7 about to get dismissed.....Converting to 13....Question about House

[alorth]

I wish we had just tried the 13 to begin with, but we let our atty. convince us we had a shot at a 7, and we should have known better, especially after reading this forum for so long.

Believe it or not, our attorney (with 30 years experience) had to be TOLD BY ME about the 25% threshold on the Means Test only being applicable if your total DMI over 60 months was less than $11,000. This atty. has taken $2700 of our money so far, and I feel like it has been completely blown and wasted. He actually looked ashamed that I had to correct him on that point with the Means Test. He was already to go to battle with the UST on the 25% threshold. Laughable if it weren't so sad.

So we will not contest the UST's motion to Dismiss the 7, and instead will concentrate on converting to a 13.

And our atty. wants more money now for the 13 conversion.

But the biggest problem is that we are roughly $55,000 underwater on our home. So....the UST wants us to somehow reduce our house payment from the $2400/month it currently is to something like $1500/month (or less).

Can a home be surrendered in a 13? If so, how is it done? I thought a 13 could not get rid of secured debt, like a house. Would they try and short sell it, and add the balance to our unsecured, increasing it even more? Its already at $142,000! IF the house sells at $250,000, that would leave $55,000 added on to the Unsecured debt, for a total of $197,000....is that right?

Our judge just got changed as well, and the atty. says the new judge is a real hard case on debtors....the atty. acts like hes afraid of the judge!

Right now, I'm feeling pretty sick about the entire situation.

[spidge]

I am no expert here so hopefully someone can give better clarity, but I think you will be OK.

Your attorney has charged you $2700 so far and will add the difference into your Ch13 payments which will likely be about $2000 more. That's about right, but then every situation is a little different. The trustee will help keep his fee in check as there are limits.
The mortgage or housing allowance is where the trustee seems to think he can make more disposable income available to him. Contact your mortgage companies BK department and explain to them the situation and see if you might be able to get a modification to allow for the payment adjustment for the period of the BK. This may have adverse side effects on you payment in the future which would require some very long term planning. Otherwise your trustee may not allow the excess mortgage payment and you would have to make the difference in the plan payment regardless. Do you have a second on the house? Can it be stripped?

[alorth]

No, we don't have a 2nd on the house.

The issue arose in the motion for dismissal the UST filed against our 7, under Totality of Circumstances.

The UST said our House Pmt could reasonably be reduced from 2400/month to $1500/month in rent (and also argued against our Montessori PreSchool Pmt of $435/month, arbitrarily saying we should only be paying $235/month), freeing up $1100 to pay to unsecured creditors in ADDITION to the $580 SUPPOSED DMI from our Means Test.

So, in essence, the UST has said in the Motion to Dismiss that we should have nearly $1700/month (and the actual number he uses is $2200 after changing a few OTHER smaller expense numbers around) to pay in a 13!

We are now willing to look at the possibility of renting and giving up the house as a show of so-called "belt-tightening" that they claim they want to see.

But, to be honest, EVEN if we cut down the rent/house pmt., THAT is about the only DMI we would have....maybe we could dig up another $200/month, but I'm not so confident.

We have been digging into our exempt funds just to keep going this year, even with no payments to unsecured creditors. My wife and I do NOT spend frivolously! No travel. No Christmas Gifts to anyone but our daughter. No clothes purchases. No nights to the movies. We are the definition of belt-tightening, other than wanting to keep our girl in Montessori, especially with us now being willing to leave our home of 10 years!

But our atty. tells us he personally knows of a case where the UST , the 13 TT, and the debtors all agreed on a 13 plan, but this particular judge (who we were just assigned to as our previous judge and this one swapped benches) took the figures and worked out his own plan which was much more restrictive to the debtor, and he wouldn't approve the previously agreed upon plan. So our atty. is freaking out that we won't be able to get a decent plan approved by the judge, even with us now willing to show good faith by giving up our home.

