It's time.

[NYHusband]

First, I'd like to say thank you to all the contributors of this forum. It really is a wealth of knowledge.

I have a few specific questions to my situation that I hope somebody can help out with. First, the details...

Married couple filing Chapter 13 jointly.
We can afford 110% payback over 60 months.
Annual combined income: $150,000

Unsecured Debt: $100,000
First Mortgage: $150,000
HELOC: $50,000
Home Value: $160k-$170k (no stripping here!)

Car 1: New last year, 4 years left at 0%, no problems
Car 2: Older, close to 100k miles, getting expensive to maintain, still owe

Boat: We're 4 years into a 12 year loan. About $28,000 left on loan, actual boat value more like $14,000

Student Loans: About $40k left between us

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First off, would there be any objections from the court with these figures? We're playing the debt juggle game to keep everything current, and it keeps getting worse. As of right now we are 100% on time for every payment in our credit histories. Minimum payments on just unsecured debt are 50% of our take home income, and ends are no longer meeting (let alone getting anywhere paying it off).

Second, everything I've read says to secure reliable transportation now. We're planning to replace the 2nd car (we're in a rural area and must have two cars, work in different directions). This leads to question 3.

Third, we have zero savings. In fact, we have a $7,000 hardship loan on a 401k and just used our property tax savings account to stay current. In order to eat a little negative equity on the car we need to trade in, we'll need to save a few thousand (currently impossible). Should we just default on credit cards to save money for the down payment? Should we file, then buy the car, so creditors cannot come after us?

Fourth, the boat. I would love NOTHING more than to sell it. However, I don't have $14k to put on top of the loan so we stand a chance to sell it at its current value. Do we let is get repo'd? Now or after filing? Is there something about stripping the unsecured portion? Do we pay that in a 13?

Thank you all SO much in advance for any answers you can provide. I'm scheduling us for a credit counseling session with CSSS, then I have to hunt for a good lawyer.

[catleg]

You may want to get a new car on financing before you default on the credit cards. Although from a practical standpoint, it will take at least 30 days maybe more to hurt your credit score (with high utilization it's probably awful already).

You might also consider getting your 401k loans payments and contributions as high as possible before you file ch13. That probably means defaulting on the credit cards.

Check your taxes? Will you owe for this year? Might want to wait until early 2011 to file so you can pay that from your plan. Taxes go to the top of the list to get repaid ahead of all unsecured creditors.

If you're thinking of defaulting on the cards you might want to be careful about not running up too much in late fees and interest if you think you might be paying 100% back.

It would help to have a break down of all monthly expenses.

[NYHusband]

We'll owe income tax this year. Generally our bill is about $2000 (even with writeoffs and additional withholding). Huge potential issue is my wife is interviewing for a new job, and if she gets it that $7k 401k loan becomes a disbursement, and we'll owe probably half of it in tax and penalty.

Property taxes are $3300/year. We have $1350 of that due in October, and $0 saved for it now.

I will work on a full list of expenses for you to look at.

[NYHusband]

All items are per month:

Mortgage: $1000
HELOC: $200 minimum (interest only)
Property Taxes: $275
Heating Oil: $160 (level pay)
Electric: $125
Internet: $50
Cell: $165
Garbage Pickup: $37
Insurance (home/cars/boat): $280
Car 1: $350
Car 2: $275 (likely going up with newer car)
Student Loan 1: $106
Student Loan 2: $180
Boat $425

Total so far: $3628

Minimum payment of all credit cards for August 2010: $2680

Total now: $6308

We have dogs, total food and annual maintenance is about $100 a month average.

Home maintenance - $300 a month average? I have no idea what is allowable. We have spent on average $4000 to $5000 per year on repairs. New boiler, fixing sinking driveway, next year will be a new septic, etc.

Gas for the cars has to be $140 a month. Plus maintenance throughout the year, up that to $200 a month.

