Is Chapter 13 my only choice?

[babyvo]

Hi everyone,

I'm new to the forum and this is my first time posting. I'm trying to figure out if a Ch 13 is right for me, and hoping I can get some advice on here since you all seem really knowledgeable. Here's my situation: I've got two bills that are charged off and in collections. Both are from Citicards, one's a CC with a balance of around 20K (mostly in fees since I stopped paying, but regardless...), and the other is a line of credit that's just shy of 5k. It was a typical situation, I lost my job and had to decide what bills I would pay, and the credit cards fell to the bottom of that list. I had worked out a payment plan for both accounts for a year, but when that year ended I still wasn't working full time and my minimum jumped from $190 to $700 a month. I couldn't afford it, they wouldn't work with me, and so I just stopped paying. That was about a year ago. They were charged off around October of last year, I got letters from collection agencies, and send debt validation letters. Last week I was served papers for a suit filed for the $5k line of credit, and so I'm expecting one for the $20k CC any day.

With the exception of these two accounts, all of my other accounts are in good standing. Here's a break down of my other debt:
Car loan- about $1100 left to go
CC 1- about $65 (plan to pay off this week)
CC 2- about $1300
student loans- over $40k split between federal and private

I'm youngish and so my only asset is the car. I've got about $100 in my savings account, $150 in my checking. My other main expenses are rent, heat and electric, cable, cell phone, etc. I just recently (late November) got hired full-time and got a promotion in January, so I'm finally making a living wage. I bring home just shy of $2,000 a month. With this new money coming in, I was really committed to using all extra income to pay down my debt (that $65 CC was $600 in January!), and was on a plan to pay off my car and CC's before the end of the year, then start saving money to hopefully settle the cards in collections, and maybe even take a vacation. Unfortunately, I was served the suit, and so a wrench was thrown in my plans, and now I have to address the suit.

I hadn't thought about bankruptcy, but I got tons of letters from lawyers when my suit was filed, and I wasn't sure what to do when I got served. I went to a bankruptcy lawyer to talk about my options, with my main concern being the lawsuit, and he said a CH 13 would be best for me, and most likely would be 36 months at $250-300 a month, at $366 for him upfront and the rest included in what i'd be paying per month. He said I should leave my car payment alone, because if it was included in the CH 13 it would reduce my monthly contribution. Now, on paper, this sounds like a deal that's too good to be true, and I feel like I must be missing the catch. It leaves me with LOTS of questions, but here are the things that confuse me the most:

1. I'm so close to paying off my car and those small CC's. My student loans will always be there. The only real problems are the cards in collections, and the only reason I have to act now is because of the suit. Is 13 really my only option? Is there some other avenue I should be looking into?

2. He said all the CC's, my car, and the student loans would be included in the ch 13 and I'd stop paying them, and pay the trustee instead. $300 a month is even less than I'm paying now between the loans and my car. Could this really be true? And if so, can you have a savings account and save money while in a 13? I thought the whole point was that they got your disposable income?

3. My boyfriend and I live together, and plan to marry, have kids, get a house, etc within the next 3-5 years. I've also been working on starting my own food business, and have been trying to save money for licenses, etc. Does a CH 13 mean all of that goes on hold for 3-5 years?

Ok, I've got a lot more questions than that, but I've already gone on long enough. I'm going to continue to research, and read posts, but since I have to make a decision soon (20 days to respond to the suit puts me at around April 6th), I thought I'd post and see if anyone can offer advice on my specific situation. Thanks in advance!

[karm43]

If you really don't want to file a chap 13 you can probaly call the company that sued you before you go to court and m alot of times they will make a payment plan, and your right the other will follow, however sounds like you may be in a position where you may be able to make extra payments and get them out of your hair. Being that your car will almost be paid that car payment money would go to the plan unless you buy a new car.Then the student loans would be put in deferment for your 3 years only getting some money because there not allowed to get the full amount.
You really have to give it some thought. The good part about chap13 is all interest and calls stop and you make 1 payment. The bad part is you have to pretty much tell the courts everything, like raises etc.
If your boyfriend lives with you they will want to know that too. Hmm maybe he doesn't live with you.
Good Luck a chap 13 is def right for some people.

[karm43]

Oh by the way they cannot garnish wages in Pa. but they could garnish your bank account just fyi

[SMinGA2]

List (for yourself, here only if you want to) your monthly expenses. Gas, insurance, rent, utilities, groceries, personal care, clothing, vehicle maintenance etc. Compare to your net income. What remains? That is the bottom line answer to whether or not you can do a ch. 13.

If you do a ch. 13, the student loans will be part of the plan - you won't make the SL payments during the plan. But those balances will remain after.

