Chapter 13 questions

[JMB109]

My wife and I are filing under Chapter 13 because are income is too high for Chapter 7. We have a Mortgage of approx. $150,000.00, paying $1200 a month for 30 years, 2 vehicles that we approximately owe $20,000.00 each for, payments each $400.00 monthly, and credit debt of approximately 30,000.00 to 40,000.00. So total approx. debt is around $230,000.00. My question is: Do we have to pay the whole amout of 230,000.00 over the course of 5 years during the bankruptcy?

[momofthree]

No. You'll continue to pay your mortgage at it's current payment & term. The autos should be paid off by the end of the plan, and the amount your unsecured creditors receive is based on your disposable monthly income after allowable expenses. If you have non-exempt assets that you're keeping, that also plays into the equation.

[JMB109]

momofthree, Thank you for the quick reply, My wife and I are worried about filing, we lived paycheck to paycheck prior to my layoff, but we still got by. Now, that I'm on unemployment I don't bring in as much as I used to and we've been struggling. This is all new to us and this Forum has been great for answering questions. Another question: I'm assuming that you are 7 months into BK, are you able to save money? Our other worry is that we only have a $1000.00 in our savings and would hope to be able to save money for any major issues that would crop up.

[despritfreya]

momofthree, Thank you for the quick reply, My wife and I are worried about filing, we lived paycheck to paycheck prior to my layoff, but we still got by. Now, that I'm on unemployment I don't bring in as much as I used to and we've been struggling. This is all new to us and this Forum has been great for answering questions. Another question: I'm assuming that you are 7 months into BK, are you able to save money? Our other worry is that we only have a $1000.00 in our savings and would hope to be able to save money for any major issues that would crop up.

Theoretically you are not allowed to save in a Chapter 13. All of your disposable income is devoted to paying your creditors. If, during the course of the 13, you incur some unexpected but necessary expenses, such as a major home or auto repair, or even medical bills not covered by insurance, you can apply for a "waiver" of Plan payments. However, those missed payments need to be made up which is usually accomplished by slightly increasing your Plan payments when you resume them.

Des.

[JMB109]

Des,

since saving is not allowed does that mean the $1000.00 we do have saved will be forfeited in the Chapter 13?

Thanks

[despritfreya]

Des,

since saving is not allowed does that mean the $1000.00 we do have saved will be forfeited in the Chapter 13?

Thanks

It depends. If you can find an exemption that covers $$$ you are holding on the filing date then no problem. If there is no exemption you do not have to turn over the $$$. All you have to do is make sure your unsecured creditors are receiving the equivalent amount over the life of the Plan. You must pay the unsecured creditors at least what they would have received if you had filed a Chapter 7. If the $1K is the only non-exempt asset you have then the unsecured creditors should receive very close to that amount over the 5 years. However, if your budget says you can afford to pay them more than the value of the non-exempt asset(s) then you will pay them more.

Des.

[momofthree]

Saving is not only possible during a ch.13 (yes, I'm 7 months in and have saved a couple thousand dollars on a very tight budget), but saving is a necessity when in a ch.13. And they DO allow you to claim expenses that you don't incur monthly. For example, you are allowed $60/mo per person as a medical expense. As a family of 5, that is $300/mo. If you have kids, you know that you don't usually spend that kind of money each month, but then one month, the shit hits the fan and you have to buy glasses, fill a cavity, and everyone gets sick at the same time and has to go to the dr. so it is IMPERATIVE that you SAVE that $300 a month for that crazy month that WILL surely come.

Same with car & home maintenance. You are allowed to claim maintenance expenses to cover home repairs & car maintenance. Your car WILL need new tires/brakes and regular tuneups. Your tags will come due. An appliance will die or your A/C will need to be serviced. You HAVE To save that budgeted money monthly for when you need it. It would be VERY easy to continue living beyond your means because you are allowed all of these monthly expense allowances and you won't need them each month. You need to come to the realization that if you're not saving money for these expenses every.single.month, then you are still living beyond your means. You should EASILY have an extra $500-$1000 each month to save for these types of annual expenses.

Thank heavens we've saved, because we're having to put new tires on our car to the tune of around $500. If we hadn't saved, we literally would have no where to turn to find that money.

Also, you can live a frugal lifestyle and cut back on things like groceries, clothing, etc. Just because you're allowed to spend $61/person on clothing each month doesn't mean that you have to. I buy my kids clothes on ebay (they're still young so there's a large selection on ebay, teenagers are much more difficult). I don't usually spend more than $100/YEAR on each of my kid's clothes, and around $50/YEAR per kid for shoes. So, instead of spending the allowed $2196 on clothes for my 3 kids each year, I spend closer to $450. That would free up $1746 to save, or spend on something else, or even take a vacation. NOW, in my situation, we actually couldn't claim the full allowances because our budget doesn't have the wiggle room, so we claimed around $30/mo for clothing for our family of 5, so *I* personally don't get to save that extra money, but if your income is high enough to claim the full amount, then you potentially could save that money. You can also cut back on groceries, cancel your cable tv, downgrade your cell phone, etc.

Just be sure that up until filing, you are actually spending what you claim in case they want proof. But afterwards, you can get as frugal as you want in order to save as much as possible. Remember, you won't have credit to fall back on anymore. You NEED to change your mindset and save save save every penny you can until you have a large safety net!

