My story and request for advice

[ld2366eh]

Let's just say my idea of a balanced monthly cash flow was making enough income to meet my minimum payment requirements on credit cards. We lived like this for years. We'd earn a bit more, our credit card limits would increase, we put everything on our cards and life was good. I could justify any purchase in the world if I could afford the minimum monthly payment required.

And then the economy went south. I took a paycut at work (not too too significant - about 6%), my husband didn't get the annual raise he was accustomed to receiving, and we found out we were pregnant all around the same time. That was 2009. We were faced with day care expenses again, and things tightened up. Then the credit card limits were either maxed out by us charging more, or by the banks slashing them to our current balance.

Either way, our available credit dried up over the course of a few months. That was when I made my first appointment to seek credit counciling. They determined that our cash flow deficit was huge, and I convinced them I could still afford the monthly payment plan they could put me on. That was in 2010.

That actually worked out for awhile, I made payments to them, they paid my credit cards and my interest was minimal. But 13 of 17 of my cards were closed. I utilized the other 4 open cards to pay for Christmas presents, and other expenses to help close the gap in our cash flow deficit.

I habitually paid off a 401K loan, only to retake it out again (to access more of it). I still thought eventually we'd be fine - when the secured debt was paid off. We had personal loans and car loans that would be paid off "eventually" and I just kept trying to make it through the short term. Last year, I took hardship withdrawals on my husband's 401K account to cover the cash flow deficit.

Then guess what? I find out I'm pregnant again (more daycare). Oh, and did I mention that I didn't pay up front any taxes from the 401K hardship withdrawals from last year?

This year, I decided a different approach. I took my cash flow and updated it with my real spending. Not the goals I thought I could reach. That was when I realized that with the increased day care and installment payment to the IRS (we have a installment loan that originated in 2008, and I've rolled into it ever since), that my secured debt that would be paid off within a year, wasn't going to cover it. I would have to take out another hardship withdrawal in 2012. And then what? I realized that every single "out" I thought I had, I had used up.

So a friend of mine said, why don't you just stop paying on your credit card debt, until you get some of this other stuff under control? I brushed off her comment with, oh, we'll be fine in a few months...

That was when I started doing research on the internet. And I felt like I was the perfect candidate for a Chapter 13 - a fresh start. No more 401K loans or hardship withdrawals. I met with a law firm and paralegal at the beginning of February and went over our situation in detail. I was told that since we owe more on our 1st mortgage than the house is worth, I could strip the junior liens we have (yes, we have not one, but two!). I should be able to include the 2008 portion of our IRS debt as unsecured, and also include our hospital bills for the baby that is due in May. That, plus surrender the timeshares we have (we were talked into not one or two, but three! Wow, we are weak.) Plus the credit card debt. Talk about getting a fresh start!

I am hopeful and looking at this as one of the best strategic financial decisions I could ever make. We are extremely blessed. We have a healthy family and steady income. I know I am lucky. This is why I am not letting myself get down about how really bad we are from a monitary standpoint. I really hope Chapter 13 is the right decision for us. We have been living off of cash exclusively (well - a debit card) since January and 95% cash since 2010) so I am 90% confident I can survive a 5 year payment plan.

Of course, I KNOW something could happen over the next 5 years that could throw all of this out the window. I won't think about that unless it happens.

Please, please, anyone that could give me any advice, I would be most grateful. We've only just started not paying on our credit card debt (FEB and MARCH) and junior liens (yes, I get 25+ calls per day) so I think we have some time here to pre-plan this BK.

My current goal is to attain a payment plan that I can truly afford. Any advice on pre-planning, would be gratefully accepted!

And good luck to the rest of you out there!

[pamkev]

First let me welcome you to the boards while I can't give you any advice on your situation as we to are only starting down this path. Have you only seen one lawyer, if so make appointment with a few more as one might have a different take then the others. We saw four different ones have it down to one but seeing someone else who is to be tops in her field. I can also tell you read everything you can on the boards they have tremendous advice and I'm sure someone soon will post to help you.

Pam

[LadyInTheRed]

Welcome to BKForum!

Your story of using credit to live beyond your means until you found yourself in a hole you can't climb out of is a common one. I remember thinking to myself at times "as long as my minimum payments are managable, I have everything under control." Yeah, right!

It sounds like you are going into this with a great attitude. That will help a lot.