[babyvo]

Thanks for your input. I guess I'm just really scared about the lawsuits, and not sure that I'd be able to get the debt settled for a reasonable amount without a 13. I'm making more money now, but a $700 a month payment for one CC is still beyond my means. There's also part of me that is so angry with them for not just working with me in the first place, that I don't want to give them all $20k they say I owe (since almost half of that is from late fees, charges, etc).

I think the part that had me most confused was why my monthly payment would be so low. After reading through more posts, it makes more sense now why the lawyer had me go over my expenses again and kept saying "i think you're forgetting something". I was unemployed for so long, and therefore broke for so long, that I scaled down my expenses years ago, stopped using CC (too late though, they were already maxed) and learned to live without, and only off of cash on hand. Even though I'm making more money now, i'm still living pretty simple in order to save/pay down debt. It seems like when I fill out an expense sheet, I can fill it out with higher numbers that reflect what most people spend, and what I would actually like my budget to be for those categories? How do they determine what my monthly payment would be? Just based on income vs the expense sheet I fill out? How do they determine whether a plan will be 3 or 5 years?

[SMinGA2]

The short answer: your monthly payment is net income less expenses. That is your DMI.

You don't want to make a plan that has you eating ramen and never using electricity for the next 3-5 years. On the other hand, you can't really expect to eat steak every night. Ideally you would work out a budget allowing reasonable expenses that you need in every category. If $600 is reasonable on groceries per month (example - depending on your family size, it may be too much/too little) then you could probably manage to save some $ by spending a little less each month. And you'd set aside money in months when you don't need it. Such as you'd budget for home/car maintenance, clothing, medical needs. You probably would not have those expenses each month - but you'll need to be reserved enough to hold onto the money so you'll have it when you need it.

Some cases have a minimum $ that needs to be paid - such as if you're paying off mortgage arrears, or want to keep non-exempt assets. But if there is no minimum amount, then its a matter of DMI. If you are below the median income, you can do a 3 year plan. If above, it must be 5.

[lillymarlene]

Hi babyvo, Welcome.

1. I'm so close to paying off my car and those small CC's. My student loans will always be there. The only real problems are the cards in collections, and the only reason I have to act now is because of the suit. Is 13 really my only option? Is there some other avenue I should be looking into?

No, you might look into credit counseling, if your income is high enough to support it. While I was still considering whether to bankrupt or not, I saw somebody who is a "legitimate" credit counselor. She immediately took one look at my income, expenses and debt, and recommended that I consult a bankruptcy attorney.

2. He said all the CC's, my car, and the student loans would be included in the ch 13 and I'd stop paying them, and pay the trustee instead. $300 a month is even less than I'm paying now between the loans and my car. Could this really be true? And if so, can you have a savings account and save money while in a 13? I thought the whole point was that they got your disposable income?

My chapter 13 is much less than if I had to pay and negotiate something with my former creditors. I haven't really been able to save much, but my bank balance is positive. Many people though, I do think are able to save. For example, not spending all that is in the clothing budget this month, but putting it instead into savings.

3. My boyfriend and I live together, and plan to marry, have kids, get a house, etc within the next 3-5 years. I've also been working on starting my own food business, and have been trying to save money for licenses, etc. Does a CH 13 mean all of that goes on hold for 3-5 years?

That's tough to answer. You will need permission from your trustee to take on any new debt while in a ch-13. I could be wrong but I imagine obtaining a mortgage, or taking on a business lease would fall under the "new debt" category. As far as business licenses, go that may be different, if you can pay for them outright. Then (well in my case anyway, though it may be different in other areas) according to my attorney, small accounts, net 30 with my vendors are allowed, being considered "normal business."

Good luck.

[babyvo]

Thanks lillymarlene, that's really helpful. I'm going to try to meet with a credit counselor before I make my decision.

[Pandora]

why would you file a Ch. 13 vs. a Ch. 7? If you dont have to be in a Ch. 13...then dont opt for it for goodness sake.

[babyvo]

The lawyer didn't even mention chapter 7. I guess I assumed I didn't qualify, or that chapter 7 would mean losing my car. I'd like to keep my car if possible.

[SMinGA2]

It really depends on your situation.

When you consider your net income less your expenses - what is left? By expenses, I don't mean the 'I haven't bought clothes in 10 years and I can only afford cereal and ramen' budget. I mean reasonable expenses. Google the DOJ means test expense figures to get an idea of what is considered reasonable. There are amounts based on family size. I can tell you that for my family of 6, $600 a month on groceries (food only, not all the other stuff) is reasonable. But I'd also need to factor in household stuff (cleaning supplies, paper products, etc.) and personal care items (shampoo, soap, toothpaste, haircuts, etc.) and medical OTC (misc cold meds, ibuprofin, bandaids, etc.). Then there's rent or mortgage, gas, utilities, insurance, car maintenance, home maintenance, and so on. (If you rent, you probably will have a minimal amount for home maintenance.)

