or buy that pair of shoes or handbag that is calling your name. It's soooo easy to fall back into your routine of living beyond your means when you see that you have extra money each month. And if you're spending money that needs to be set aside for future use, then you are living beyond your means. The car will need new tires, property taxes will come due, your kid will need dental work & back to school clothes. Your plan will account for these items, but it is up to you to use your funds wisely and plan ahead.

I, personally, found the IRS standards to be extremely liberal. For example, as a family of 5, IRS standards would allow $1633 a month for food/clothing/personal care items, etc. Holy cow, we spend less than $500 a month on these things! That alone would free up over $1000 a month for rainy-day savings. When you also take into account medical, home maintenance, car maintenance, we could EASILY save $1500/mo, and when the expenses popped up, it would be no big deal. Now, unfortunately, we're well below median income and therefore didn't have the wiggle room in our budget to claim IRS standards. We had to claim our "actual" expenses, which are clearly much lower as you can see from the example I just used. Even so, on our very tight budget, we're still able to save several hundred dollars each month for those yearly expenses that we'll run into. We live much more comfortably than we ever did when we were trying to make all those debt payments....

[cspa522]

Thanks. One of the questions I have down to ask is how much outside of the budget we can have in our accounts. If our furnace goes out, I'm going to need something.

[cspa522]

When you put together a thorough budget and are vigilant to stick to your budget, you will be able to save money every single month. The reason for this is that there are expenses built into your budget that are variable. You'll be allowed a home maintenance expense, a transportation expense, medical expenses, clothing, etc. Those are not expenses that will be used every month, so you should easily have several hundred dollars extra each month.

This is where you test yourself. For your plan to be successful, it is IMPERATIVE that you set this money aside for those purposes. It would be very very easy to tap into that money to eat out, splurge on a weekend away, or buy that pair of shoes or handbag that is calling your name. It's soooo easy to fall back into your routine of living beyond your means when you see that you have extra money each month. And if you're spending money that needs to be set aside for future use, then you are living beyond your means. The car will need new tires, property taxes will come due, your kid will need dental work & back to school clothes. Your plan will account for these items, but it is up to you to use your funds wisely and plan ahead.

I, personally, found the IRS standards to be extremely liberal. For example, as a family of 5, IRS standards would allow $1633 a month for food/clothing/personal care items, etc. Holy cow, we spend less than $500 a month on these things! That alone would free up over $1000 a month for rainy-day savings. When you also take into account medical, home maintenance, car maintenance, we could EASILY save $1500/mo, and when the expenses popped up, it would be no big deal. Now, unfortunately, we're well below median income and therefore didn't have the wiggle room in our budget to claim IRS standards, we had to claim our "actual" expenses. Even so, on our very tight budget, we're still able to save several hundred dollars each month for those yearly expenses that we'll run into. We live much more comfortably than we ever did when we were trying to make all those debt payments....

WOW - thanks! That makes me feel SO much better. I have just been completely freaking out that we'd have $30 left over each month. I'm not asking about this so we can budget for a vacation or anything, but I have 2 kids. And a house. Things come up - unexpected school expenses, my car's engine blows up, the cat gets sick. And I'm not a fashion plate, but I do work and am expected to wear business casual clothing, which needs to be replaced now and then. (like once a year, maybe, do I "have" to get anything)

THANK YOU!

[momofthree]

Thanks. One of the questions I have down to ask is how much outside of the budget we can have in our accounts. If our furnace goes out, I'm going to need something.

Here is a list of Missouri bankruptcy exemptions:

http://www.thebankruptcysite.org/exemptions/missouri.html

They don't allow much cash on hand at the time of filing. BUT, like SM mentioned above, in a ch.13 that just sets a minimum that you have to pay into the plan. If you have $5000 in a bank account at the time of filing and can only exempt $1000 of it, then you just have to pay at least $4000 over 60 months in order to keep that money. Based on your statements here, I don't think that will be a problem for you.