One important thing to do before you file is to make sure you have reliable transportation that will get you through your 5 year Chap 13. If you need to, you can finance a car before filing, assuming you can qualify for financing. The interest rate shouldn't be a concern. But, the vehicle should be modest and you need to make sure that the payment isn't going to decrease your DMI too much to propose a feasible plan.

Do some reading here and post whatever specific questions you come up with.

[SMinGA2]

The details may differ, but your story is very familiar. We were doing fine (or so we thought) and little changes in life eventually made us come to terms. To see that something had to change.

I would say to not rush into a ch. 13 filing. Since you just stopped paying unsecured & your 2nd/3rd mortgages, you have a while before you're forced into action. (By that, I mean until a creditor tries for a judgment. Probably 3-6 months if not longer.) In my opinion, the longer you live in this new reality, the better you'll be prepared for the next 5 years. I recall from other threads, I think, that you have non-exempt assets. So you probably won't want to store up a large sum of cash - which would mean more non-exempt equity. But you could focus on things like home maintenance, vehicle maintenance and such - try to take care of the expenses you can anticipate in the first 6 months or so of your plan. That way, during those first few months you could hopefully store up a small emergency fund.

[ld2366eh]

Thank you for your suggestions! We do have some non-exempt assets, household stuff, older cars (not expensive, but still classic) and a few pieces of jewelry. We are going to take the jewelry tomorrow to a shop to see what the street value is for it, and we'll take the 06 Mustang and 09 T&C to CarMax to see what they would "give" us for them. The '66 Mustang is just the body (no engine or transmission) not worth very much, and my husband's 67 Galaxy, he had inherited from his Dad a few years ago when he passed away. It's worth about $6.5K and he would NEVER surrender it. The '06 Mustang is his "play toy" and he races it upon occasion. He would never give that up either - that's the one we are still paying on through October. He made me promise that the only way he would go along with my suggestion to file for bankruptcy, was that he would not have to give up his cars. Please correct me if I am wrong, but I don't want to wait too long though? The T&C payment is 0% interest and the payment is $761 a month and will be paid in full in April 2013. Every month we delay, I am building up equity in that car? We are thinking that we will file somewhere between August and October, unless a creditor surprises us and files for a judgement or something (or our 2nd/3rd serves us a summons, not that that would make any sense from their financial standpoint considering how much the 1st mortgage is underwater, but I am VERY paranoid about losing this house).

Does anyone know how long I have in Illinois before someone could potentially foreclose on the house? I just made my 2/1 payment to my first mortgage (hasn't posted yet to their site), and I am behind on my second for the 2/1, 3/1 and 4/1 payment. I thought I read somewhere that I have 90 days from notice of default and 7 months from something? We got an acceleration letter back in November from our first, when we first fell 2 months behind (I've been maintaining that 2 month behind status since then). The 2nd sent us a NOD that told us we had 33 days to pay before they would file an intent to foreclose. The 3rd is a little more weird. "Express Equity" with HFC, was part of a temp modification, I paid it on Nov 28th, missed the Dec 28 and Jan 28th pmt. Paid 1/2 payment in Feb (they were putting me back on another temp mod), then I quit paying again based on advice from my lawyer. I guess I am just hoping that we are "safe" until August minimum. Seems selfish, but we have these stupid timeshares that aren't behind yet, and I want to use them one last time before we need to surrender them in the BK. It's just a beach trip (not much cash out of pocket since it's all paid up front through my monthly payments) and gasoline to get there. We don't spend much money when we get there. We hit the grocery store, hit the beach, only go out to eat once or twice, and just chill out with some beer at the pool. The kids are looking forward to it, and we've invited friends to go along as well. I don't want to cancel it unless I have to.

[SMinGA2]

You have a point, that you have to consider equity/non-exempt assets in your timing to file. The bottom line, I think, is that you don't want to file if you're still in transition to accepting a more realistic way of living/spending. (Not saying this is you - but if someone files before they've fixed their budget issues, they are headed for trouble.)

Getting estimates on what your stuff is worth will give you a better idea of what to expect. I'm a #s person. I calculate and analyze EVERYTHING. If you can figure out the non-exempt amounts, priority debt, and such - then you can have an idea of what minimum needs to be paid to make a successful plan.

If you're right that your home value is less than your 1st, its unlikely the 2nd or 3rd will do anything other than send letters. Keeping up on your 1st though would not hurt. The arrears would get paid in the plan, but that will add to the minimum payment x 60 that you'll need to be able to afford.