[LadyInTheRed]

If you keep the home in a Chap 13, you should be allowed the full mortgage payment. The court has no power to modify the loan on your primary residence. I suspect you were surrendering your home in the 7? That would explain why the trustee would object to using the full mortgage amount on your schedules. If you surrender the home, you will only be allowed the standard housing allowance in your area unless you can prove it is insufficient.

A mortgage is dischargeable in a 13 if you surrender the home. The lender would have to file an unsecured claim for the portion of the loan that is underwater so the deficiency can be paid with your other unsecured debt.

[alorth]

No, LiTR, we were not gonna surrender the home. We were fighting to stay here. But we are well-over-median, like 2x, approx $120k/yr. Our pmt being $2400/month, is well over the IRS allowance of $870/month for a family of 3 in our county.

The UST is arguing we were trying to keep the house on the backs of our unsecured creditors, and did not want to allow it, like he said in his Motion to Dismiss.

He wants us to get a lower monthly pmt.....he suggested "at least $1500/month", and he reserved the right to argue that it could be even less.

We are finally relenting on the house, and willing to give it up, but it would not be in a 7....it will have to be in a 13 somehow.

[LadyInTheRed]

I came back after making brunch and noticed I hadn't posted my response. I now see that you posted again, before I completed my post.

I don't know if a trustee can force you to walk away from your home just to allow a larger payment to unsecured creditors. Maybe one of our attorney members will comment.

There have been mixed reports on having private school tuition approved as an expense in a Chap 13. So, I'm not surprised that is an issue.

I'm bothered that your attorney is "freaking out". I suggest you ask your attorney whether he thinks he is capable of fighting for a workable plan. Does your attorney normally do 13s, or is most of his experience in Chap 7? It may be a good time to consult with some other BK attorneys. The extra expense may be worth it in the long run.

[alorth]

I came back after making brunch and noticed I hadn't posted my response. I now see that you posted again, before I completed my post.

I don't know if a trustee can force you to walk away from your home just to allow a larger payment to unsecured creditors. Maybe one of our attorney members will comment.

There have been mixed reports on having private school tuition approved as an expense in a Chap 13. So, I'm not surprised that is an issue.

I'm bothered that your attorney is "freaking out". I suggest you ask your attorney whether he thinks he is capable of fighting for a workable plan. Does your attorney normally do 13s, or is most of his experience in Chap 7? It may be a good time to consult with some other BK attorneys. The extra expense may be worth it in the long run.

Yeah....I have really lost faith in this attorney, and my wife and I plan on interviewing at least one other atty. this week.

That leads to a question I posed on the 7 Board, namely, should I let this dismiss, and file the 13 in a few months, instead of converting right now?

My main fear is that I was sued by Discover right before we filed for the 7, which created a Stay, of course, and the suit was dismissed, but I wonder how quickly the Discover attorneys will file again on me?

1 month? 90 days? 6 months? I just have no idea.

Getting a new attorney would obviously require we dismiss now, and re-file later, instead of convert, so that would take some time if we go that way.

[lrprn]

Yeah....I have really lost faith in this attorney, and my wife and I plan on interviewing at least one other atty. this week.

Understand that as soon as the second bk attorney finds out you already have representation, he's going to be uneasy meeting with you. Some attorneys (but not all) will require that you fire attorney #1 before agreeing to meet with you about your current case. You will definitely need to plan to fire attorney #1 before you actually retain another bk attorney.

....should I let this dismiss, and file the 13 in a few months, instead of converting right now?

This is a question that has to be answered by an experienced bk attorney who is familiar with your current plan and financials. Unfortunately the right answer depends on a lot of things.

My main fear is that I was sued by Discover right before we filed for the 7, which created a Stay, of course, and the suit was dismissed, but I wonder how quickly the Discover attorneys will file again on me?

There's really no way to know the answer to this. A strong Ch 13 bk attorney familiar with what has happened to other debtors in your local court in your situation could give you a decent idea of what timeline to expect Discover to come after you.

Getting a new attorney would obviously require we dismiss now, and re-file later, instead of convert...

Actually that's an assumption on your part. Again, you need to ask an experienced Ch 13 attorney which is best to do in your unique situation.