Now we're at $6908. We haven't touched food or any other misc. expenditures yet. We take home about $7600/month after taxes, but generally get about a $2000 income tax bill so realistically it's $7400/month. That's $500 a month for food and misc household needs for two people. You can see how we're at the point of debt slowly climbing, no savings, and literally no ability to pay above minimums.

[catleg]

Do you know when the balloon payment on the HELOC comes due? If you file inside of 60 months when it's due you can include it in your means test.

[NYHusband]

Not for another 15 years for the HELOC.

[SMinGA]

All items are per month:

Mortgage: $1000
HELOC: $200 minimum (interest only)
Property Taxes: $275
Heating Oil: $160 (level pay)
Electric: $125
Internet: $50
Cell: $165
Garbage Pickup: $37
Insurance (home/cars/boat): $280
Car 1: $350
Car 2: $275 (likely going up with newer car)
Student Loan 1: $106 Does not count in sched J
Student Loan 2: $180 Does not count in sched J
Boat $425 Does not count in sched J if you're letting it go - not sure if you would be able to keep it



Minimum payment of all credit cards for August 2010: $2680 Does not count in sched J

Total now: $6308

We have dogs, total food and annual maintenance is about $100 a month average.

Home maintenance - $300 a month average? I have no idea what is allowable. We have spent on average $4000 to $5000 per year on repairs. New boiler, fixing sinking driveway, next year will be a new septic, etc. If this is reasonable for you, and you have documentation - then you want an attorney who will fight for you. But with proposing a large payback, it might not even be argued

Gas for the cars has to be $140 a month. Plus maintenance throughout the year, up that to $200 a month.

1st step: adjust tax withholding, you want withholding in 2011 to be right so that you do NOT owe a tax bill April 15, 2012. Find out what new/accurate net pay is. Come up with a livable yet reasonable budget that includes groceries, auto & other insurances that you pay direct, $50-75/mo for entertainment, clothing, reasonable telecommunications expenses, personal care items & needs, etc.

Filing after the income taxes, property taxes, etc. are due allows you some breathing room as those things can be paid in the plan. But you'll have to start setting money aside each month for the next property tax bill.

End result (my guess) is you could probably do a plan payment somewhere in the $500-1000 range. No where near a 100% payback, but more than enough to cover taxes and leave plenty for creditors.

The student loans, during the plan, will get paid a % based on the same rate other unsecured creditors get. The only difference is you'll have to resume regular payments to them once your plan concludes.

[NYHusband]

I'm downloading the Best Case software trial, as I've read it has a good means calculator.

Really, my assessment of 100% payoff came from $100,000 in unsecured over 60 months is under $1900/month. That's already a big savings. If the court feels that we cannot do it, then I guess it would be less than 100%

I really want to pay back all of our debts. We're both young (30ish) and just got in way over our heads with easy credit a few years ago.

[catleg]

I think based on SMinGA's analysis that it makes sense for you to stop paying on those credit cards and to start shopping for a new car. Find out what the vehicle ownership allowance is in your district. Get a car that uses up that allowance over the full 60 month period of the plan.

Use the cash saved to do the septic repairs and any other major repairs your home needs, appliances, furniture you need, etc. The ch13 plans tend to be stingy on home maintenance (when I filed the housing non-mortgage monthly IRS allowance for NJ was 633 a month, in some months that just covers utilities for my house).

If you have a 401k that provides a company match you should try to make the contributions to capture that.

[LadyInTheRed]

Really, my assessment of 100% payoff came from $100,000 in unsecured over 60 months is under $1900/month. That's already a big savings. If the court feels that we cannot do it, then I guess it would be less than 100% .

You don't leave it up to the court. You need to work with your attorney to come up with a reasonable budget that you can live with for 5 years. You propose the plan and the trustee has a chance to object. If the trustee or a creditor does not object or you modify to satisfy objections, the court will approve the plan. Unless you can't reach an agreement with the trust, the court doesn't decide what you can and can't do.