Also, you can save as much as you want after you have filed. If you don't have the cash on hand when you file, you'll have to hope that your furnace doesn't go out right away, because it will take you several months to build up that emergency fund, but as long as you stick to your budget, cut back where you can, and save any extra money you have, then you'll have plenty of money in savings in a short amount of time. Well, as long as murphy leaves you alone for a little while.

Also, don't know how old your cars are, but one of the major rules of filing a ch.13 is that you need to have new cars that will get you thru 5 years without needing repair. The trustee will allow you 2 car payments of less than $496 each.

[cspa522]

They don't allow much cash on hand at the time of filing. BUT, like SM mentioned above, in a ch.13 that just sets a minimum that you have to pay into the plan. If you have $5000 in a bank account at the time of filing and can only exempt $1000 of it, then you just have to pay at least $4000 over 60 months in order to keep that money. Based on your statements here, I don't think that will be a problem for you.

Also, you can save as much as you want after you have filed. If you don't have the cash on hand when you file, you'll have to hope that your furnace doesn't go out right away, because it will take you several months to build up that emergency fund, but as long as you stick to your budget, cut back where you can, and save any extra money you have, then you'll have plenty of money in savings in a short amount of time. Well, as long as murphy leaves you alone for a little while.

Also, don't know how old your cars are, but one of the major rules of filing a ch.13 is that you need to have new cars that will get you thru 5 years without needing repair. The trustee will allow you 2 car payments of less than $496 each.

Okay. Maybe it's different in my state. The attorney I've spoken to told me that if were saving a thousand dollars a month than she hasn't done her job correctly and we're not paying out enough to our creditors/repayment plan. She also said we shouldn't have more than $1000 in our checking and $1000 in our savings when we file. Since we'll have stopped paying our bills, we're going to have more than that for sure.

Then again, we haven't had the official paperwork drawn up yet. We're still in the gathering mode, getting her our paystubs and list of creditors, etc.

However, here's another question - does the case get reviewed every quarter/year/something? If I have $5000 in savings, how will the trustee know?

I feel like a snot, but I just don't want to live the next 3-5 years scraping by. I've BEEN doing that and it's led me here. The oldest care we have is a 2002 Jeep Liberty, that I'm sincerely hoping makes it the next 3 years. But we shall see. It must be new enough because the lawyer didn't mention it was too old to qualify us. And when I asked what would we do if the car just died on us, she said we'd appeal to the courts to let me try to get a loan for a new, small vehicle to get us through (which is fine by me).

[usmccop]

Put the money in a shoebox or spend it. You may have to turn over bank records and you don't want to get caught lying or providing false info.

Okay. Maybe it's different in my state. The attorney I've spoken to told me that if were saving a thousand dollars a month than she hasn't done her job correctly and we're not paying out enough to our creditors/repayment plan. She also said we shouldn't have more than $1000 in our checking and $1000 in our savings when we file. Since we'll have stopped paying our bills, we're going to have more than that for sure.

Then again, we haven't had the official paperwork drawn up yet. We're still in the gathering mode, getting her our paystubs and list of creditors, etc.

However, here's another question - does the case get reviewed every quarter/year/something? If I have $5000 in savings, how will the trustee know?

I feel like a snot, but I just don't want to live the next 3-5 years scraping by. I've BEEN doing that and it's led me here. The oldest care we have is a 2002 Jeep Liberty, that I'm sincerely hoping makes it the next 3 years. But we shall see. It must be new enough because the lawyer didn't mention it was too old to qualify us. And when I asked what would we do if the car just died on us, she said we'd appeal to the courts to let me try to get a loan for a new, small vehicle to get us through (which is fine by me).

[momofthree]

Okay. Maybe it's different in my state. The attorney I've spoken to told me that if were saving a thousand dollars a month than she hasn't done her job correctly and we're not paying out enough to our creditors/repayment plan. She also said we shouldn't have more than $1000 in our checking and $1000 in our savings when we file. Since we'll have stopped paying our bills, we're going to have more than that for sure.

