Does Chapter 13 make sense for me?

[CaliforniaPl]

The difference between a 7 and a 13 is that, if by some remote chance, you stay in the house a very long time, with a 7 that 2nd can eventually foreclose on the equity you build by paying down the 1st mortgage. In a 13 lien strip you're free of that possibility.

And that is one thing I am seriously considering. I do plan on being here a while - at least five more years unless something very unexpected comes up. With screwed up credit and greatly reduced income, I don't think I'll be able to buy again for quite some time, at least not in California. So I am thinking long term here and the possibility of making that 2nd go away...not what I want, but I don't see many other options.

Personally I think filing a 13 at this time would be a mistake. From what I have read, you are still making all your payments (1st & 2nd). While it was nice of the bank servicing the 1st to modify I see no incentive for the 2nd to work with you. They are getting their money, why help you if you are paying. I really think you would be safe in stopping payments to the 2nd as BofA only loses if they foreclose. They would get nothing. Stop paying the 2nd and wait a while. Then I would try to settle the 2nd as opposed to the modification. Don't prematurely shell out big bucks to a BK lawyer, use all the tools in your arsenal and then if all else fails see a BK lawyer.

Several people have said this and it is one of the other things I am contemplating doing. Even one of the BofA reps that called me one time to tell me I was denied because I haven't "demonstrated a need" said I had a greater chance of getting help if I was delinquent on my payments. But was kind enough to throw in that in no way is he suggesting that I start missing payments as a way to get help. I haven't paid for July yet, so I'm almost at 30 days late. I just hate to see my credit get screwed up, but I guess its going to happen one way or another...

[Pandora]

I've had a couple of lawyers state that unemployment can be used to fund a Ch. 13. Perhaps its different in California. But I'm going to talk to at least a couple more lawyers before I settle on one if this is the route I decide to take.

Those lawyers are partially correct in what they told you - unemployment does count as income, however unemployment can only be used to make your plan more feasible, you cannot file a Ch. 13 with unemployment being your only source of income. It does run out at some point in time, so you must have a steady income source throughout your plan years.

ETA: want to clarify - I dont know if UI counts on means test (or exempt like SS is) - but it would count on your schedules as income I'm certain. It may count both ways

(good god I cannot type today!)

[CaliforniaPl]

Those lawyers are partially correct in what they told you - unemployment does count as income, however unemployment can only be used to make your plan more feasible, you cannot file a Ch. 13 with unemployment being your only source of income. It does run out at some point in time, so you must have a steady income source throughout your plan years.

ETA: want to clarify - I dont know if UI counts on means test (or exempt like SS is) - but it would count on your schedules as income I'm certain. It may count both ways

(good god I cannot type today!)

I 'interviewed' another lawyer today, he's been practicing for over 30 years and is highly regarded in this area. He also told me that unemployment alone can be used to fund a Ch. 13. He is very familiar with the company I used to work for, and how things went down there when it closed and we were laid off. He said he has already done several Ch. 13 for other people that worked there (we had over 5,000) and they were on unemployment alone and there was no problem with it.

We qualified for TAA which pays for retraining and extends unemployment for the duration of this time, up to three years. He specifically said because I'm on this and not regular unemployment alone and I am 'guaranteed' unemployment for another year and I have a contract between Employment Development Department (unemployment office in Cali) and my school, this can be used. He also mentioned, as I already know, that it doesn't make sense for me to get a part time job to make some extra $$$, because whatever I would make would be deducted dollar-for-dollar from unemployment.

[Pandora]

Well - he's the lawyer... I'm not but I was led to believe that you must have some sort of steady income in order to be confirmed in your Ch. 13 plan; UI can be used to supplement, but doesnt count as steady wages.


You mention above:

"unemployment is extended for the duration that I'm in school. Only problem is unemployment is $1,900/mo and my expenses are about $2,700/mo. And thats nothing fancy, 1st and 2nd mortgage, HOA dues and bills around the house are about $2,200, the rest is just basically gas, food, car insurance and an occasional haircut or something.

The plan is to be in school through May '12."

We qualified for TAA which pays for retraining and extends unemployment for the duration of this time, up to three years. He specifically said because I'm on this and not regular unemployment alone and I am 'guaranteed' unemployment for another year.....


IMO you're taking one hell of a chance especially since you said you've had to pull $1K out of savings since you got laid off in addition to your UI just to get by. If you're not taking the IRS standards for things, including emergency situations (house repairs, doctors, car issues, etc...) as it stands, how do you think your Trustee is going to approve it? With a $1900 income from UI, and a 1st mortg. & HOA adding upwards of $1300, that only leaves you $600 a month to pay for everything else, including your Ch.13 plan; so roughly you're making $22K a year, with a house payment that is roughly 69% of your income a month. How exactly is your lawyer coming up with positive DMI to fund a Ch. 13 plan as it stands given your bills are more than your income?

As you stated, once you get out of school, your UI ends.... thats only 10 months away - what happens when / if you cannot find a job come June 2012? Your UI runs out according to you once you graduate and you currently have about 1 year left of receiving benefits... what is your back up plan for your Ch. 13 then? You must be in it for a minimum of 36 months... you'll still have 26 to go. Your option is to convert to a 7 or get dismissed.