I really want to pay back all of our debts. We're both young (30ish) and just got in way over our heads with easy credit a few years ago.

You really should get past the "want to pay back all of our debts" attitude. There is no shame in discharging part or all of your debts. The banks made a business decision to lend to you and continue to lend to you until you were in this position. You are making a business decision to file bankruptcy. Use the laws to get the best deal you can. The banks could probably get more from you if they worked with you over the next 5 years to avoid bankruptcy. But they won't do that, even though they have already made a profit from you. Why should you worry about paying them if you need to file?

If you are certain you are going to file, you could stop paying credit cards, the boat and the older car in order to come up with a down payment for a new car. I stopped paying cc's and bought a new car before payments were 30 days late and got great financing. But talk to a couple of attorneys first about whether you can do a cram down on either of those loans.

[SMinGA]

But can you afford a plan payment of $1900? Keep in mind - if you REALLY want to pay it all in full, $1900 won't do it. More like $2260. That's adding $5000 for IRS & property taxes, $3000 for atty fees. And the trustee gets a % of all you pay in - up to 10%. (Some areas are lower, but must plan for the max if you don't know your district's rate.)

With a plan payment of $2260, and net income of $7400 - and the expenses you did list below I come up with $1623 remaining for all else. Groceries, life insurance, clothing, personal needs, etc. The important thing is to figure out if that is doable, and doable for 5 years.

Wanting to pay your debts is admirable. But filing bankruptcy is a time to assess your finances and make sure you can actually complete the plan you start. If you do not adjust your withholding, you'll owe taxes in later years. If you don't allow yourself reasonable room to pay future property taxes, home maintenance, etc. - you'll be short when the time comes for those things. And if you don't allow yourself enough money for reasonable expenses (groceries, gas, clothing, etc.) you'll ultimately find yourself unable to take care of your needs AND make the plan payment.

That is why most plans fail. They don't start with a realistic budget. Did you even notice that you put so little priority on your own needs, that you listed yourself at the bottom of the expenses in a sort of way that says you get taken care of last if money remains? Having money for food and other necessary living expenses is not the sort of thing that should happen only if money remains in that particular month. Things will fall apart in much less than 5 years if you continue with that thinking process.

[catleg]

If you really want to push it for all it's worth, I'd consider stopping payment on both mortgages and divert that money to paying off student loans. Then the mortgage arrears are paid from inside the plan (effectively "stealing" the money from unsecured creditors).

This is obviously a strategy for advanced players with nerves of steel only.

[NYHusband]

Wow, thank you for all the advice. Our #1 concern is keeping our home. It's a small house, and certainly nothing luxurious (only 1200sq/ft, built in the 40's). It makes me nervous playing with the mortgage like that although I see the logic. I suppose an initial consultation with an attorney is in order so we can make plans before filing.

With the boat, what happens if we keep paying the loan on time and enter bankruptcy? I'd much rather see it go, and wish I could just sell it now. Perhaps we should just stop paying and let it get taken. Can they initiate a lawsuit, as the boat is worth only 50% of the loan value?

[catleg]

You have a choice. The US Trustee policy is permissive towards secured debt on "toys", so you might keep it if it was valuable to you. In other words, if you're in a situation where the choice is the boat or making a greater plan payment to unsecured creditors, you might consider keeping it (though then you have the costs of upkeep and usage.)

More likely you indicate that you want to surrender it in your filing.

The lender needs to file a motion for relief from the automatic stay to repo it.

However, you may find that they don't bother doing that cause it's not worth enough to them...it all depends on a case by case basis. You might end up begging them to come take it.

[NYHusband]

What's the deal with deficiency? I know that if we weren't filing for bankruptcy, and we stopped paying, they'd likely take the boat then sue us for at least a 50% deficiency in value.

If we stop paying today, and file in 8 weeks, do you think there's even enough time for them to do that? Does filing stop any lawsuit on deficiency? Does that deficiency get included in our repayment?