Questions about filing separately from wife

[Slingerland]

Good morning!

I am considering filing a C13 plan indendently from my wife (I want to keep some investment real estate that is upside down but is paying its way along) and have some dumb questions please...

1) There are 4 people in the house: my wife, two dependent sons and me. When I look at the IRS figures for allowable expenses, what family size do I use?

2) Along the lines of expenses, my primary residence mortgage and utilities are higher than normal. I have regular employment, but I work out of my house. As a result, utilities (especially electricity and internet) are substantially higher than normal. Will this pose a problem to be adjusted?

3) The vast majority of unsecured debt is not joint. My wife has a single personal loan that I co-signed, since the investment mortgages show up on her credit report. But we have substantial secured debt that is joint: residence, investment houses and cars. My plans are to reaffirm the secured debt and make the payments outside the plan. How would those loans appear on her credit reports?

4) We have three car payments: hers mine and old son's car. All three are under 2.5 years old. All three are in her name first, then mine. Will the trustee make us give up a vehicle?

The rest of my debt is unsecured. Given current equity in the investment houses (negative) and using Federal exemptions there is pretty much "nothing" for the unsecured creditors in case of a C-7. My regular income is too high, so it's a C-13. With that in mind, the unsecured creditors would get 70% or so.

Thanks everybody!

[catleg]

So your wife is not going to file bankruptcy at all, any chapter? Is she employed?
(1) Four
(2) I don't think so, just document the situation.
(3) the loans will probably show included in bankruptcy.
(4) I don't think so, just document the situation.
Chances are, it makes sense for your wife to file too.

[Slingerland]

Thanks!

My wife is employed with similar income to mine, but she refuses to file bankruptcy. Her ego is the issue... she would rather pay 29% the rest of her working years.

[catleg]

Well, I figured she had zero income. Let me think again about this.
I think you need to define what part of her income goes to the household expenses and what part is hers.
Since she is not filing the ch13 estate has no claim on her wages.
I don't know the specifics of how to allocate support for the dependents in this situation.
You might want to search more blogs for advice in this situation.
You probably allocate ownership and debt on the joint assets in a 50/50 ratio.
Are you self employed? Contributing to 401k?
You should take a long hard look at those investment properties and consider whether to let them go.

[Slingerland]

To answer your questions...
50% of her income goes to household expenses. I pay the other half of the expenses.

Both of us have corporate employment. In addition I have rental properties as a side business (she has no ownership stake in them.) We both contribute to 401(k) accounts.

Investment properties:

• The rental properties are upside down as far as selling them vs mortgage balance.
• The rental properties normally have a positive cash flow of $1000 a month.
• Once depreciation is taken into account, I have a loss each year on my Schedule E.
• Using the Fannie/Freddie/FHA guide of 25% vacancy/repair, the properties break even. My normal vacancy/repair has been 5%.
• The past three years have seen unusual repair needs and vacancies due to the economy; not normal maintenance. But the areas are stable, and I was able to raise my rents from 5% to 15% this year.

In other words, I want to keep the rentals.

A second, interesting facet about the rentals. My wife have I have a combined income that hovers at $150k. Tax law does not let me deduct the rental losses if my income goes above the $150k line. So we use our 401(k) contributions to lower our taxable income. For each $1 we contribute to our 401(k)s, we lower our taxable income by $1.50

So if the trustee were to make us stop contributing to our 401(k), we would have to increase our tax withholdings more. The net effect would be our disposable income would actually go down!