Think long and hard before you commit to a 13 plan that you may not be able to complete; all that money will be wasted if in the end, you must convert to a 7 anyway.

Wishing you well..

[CaliforniaPl]

Well - he's the lawyer... I'm not but I was led to believe that you must have some sort of steady income in order to be confirmed in your Ch. 13 plan; UI can be used to supplement, but doesnt count as steady wages.


You mention above:

"unemployment is extended for the duration that I'm in school. Only problem is unemployment is $1,900/mo and my expenses are about $2,700/mo. And thats nothing fancy, 1st and 2nd mortgage, HOA dues and bills around the house are about $2,200, the rest is just basically gas, food, car insurance and an occasional haircut or something.

The plan is to be in school through May '12."

We qualified for TAA which pays for retraining and extends unemployment for the duration of this time, up to three years. He specifically said because I'm on this and not regular unemployment alone and I am 'guaranteed' unemployment for another year.....


IMO you're taking one hell of a chance especially since you said you've had to pull $1K out of savings since you got laid off in addition to your UI just to get by. If you're not taking the IRS standards for things, including emergency situations (house repairs, doctors, car issues, etc...) as it stands, how do you think your Trustee is going to approve it? With a $1900 income from UI, and a 1st mortg. & HOA adding upwards of $1300, that only leaves you $600 a month to pay for everything else, including your Ch.13 plan; so roughly you're making $22K a year, with a house payment that is roughly 69% of your income a month. How exactly is your lawyer coming up with positive DMI to fund a Ch. 13 plan as it stands given your bills are more than your income?

As you stated, once you get out of school, your UI ends.... thats only 10 months away - what happens when / if you cannot find a job come June 2012? Your UI runs out according to you once you graduate and you currently have about 1 year left of receiving benefits... what is your back up plan for your Ch. 13 then? You must be in it for a minimum of 36 months... you'll still have 26 to go. Your option is to convert to a 7 or get dismissed.

Think long and hard before you commit to a 13 plan that you may not be able to complete; all that money will be wasted if in the end, you must convert to a 7 anyway.

Wishing you well..

Good things to think about, thank you!
I'm on my 3rd lawyer and will probably go for one final one, just to make sure I understand things, but they've all said basically the same things with only a few specifics being different. They've all said unemployment alone can be used to fund a Ch. 13 and they've done it, so I trust its so. What I see online about this varies - probably by state.

You are right in that if I am not able to find a job when I'm done with school, I'm screwed. Well, this is so either way. You've already mentioned what happens if I file and don't find a job. If I don't file and can't pay the mortgages, I'm screwed there too. All lawyers have mentioned amounts of between $100 and $200 per month to the trustee. This will get me a savings of between $450 and $550 per month over current conditions. I can do a little more cutting back on what I spend and completely cut out things like haircuts that aren't absolutely necessary. I can gain close to another $100/mo there. Any more cutting back and I'll be living on mac&cheese, hot dogs, and water, so thats about the limit there. This should get me close to breaking even monthly.

I can also make $25 per week without it affecting my unemployment amount, anything over this is deducted 75% from unemployment. I've just picked up an independent contractor gig doing mystery shopping (don't laugh) that will allow me to make a small amount like this and be able to fit it into my school schedule. That should gain me an additional $100/mo, but thats still not make it or break it for me at this time. There are some decent tax deductions that come along with that though, so that should help around tax time too.

I am also looking at part time jobs that would be able to work around my school schedule and wouldn't require much more than 20 hours per week as I don't want school to suffer. But I need to be careful there too. Unemployment in California is only taxable on the federal level, its not state taxable and there is no SDI, SSI taken out. If I do get a part time job, I have to report my gross earnings to EDD (unemployment office) and they deduct 75% of what I make from unemployment. So for example if I were to make $300/week working, they would deduct $225 from my unemployment check. And of course SDI, SSI, and state taxes would be taken out of an employment check. So realistically, I could end up working part time, still collecting unemployment, but netting the same amount of money or even less.

The only advantage to this would be that by the time I am done with school I will at least have some type of job. And perhaps between now and then, there may be opportunities for raises or to become full time. And I could use this as a stepping stone so I at least have some type of income while looking for a more permanent job. If the time comes and I'm done with school, unemployment runs out and I can't find a decent paying job, heck I'll take a couple of fast food jobs temporarily if thats what I need to do just to be able to get things paid. But if I do the CH.13, by then I won't need to have as much income as I would now because the 2nd mortgage would be gone. I'm honestly not trying to justify my want or need for a CH.13, in all honesty, that is NOT what I want. But I don't know what else to do. I've tried to get help from BofA on the 2nd mortgage - just a temporary interest rate reduction, but they won't go for it. But I need to do something soon, because as things are now, I will be out of $$$ by the time I'm finished with school, and if I can't find a job right away, I'm really screwed.

[IamOld]

CaliforniaPL it sounds like though you have a plan - I just really wanted to wish you all the best of good luck. God knows we all need it!!!

Best wishes my friend.

[CaliforniaPl]

CaliforniaPL it sounds like though you have a plan - I just really wanted to wish you all the best of good luck. God knows we all need it!!!

Best wishes my friend.

Thank You! While I do have a plan and a backup plan, I'm not sure which, if either, is right for me.

[IamOld]

Do we ever know???