Then again, we haven't had the official paperwork drawn up yet. We're still in the gathering mode, getting her our paystubs and list of creditors, etc.

However, here's another question - does the case get reviewed every quarter/year/something? If I have $5000 in savings, how will the trustee know?

I feel like a snot, but I just don't want to live the next 3-5 years scraping by. I've BEEN doing that and it's led me here. The oldest care we have is a 2002 Jeep Liberty, that I'm sincerely hoping makes it the next 3 years. But we shall see. It must be new enough because the lawyer didn't mention it was too old to qualify us. And when I asked what would we do if the car just died on us, she said we'd appeal to the courts to let me try to get a loan for a new, small vehicle to get us through (which is fine by me).

I'd interview a few more attorneys. If the attorney is already saying that she hasn't done her job right if you have extra money each month, then it doesn't sound like she is the type who will fight for you and be 100% behind you and looking out for your well being.

But, also keep in mind that technically, on paper, it will not look like you're saving money each month. You're simply setting money aside monthly for yearly expenses that will occur at a later date.

Also, it's not a law or "official rule" that you have to have new cars to file ch.13. They'll let you file even if you only have a beater that barely runs. However, as a general rule, a ch.13 debtor needs to have reliable transportation and since the courts allow a payment, it's best to take advantage of that in order to decrease your chances of having major mechanical difficulties during your plan years.

[NoTomatoCan]

Okay. Maybe it's different in my state. The attorney I've spoken to told me that if were saving a thousand dollars a month than she hasn't done her job correctly and we're not paying out enough to our creditors/repayment plan.

I would say if you are able to save a thousand dollars a month than your attorney is doing an EXCELLENT job! The attorney is on your side, to ensure that you are able to keep as much as possible, within the construct of what is legally allowed. Unless you have mortgage arrears or other priority debt to repay, your attorney should not be concerned with "not paying enough" to your creditors.

I agree with other posts... might want to see what some other lawyers have to say before you commit to this one.

[needanswers]

How will we pay our personal property and property taxes in December (our property taxes are not included in our mortgage right now, nor is insurance)?

Our taxes aren't included in your mortgage payment, either. We have to set aside money from paychecks to pay this when it's due.

If we have an emergency, such as our furnace goes out, how do we pay for that?

The first thing you want to do is start building up your emergency fund. You wont have credit cards to fall back on for emergencies. Living without credit is tough, extremely tough! But it can be done!!!!!

How much money can we remove from our checking/savings prior to filing or during the filing process?

You should not go making large withdrawals right before you file or if you do, be ready to explain what you're using the money for. We made large withdrawals to pay the attorney.

Are we allowed an entertainment budget for a dinner out?

Seems like this varies by trustee. We claimed a small entertainment amount of $25-$30/person for a family of 5.

Are we allowed to budget in for birthdays and Christmas?

This would probably be tied into your entertainment budget.


What if we receive raises during the process?

Seems like 10% seems to be the magic number. If it increases more than 10%, from what I have read, it needs to be reported. Probably also varies by trustee.

Can I change the amount I give to my 401k before or after filing? I’d like to increase it.

You should ask your attorney about this. At my 341, I saw a couple get ripped apart for increasing their 401K at the time of filing. The Trustee was NOT happy.

I need to buy 2 new tires, can I do that before we file (with cash)?

Do everything you need to do to maintain your property/cars before you file. If you have quite a bit in your savings/checking because you're not paying the credit cards, stock up your pantry.

[needanswers]

Um, yeah, I was thinking the same thing myself! You want an attorney on your side, not the creditors.

I'd interview a few more attorneys. If the attorney is already saying that she hasn't done her job right if you have extra money each month, then it doesn't sound like she is the type who will fight for you and be 100% behind you and looking out for your well being.