Chapter 13 buyout?

[lorelei]

I think I qualify for a Chapter 7. I have an attorney I worry is pushing me into a 13. At a meeting today, he told me the monthly payment would "only be about $300." I told him it might as well be $3,000 as I am literally counting pocket change and coins between couch cushions on the days leading up to my next paycheck.

He told me not to worry, and that 28 months into a Chapter 13 I can buy out of it if a friend or family member gives me a gift. In other words, if I had a payback plan that would pay $12,000 over five years, the gift would have to be about $6,000 and I could be done with it.

Really?

My "sounds too good to be true" sensor is going off on that one.

He also said it would be easy to convert to a Chapter 7 if I take a new job at a less-than-median wage, which is likely as I'm about to change careers. Is that hard to get approved?

I'm getting second opinions, and I'd like the opinions of people who have perhaps been there, done that too.

[LadyInTheRed]

A chapter 13 buyout is only allowed if you pay 100% of all creditors who file claims. So, if you have unsecured claims of $50,000, but your original plan paying was only 300, for a total of $18,000 in payments over 60 months, you couldn't just pay $18,000 and be done. You would have to pay the entire $50,000, plus trustee fees and any secured or priority debt that needs to be paid. Buy outs were apparently possible for pre-2005 cases. But not anymore.

It is true that if your income drops enough, you can convert your 13 to a 7. I don't believe it is any harder than filing Chap 7 in the first place.

[RunningMan]

I would say generally it is better to file a chapter 7 and be done with it if you qualify. However, there are reasons to do a chapter 13 even if you do qualify for a chapter 7 such as making up arrears on a mortgage. You have not told us much about your situation. I am not sure I would start a chapter 13 with the intention of changing careers in the near future and taking a pay cut. But you may have a reason for doing so such as stopping a foreclosure.

In a chapter 13, the payment is based on your disposable monthly income unless you are trying to keep assets above the exemptions or you have made some recent large credit card purchases that the trustee disallows. In that case you would have to pay enough into the plan to pay the unsecure creditors what they would have gotten if you had filed a chapter 7 and those assets had been surrendered. So the payment should be affordable, but difficult unless you are trying to protect assets worth more than your exemptions or you have been making large recent purchases on credit.

[shark66]

"Too good to be true" is exactly right. LadyInTheRed summed it up extremely well in her post.

If it were me, I'd wait for the "career change" to happen and then take it from there, unless you have emergency reasons (stopping foreclosure, judgments/garnishments) to file right now.

Good luck.

[lorelei]

The career change is coming because I'm graduating with a master's degree in May (yay!) I'm changing careers - the one I'm in is quickly becoming obsolete - and the one I'm going into is mental health/social work, which doesn't pay very well in the first few years. So changing careers is a smart long-term move, even though it means my income is going to take a hit for a few years.

I don't know how long I can put off the filing. I quit paying credit card bills in July. I believe someone out there has filed suit against me, but the most lackluster process server in the world tried to contact me to give me papers on Jan. 7, and even though I did call her back, she hasn't been heard from since. (I posted on that over on the Collections board).

I'm not in danger of foreclosure now. My mortgage is current.

Whether or not I can go Ch. 7 is hinging on whether I can file as a two-person household with my girlfriend as the second person in the home - I've been her main source of support as she has been largely unemployed (earned only $778 in the past six months) and is on my employer's health plan as a domestic partner.

In any case - what I'm gathering is that it's a pipe dream to think I'd be able to buy out of a, say, 20 percent pay-back plan with only paying 20 percent of my unsecured debt. Is that right?

Gah!

Why would he be so misleading?

[LadyInTheRed]

In any case - what I'm gathering is that it's a pipe dream to think I'd be able to buy out of a, say, 20 percent pay-back plan with only paying 20 percent of my unsecured debt. Is that right?

Yep, I'm afraid so.

Gah!

Why would he be so misleading?

He is either a lousy attorney that doesn't keep up with the changes in law. Or, he's a lousy attorney who doesn't want to fight for his client to get a 7, but is willing to lie to get you to retain him to file a 13. I'm not sure what type is the worse type of attorney. An ignorant one or a dishonest one.

If state law allows your domestic partner to be your dependent, it seems to me that you should be able to file as a 2 person household. I suggest looking for an attorney who is willing to take a position in a legal area where there is little or no precedent. Because of the conflict between federal laws and state laws on domestic partnership and same sex marriage, many attorneys don't want to take cases that have those issues. It's a developing specialty that many attorneys don't feel qualified to get into since they haven't focused on it. Try looking for LGBT organizations that do attorney referrals.

I googled "michigan LGBT lawyers" and found many hits, including http://www.gaylawnet.com/attorneys/us_mi.htm. There are some BK attorneys listed, but most do not practice exclusively in BK. People usually recommend that you hire a BK attorney who only practices BK. I think your situation could be an exception. If you look at the areas of law in which they practice in addition to BK, they seem to be areas where LGBT areas arise, like Family Law and Estate Planning. Just make sure you hire somebody with significant experience in BK.

I also found Stonewall Bar Association in Michigan: http://www.michsba.org/members.html This link is to the list of their members. If you go to their home page, you will find links to resources that also may also be helpful.

[lorelei]

You are awesome, Lady. I will be visiting those sites and calling some of those numbers.