Have to file CH 13, but our numbers have NO disposable income! Please help!

[KristieCA]

Please post ANY advice, we are desperate!

Because we were personal guarantors for a failed business through our Corporation, we have creditors galore coming after us. An attorney informed me over the phone that due to my husband's salaried income (higher than average) and because we need to Bk the personally guaranteed debts from business which are up to $150,000, that we have to file Ch 13, and don't qualify for Ch 7. The debt collectors are ready to take action against us, as they have obtained a judgement and can levy any time if they choose, and we can not risk having our bank accts frozen. We also can not afford to retain an attorney to fight them or to reduce the debt. We are in a corner. I check our bank acct everyday to make sure we still have money there to clear for checks out against it.

Our budget is very tight, and we live paycheck to paycheck to just pay bills, even though my husband makes good money "on paper", the cost of just living is high here in our city of southern CA- we rent a modest home, drive gas guzzlers and have 3 hungry and growing children who are not dressed to the hilt or get to shop very often-it's just difficult to pay everything each month. I often have to write a check for groceries in hopes that it doesnt clear before we get paid in 2 days. We never eat out, Starbucks is sometimes a treat on a weekend. But NO splurging or even vacations for years! We also have no assetts, no savings, no real estate and thing to hide. We still have 2 yrs left on our car payments, and about $13,000 in our own credit debt that will be wiped out too. We have been making minimum payments of $15 and $25 a month on these FOR YEARS! (

Anyway, my question is, what do we do if our income and budget can not show any disposable income? I think if I fudge numbers a bit, I can maybe show $100 disposable, but really, the numbers don't lie!

Help us figure out the best plan for us, and if a BK will be possible for us.
We need a fresh start for us and for our children!
Thank you!,
Kristie in CA

[justbroke]

An attorney informed me over the phone that due to my husband's salaried income (higher than average) and because we need to Bk the personally guaranteed debts from business which are up to $150,000, that we have to file Ch 13, and don't qualify for Ch 7.

Let me get back to this point later...

Anyway, my question is, what do we do if our income and budget can not show any disposable income? I think if I fudge numbers a bit, I can maybe show $100 disposable, but really, the numbers don't lie!

If you have no DMI, then you qualify for a Chapter 7! Do not let any attorney tell you that you don't qualify for Chapter 7 simply because you are over the median. It is all about the numbers (and DMI).

As for the business, there is no need to file a specific chapter of bankruptcy just to discharge a personal guarantee on business debt. The simple fact is that a Chapter 7 will discharge your personal responsibility for business debt just as well as a Chapter 9, 11, 12, or 13.

Getting a discharge in a Chapter 7 is all about what your income, less "allowed" expenses, looks like after you make the calculations. I would have shopped at least 5 attorneys if I were over-the-median income and wanting to file a Chapter 7. Since you don't own your home it may be a little tighter on qualification, but you won't know until you run the numbers through the Means Test.

[despritfreya]

You have $150k in personal guarantees and you rent. Are you telling us that your other debt (since you do not have a mortgage) is in excess of $150k? If not, then your income is irrelevant as you would be a non-consumer chapter 7. Remember, if you ran up that personal credit card for business related items, it is not a "consumer" debt.

People, do not forget. . . If your non-consumer debt exceeds the total of your consumer debt (incurred for family or household purposes), you do not have to "qualify" for a 7.

Based upon your post your consumer debt DOES NOT exceed your business type debt and you CAN file a 7 regardless of your husband's income. Take that back to the attny and see what he says.

Des.

[justbroke]

Yeah, I meant to mention "non-consumer" and never got back to that point.

[davetedge]

I know in NY that if your business debt is greater than your personal debt, you can bypass the Means Test and file Chapter 7 regardless of your income. I believe it's true in CA also. Not all BK attorneys know about the business vs personal debt exception (not all trustees do either).

You should also think about living on a cash basis, and slowly building up an emergency reserve. It may require even more sacrifice than you've already given but it's worth it. Rent payments and the like would be through money orders. If you can eliminate any assets like bank accounts that are easily levied, you've now made yourself judgment proof and it gives you some breathing space to spend the time to research and file your Ch 7 bankruptcy properly.

And before you file, is there any chance you can trade in your vehicles for gas sippers, and prefer? I lived in SoCal for a while and remember being shocked at how much I was spending every week on gas.

[lrprn]

Just because one lawyer told you something doesn't make it correct. You should *ALWAYS* interview at least three bk lawyers before selecting one.

You've gotten great advice from JustBroke and Des. From the information you've provided, it sounds like filing Ch 7 is a real possibility for you. Be sure to provide not only incomes but aksi mphasize the non-consumer debt figures to the next experienced bankruptcy lawyers you speak to. And keep in mind that the cheapest lawyer is typically not the best lawyer to use, but the most expensive one often won't be the best one to represent you either. Only interview experienced bk lawyers who file both Ch 7 and Ch 13 cases regularly and who are very familiar with the case decisions in your local bk court as well.