[ld2366eh]

You are exactly like me. I am an accountant, and believe it or not, I have our future income and spending in "Quicken" spread out through the end of 2017 based on what I am "thinking" my plan payment would be. My past problem was, that I thought I knew where I was at any given point in the future using this future spread (I've been perpetually on the "5 year plan" of my own.) But I didn't really have an accurate future spend within the program. Sure, I had spending for the major stuff, but left out a lot of minor items that add up. When I put those in, that's when I realized how screwed we really were.

I've calculated my own B22C schedule as well as I and J (so that I can compare them to what the lawyer comes up with). The parts that I don't know (and I suppose will find out at my intake meeting or when they do my schedule J for me after that), is what the trustee will consider reasonable expenses, compared to what I consider reasonable. I don't feel we overspend anymore, but who knows? Will they allow pet expense (we have 3 large dogs) and Christmas/birthday presents - how about school expense, ie. field trips and instrument rental for my one band student? Gasoline and day care take up such a huge chunk of our income each month, I really hope we can justify that expense as well. The other part that's killing us is the 401K loans, not considered in a 7 for the means test, but will be for the 13. (Not that we could afford a 7 with the 2nd and 3rd mortgages anyway.) They'll do a step up for that portion as well. When I do the "means test" for the 7, we are not eligible, but when I do the test for the 13, we are in the whole big time. And even when I do the I and J schedule (using what I consider reasonable expenses), we barely cover the initial minimum payment that I think would be a part of the plan based on the plan payment for secured and priority debts.

What I did in an excel schedule was factor out the step up/downs for the future knowns (401K loans and their payoff dates, payoff of the 2 car loans, increase in the mortgage payment come December 2014 and potential FICA increase from 4.2% to 6.2% in January of next year). As far as the plan payment, I factored in the total arrearages for the 1st mortgage, the total payments on the Jeep loan (the lawyer said they could get my interest rate down from 9.99% to 5.5% if I put it in the plan), and the 2009-2011 IRS tax debt that will have to be paid in full. Since I'm still coming up with pretty much nothing left for the general unsecured creditors, I'm trying to figure out how much my non-exempt assets are worth, since we'll need to cover at least that much to the credit cards (hopefully after the priority debt to the IRS). And I'll compare all of what I've done to what our laywer comes up with for me (which I don't know yet, and I hate that). At the end of the day, I just want to know that the plan payment isn't beyond our reach, and if it is, are the numbers correct and what I'll need to do to prepare for that. I know there is a 40% fail rate, and I don't want to be a part of that 40%. We have way too much at stake. With 3 kids (4th on the way) and 3 dogs, we can NOT lose this house. As long as my husband and I both have jobs, we have to succeed at this.

[SMinGA2]

Yes, getting a car loan down to a district's till rate is standard for auto loans paid in the plan I believe. BUT keep in mind that anything paid into the plan - the trustee takes a cut. So if your now rate is 9.9%, it may be better to keep that loan out and pay it directly. (If it is an option.) You can probably find out your trustee's rate, it varies between 5-10% roughly depending on the district. If you're in a 10% district, just keep in mind that every $100 you pay - sends $10 to the trustee. Only the other $90 would go to creditors.

One other question - have you adjusted withholdings and such to make sure you don't owe in 2012 and future years? (Of course, you'll have another deduction in 2012 - congrats by the way.)

[ld2366eh]

Yes, I checked that part already. The trustee here is 6.7% (unless it went up) so I figured it out, and we'd still save money by putting the car loan in the plan - about $3K. And yes, I used the tax cut program to estimate next years taxes based on the changes from this year (new baby, less in mortgage interest expense, etc.) and changed my withholdings accordingly. I don't want to end up with a refund either (and minimal owing). And thanks! Baby is due end of May...

I'm also factoring in a potential payment to unsecured creditors based on the trustee being unhappy with our large Jeep debt.

My lawyer (actually, I've talked more with the paralegal than the lawyer) says that we don't want the trustee to confirm the plan based on what we submit initially, otherwise we may be paying too much into the plan. Does that make sense? That it's kind of like a negotiation, give some take some?

[SMinGA2]

Exactly. That's how I've heard it also. If the trustee takes your initial 'offer' you probably are cutting yourself short on expenses somewhere. I would think in your case, where there is a minimum amount due to assets and priority debts, that you'd want to initially offer enough to just barely cover those things.