The major factor in choosing ch. 7 vs 13 is DMI. When you take your net monthly income and subtract all of your bills/expenses - what is left? If its a minimal # or negative, you will probably not be forced into a 13. You can demonstrate that you can't afford a payment plan. Keep in mind you would NOT count credit card payments.

Another factor - do you have non-exempt assets? Research your state's bankruptcy exemptions. If you have non-exempt assets, you have to make a choice. You could strike a deal with the trustee, and pay the trustee the non-exempt portion. Or you could let the trustee take your property. Example: if your car is worth $15,000 and your state only allows you to exempt $5,000 then you have $7,500 non-exempt equity. OR you could try to do a ch. 13 where you pay at least the amount of non-exempt equity to your unsecured creditors over 3-5 years. If your DMI is really small or negative - this can be tough of course.

The lawyer didn't even mention chapter 7. I guess I assumed I didn't qualify, or that chapter 7 would mean losing my car. I'd like to keep my car if possible.

[ValleYum]

PA has terrible exemptions - but the OP can use Federal exemptions. Median income for 1 person in PA is $45,092. Federal exemptions with their generous wild card would likely cover all of the OP's assets. Their being able to file a 7 will very likely hinge on their DMI.

Listing their expenses here could perhaps help us see why the attorney recommended a 13 versus a 7. (Perhaps it is the fact that she lives with her boyfriend and splits living expenses with him leaving OP with too much DMI)

[babyvo]

Since I got hired full time and got a $5/hour raise in January, I do have money left over. I've still been living pretty simply and paying down my debts the last few months, but i have allowed myself to spend more (which is probably just an average amount) on food, clothes, and other personal expenses. I bring home $1932 a month. My boyfriend and I live together but our finances are separate. We share the house bills, but everything's in my name (he moved into a place I was already living in alone before we met). Here's a breakdown of my expenses, these are total amounts and I have not split my boyfriend's share:
Rent- $575/mo
cell phone- $90/mo
internet and cable $120/mo
electric- ranges from $30-$120 depending on season
gas/heat- ranges from $30-$350 depending on season
car payment- $217.38/mo (about 6 months left on loan)
car insurance- $65/mo
Student loans $202/mo (that's with hardship deferment and only paying interest on most of the loans right now)
gym- $40/mo

Those are all of the set bills. Everything that follows here is a guestimate depending on what I need from month-to-month.
Food- $200-300
transportation- $120/mo
pet expenses- $50/mo
personal care- $50/mo
clothes- $80-100/mo
medical- $50/mo
automatic transfer to savings- $40/mo
Entertainment- $80/mo
Car maintenance and repair- about $1000 per year

I guess I'm confused about what will be considered acceptable amounts for each category. And when it comes to my boyfriend, will they look at his income, or assume that he pays more than beyond just the house bills? We really do keep our finances separate, and sometimes I'll pay the bulk of the house bills if he's having a rough month. If he were to move out, I would definitely have little to no DMI. Also, for things like gas and electric that vary depending on season, how do I list that? My heat bill has been as much as almost $400 in the winter and as little as $30 in the summer.

[SMinGA2]

For the DOJ 'standard' expenses for 1 person: $301 food, $86 clothing & apparel, $32 personal care products, $116 misc., $30 housekeeping supplies. So you could probably claim the upper end ($300) on food, but the lower end ($80) on clothing. And personal care is a little high at $50. Pet expenses, I think, would fall under Misc, as well as entertainment & gym. I don't think you'd be able to get away with claiming the full amounts listed for those 3, but the difference is not a big amount. Savings would not fit in a ch. 7 or ch. 13 budget.

For the gas & electric utilities, try contacting the providers to see if they have a budget billing plan. If so, they look at your prior 12 months usage and bill you an average amount each month. Helps to keep things even, so you know what you're paying each month. If not, then look at your last 12 months and average them out. That's what you'd include monthly.

As far as I know, when it comes to a roommate (that's what your boyfriend is since technically) then you'd count what you pay. Such as if you split the utilities, you'd count your 1/2. You'd count in full things you pay on your own - like auto insurance, cell and such. You don't have any claims on 'his' money. Just as he doesn't have claims on yours. (Its a little different when its a family/spouse situation.)

A net income of $1932 is not ALOT of money. Overall your expenses are reasonable, with a few tweaks here & there. If I were in your shoes, I'd sit down with a couple of attorneys and go over my #s. I'd push for a ch. 7.

[momofthree]

You should be able to file a chapter 7 fairly easily. Schedule interviews with a few more lawyers, and if your boyfriend isn't on the lease or utilities, I would list the full amounts. Technically, since you're not married, engaged, etc. he could leave at any time (not saying he would, but legally).