It will help to you familiarize yourself with the ins and outs of both Ch 13 and Ch 7 plus their differences. Here are a few reliable websites to start with:
Ch 7 - http://www.moranlaw.net/chapter7.htm
Ch 13 - http://moranlaw.net/13workings.htm#C...013%20practice
Differences between 7 and 13 - http://www.mroselaw.com/CM/Custom/Ch...Comparison.asp and http://www.americanbar.org/content/d...thcheckdam.pdf

Hang in there. Keep posting your questions - we'll help you sort things out as best we can.

[HHM]

On the flip side, having no DMI doesn't guarantee staying in chapter 7, it really depends on the expenses that are eating up the presumed excess. For example, if you have no DMI because you are sending your child $800 per month to support them while in college, that would be a problem in bankruptcy.

Side note, if you can be a non-consumer 7, then you don't even need to worry about income.

[kornellred]

One thing you need to do, no matter what, is get filed for bankruptcy under a presumed Chapter so that the automatic stay prevents judgment owners from taking any action against you.

[AZNoName]

Hi KristieCA,

We're in a very similar boat as you. We have 300K in deficiency judgements on personally guaranteed business debt, underwater 120K on the house, and cc debt of 17K. We ended filing Ch13. Makes me think though since its mostly non-consumer debt that Ch7 could have been an option? Not sure in AZ though...

[LadyInTheRed]

Hi KristieCA,

We're in a very similar boat as you. We have 300K in deficiency judgements on personally guaranteed business debt, underwater 120K on the house, and cc debt of 17K. We ended filing Ch13. Makes me think though since its mostly non-consumer debt that Ch7 could have been an option? Not sure in AZ though...

This does not vary from state to state. If more than 50% of your debt was incurred for business purposes, you would not have to pass the means test to qualify for a Chap 7, no matter what state you live in. But, there may be other reasons to file a Ch 13, like to strip a 2nd mortgage or catch up on arrears so that you can keep your home, or to keep non-exempt assets.

[KristieCA]

Thank you for all of the great responses!!!
If we do qualify for CH 7, due to the non-consumer debt, which I am,sure we would, will we be able to keep our cars if we continue to make the timely payments?
I thoight thT CH 7 won't allow to keep cars..if if we still make the payments.
Can someone clarify?
Thanks again SO much!!!!!

[missfontella]

You can reaffirm a debt in a chapter 7. These other guys would know better than I if its a good idea. I kept my car (that I was making payments on) during and after my ch7

[justbroke]

If we do qualify for CH 7, due to the non-consumer debt, which I am,sure we would, will we be able to keep our cars if we continue to make the timely payments?

Depending on the lender, you would may need to Reaffirm the vehicle. However, if the cars are "underwater" (you owe more than they are worth), you may consider Redemption. When considering the Redemption option, you need to weigh the "cost" of the higher interest rate on the new loan.

In my particular case, I redeemed a vehicle with a $19K balance (largely due to the "re-amortization" done in my Chapter 13) for $8K! Even with the higher interest rate, it was WORTH every penny of it. (I promptly refinanced the redemption loan in less than 6 months after discharge.)

[Guest123]

If you have no DMI, then you qualify for a Chapter 7! Do not let any attorney tell you that you don't qualify for Chapter 7 simply because you are over the median. It is all about the numbers (and DMI).

This is not always true....
You need to have enough DMI to pay your secured credits if you can't give them up. If you can not and are above the median then you are in the grey area and can not file.

[justbroke]

If you have no DMI, then you qualify for a Chapter 7! Do not let any attorney tell you that you don't qualify for Chapter 7 simply because you are over the median. It is all about the numbers (and DMI).

This is not always true....
You need to have enough DMI to pay your secured credits if you can't give them up. If you can not and are above the median then you are in the grey area and can not file.

I don't understand what you are posting about. The definition of DMI is what's left after paying the secured and priority creditors. Qualification of a Chapter 7 is not contingent that you are able to actually pay your secured creditors. If you were to write that in a Chapter 13, you need enough "current monthly income" (CMI) or income in general to satisfy secured and priority creditors, then I would agree that you need the income.

Bankruptcy practice isn't always so easily confined to a simple statement; just as HHM pointed out that DMI itself could be subjective. I think what you're trying to say -- which didn't come across that well -- is that if you can't "justify" the secured debt payments then you can't use them in your numbers. Not only have I never seen that done in practice (or challenged), you are allowed to claim anything contractually due. That does not make it where you "can not file" a Chapter 7. It may have a very hard-line UST looking at "good faith" issues, but there are no other genuine issues. (I will add that there are some local (District) practices where they may not allow you to claim a secured debt that you are not reaffirming, but that's a different issue. Your DMI would be larger (based on Schedule I/J).)

Having enough "income" (CMI) to pay for secured debts does not disqualify you for a discharge in a Chapter 7 -- even if your income isn't enough to pay secured creditors! What the court would do in that situation, over or under-the-median, is to not allow reaffirmations. I have never read a single case where discharge was being denied where the debtor was over/under median and did not have enough income to pay secured or priority creditors.

I will say it again... do not let any attorney tell you that you don't qualify for Chapter 7 simply because you are over the median. It is all about the numbers (and DMI).