[momofthree]

To give you an idea of "reasonable" allowed expenses in a ch.13, the IRS guidelines are used. You can view them here: http://www.justice.gov/ust/eo/bapcpa...anstesting.htm

[LadyInTheRed]

One thing to remember about the trustee fee is that it may not matter to you at all. It depends on your situation.

If you have non-exempt assets or priority debt and you are trying to minimize your Schedule J expenses so you can show enough DMI to propose a feasible plan, including a car loan in the plan payment will make a difference to you. The OP does have non exempt assets and tax debt, so she could be in that situation. That is also a situation where buying a car to get you through the plan could make it more difficult to propose a feasible plan if the new payment is too high.


If you are like me and your DMI is such that you are going to pay something to unsecured non-priority creditors anyway, an increase in the trustee fee only reduces what goes to unsecured creditors. My car payment is $300 and paid in the plan. My plan payment is $500. If I paid the car payment outside the plan, my plan payment would be $200, the trustee would get less and the unsecured creditors would get more. My bottom line is the same. My attorney recommended including the car payment in the plan payment so that the trustee gets enough to be satisfied and keep her from looking for more DMI to increase her fee.

Seems selfish, but we have these stupid timeshares that aren't behind yet, and I want to use them one last time before we need to surrender them in the BK. It's just a beach trip (not much cash out of pocket since it's all paid up front through my monthly payments) and gasoline to get there. We don't spend much money when we get there. We hit the grocery store, hit the beach, only go out to eat once or twice, and just chill out with some beer at the pool. The kids are looking forward to it, and we've invited friends to go along as well. I don't want to cancel it unless I have to.

I say go. It sounds like a modest vacation. Time with your kids is precious. So is the opportunity to just chill out.

[alorth]

All I can say....and I'm in a 13 right now having just been forced to convert INTO it from a 7.....is if you think they'll let you keep things like "extra" cars, I feel you may be in for a surprise. There are certain exemptions you will have, but above and beyond those exemptions, you may be asked to liquidate so the money can be paid into the Plan.

I hope you aren't paying a significantly higher payment for your home than what the IRS considers the average house payment for a family of soon-to-be 6 in your county of residence, because you may have an argument on your hands in terms of being allowed to stay in it. Some courts will consider an excessively high house payment (for your general area) as a sign of living too luxuriously, and not enough "belt tightening" to be in a Plan. Some jurisdictions are more lenient on this than others. I am currently fighting to stay in my home after liquidating EVERYTHING else. The courts want us out. Not saying this will happen to you, but just know it can come up. Your atty. should be able to tell you if you're OK in that area.

Your story has some eerie similarities to mine, though my family is not so large as yours. Having a large family should help you in a way....especially in terms of what your actual expenses are.

Good luck....and get a good atty. you can stand to deal with for the next 5 years. Its sooo important to have a good relationship with your atty. in my opinion...especially in a 13.

[LadyInTheRed]

All I can say....and I'm in a 13 right now having just been forced to convert INTO it from a 7.....is if you think they'll let you keep things like "extra" cars, I feel you may be in for a surprise. There are certain exemptions you will have, but above and beyond those exemptions, you may be asked to liquidate so the money can be paid into the Plan.

In a 13, you keep your non-exempt assets as long as you can show enough DMI to pay the non-exempt value to unsecured creditors during the life of the plan. Whether you will be allowed the expenses related to those extra cars is what the real issue is.

[alorth]

In a 13, you keep your non-exempt assets as long as you can show enough DMI to pay the non-exempt value to unsecured creditors during the life of the plan. Whether you will be allowed the expenses related to those extra cars is what the real issue is.

So how does that work with a house out of curiosity?

Or is that just treated completely different?

I have tried to find other stories like mine where the house payment has been an issue to the TT and/or the Judge in a 13, but I haven't really been able to find anything on the internet, or this forum. I have found issues that come up in a 7, but not a 13. Everything I read stresses how you can keep your house in a 13 as long as you can make the payments and are on time. Nothing about how if the payment is too much in their eyes, you'll be asked to give it up! It just really bothers me, and I can't get over it, especially since I can't seem to find ANYBODY else who has experienced a similar circumstance.

Not wanting to hijack this thread....I just wanted to address LITR for the clarification she made to my previous post.