[JMB109]

momofthree and Des, thank you very much for the information, it has helped a lot at putting are minds at ease.

[Pandora]

Momofthree is correct - as we do the same thing.

Just wanted to add that you need to be sure that you can afford your car payments whether in the plan or outside of it. Do you plan on keeping both cars and your home? I dont know what you might be basing your potential "savings" down the road on in a 13, however if basing it on just getting rid of your cc debt - and it still doesnt give you enough money monthly to pay all expenses you need..... you may have to rethink some things.

Do your schedules to find out if your approxmiate DMI is less than what you're currently paying now if you keep everything. Advantage of letting a vehicle go is that there should be no deficiency if you surrender it. Also if you have any arrears or taxes you owe, you'll have to include those into your plan, as well as attorney fees and trustee fees (unless you pay attorney upfront).

Paying your mortgage and cars inside your plan is fine - but results in also paying the trustee $ to do so.

[JMB109]

Pandora, we would be in great condition if we were just paying our mortgage and vehicles, what is killing us is the credit card debt, we been carrying these credit debt for years, we were stuck in an ARM mortgage (Big Mistake) because of a second mortgage put our house over estimated value, so I applied for a line of credit and put a majority of the second mortgage on it, the rest of the second mortgage was placed on credit cards so we could get the house refinanced before the ARM adjusted. The whole reason we had the second mortgage was to consolidate credit cards, which now is back on credit cards. Also, we never lived on a budget, all of our bills have always been paid in time, but because we didn't budget, we were left with putting things on credit cards as opposed to using cash.

In June I was laid off from my full-time employment, I still work three part-time jobs and collect partial unemployment, but it is not as much as my full-time employment was. Actually we only fail behind on one credit card, we have numerous , but we our really struggling, most of the credit cards are $100-$200 monthly payments at 30% interest, the credit card companies raised the interest rates on our credit cards even though we never late on payments,. Anyway, if we can get this credit debt behind us we would have no problem paying our mortgage, vehicles, monthly expenses, and still be able to save money. We are just spinning tire on this credit debt, we can only pay the minimum payments, which the cards will never get paid off and we have no equity in our house to try another reconsolidation loan.

[Pandora]

JMB -

I understand - and sorry to hear about your job loss - been there, done that.

I guess the thing that concerned me with your post is that you state "if we can get this credit debt behind us we would have no problem paying our mortgage, vehicles, monthly expenses, and still be able to save money..." because thats where you need to figure out exactly what your monthly payments are now WITH everything - to what your actual payments to the CH. 13 Trustee would be. You may find that your payments might be more in a 13 than what they are now without filing BK, depending on what your assets are minus exemptions and non-exempt items.

You say your CC debt is 30-40K - aver. min. payments 100-200 per card. So lets use for an example and say you have that 30-40K spread over 3 cards and the min payment is $400 a month (as an example) between all 3 - you may end up paying the same amount, more, or even less in your CH. 13 plan depending on income minus deductions minus expenses = DMI - and any trustee fees and attorney fee's should you roll those in to your 13 plan.

Do you still have a 2nd mortgage? From your post it sounds like you do; that you put part of the HELOC on cc's yet still maintain a LOC - is this right?

[JMB109]

Pandora, no second mortgage, we did have one, but ended up transfering the balance of the second mortgage onto a line of credit and a couple of credit cards so we could refinance our house. Our Attorney told us that worse case senario we would end up paying $2600 monthly to the Trustee after deductions. We are paying more than that now with all of our combined bills, basically after all our bills are paid we do have enough money for other expenses like groceries, fuel, etc. which we end up putting on credit cards that bury us even deeper in debt. We pay approx. $2000.00 monthly just on credit debt, then you add on top our mortgage and car payments that equals approx. $2300.00, so total monthly payments are $4300.00 this is just debt, right now we bring home roughly $5000.00 monthly, so that leaves us with about $900.00 for the month to pay utilities, groceries, fuel, Dr/Dentist bills, etc. When I was employed full-time I also worked two part-time jobs which allowed for extra money to get everything paid monthly.

We are hoping that the Chapter 13 would help us from struggling every month, right now we don't have enough money after the debt is paid to sustain a family of four, we approx. pay $400-$500 monthly on groceries, gas/electric very but are usually around a $100 each, fuel for vehicles is approx. $200, water/sewage, phone, cable/internet, gym membership, etc. So you can see our dilemma that we are in. We don't bring in enough money a month which make us rely on credit cards. The $1000.00 we do have saved is from our income tax return.

[Cristo]

Are you sure you can't file a CH 7? You don't want to do a 13 if you don't have to unless you are behind on your mortgage, which it does not sound like you are. Just because you made too much in the past should not keep you out of a 7 if your lawyer knows what they are doing. I would talk to several more. If you lost your job in June that income should just about be off your 6 month lookback. If you were not paying the credit cards could you quit one or more of the part time jobs? If you are going to file you should stop paying the credit cards anyway. Take your time and plan. Good luck.

[enginegirl]

sorry misposted!

[momofthree]

I agree with Cristo, you sound like you *might* qualify for a ch.7.