Questions about Chapter 13...

[gnarfle]

I'm just planning ahead here, right now I'm on a 3 year plan to be debt free but I'm really paranoid something is going to go wrong. Mostly because I'm dependent on a second part time job to make ends meet (and pay ahead on my debt) and I worry that second job will go away (it would be really hard to replace). So right now I'm fine but trying to reassure myself that the worst case scenario wouldn't be too bad...

If anyone has any insights on these issues I would be very grateful!

1) Let's assume I lose my second job. My income has now been slashed, but my past 6 month income is way higher. Can this be factored into the payment plan (I see the sticky above but it mostly refers to one time events), or am I going to have to dodge creditors for 6 months waiting for my 'income' to drop? I'm really terrified of the latter...

2) Household size... I claim 1 dependent on my tax returns. However, I have joint custody of 3 kids. In reality this makes my expenses wonky. If my household size for the means test is 2, it's going to be a real stretch to make the payment because my housing, clothing and utility costs have to accomodate 4 (as those are fixed costs regardless of how much time the kids are here). But, some other things like my food budget are more like 2.5 people. Basically when I go through the means test, a household size of 2 is rough, 3 sounds about right and 4 puts me in Chapter 7. Has anyone had a similar situation? What was the result?

3) Renting? One big thing I'm worried about is finding a place to live if I need to move (if I can't afford a rent increase on a plan, or need to move for work). It seems like in a Chapter 7 you can start rebuilding your credit almost immediately. However in a 13 you have 5 years of no new credit, leaving your credit score in the dump. How on earth can you get approve to rent a home in a chapter 13? I suppose you could try and get lucky and find a landlord who doesn't run a credit check but that's a long shot. How difficult has it been finding a place to live? The thought of waiting 5 years before being able to build up my credit score is pretty scary!

4) Saving money... I'm really not comfortable having no credit and no savings. Yet the idea of a Chapter 13 seems to be that you pay every penny you can to creditors. Without any savings to fall back on, how are you supposed to deal with unexpected medical bills or car repairs or anything else life throws at you? And if I do manage to scrimp and save, can that be confiscated for the plan? Let's say I file with $5,000 in the bank, can I keep that as an emergency fund? Or if I manage to save up money while in a plan, can I keep that?

5) Monthly payment, I don't quite understand. Does it go off of actual expenses or what the national averages are? For example if I had to file with a household size of two, the online calculator at nolo says my rent allowance is $1200 a month. I'm currently paying $1295 a month an expect it to go up this summer. Would my payment calculation be based on what is 'average' or what I actually pay for various non luxury items?

[kornellred]

Hello gnarfle -

You should really consult with a bankruptcy attorney or two in order to get an idea as to what is possible for you. Then you can come back to the forum and ask the kinds of questions that you are asking.

Unfortunately, since losing your second income is only a possibility and not certain, the issue will have no bearing upon the determination of your Disposable Monthly Income. Confirmed Chapter 13 payments are routinely modified during the course of the plan, so, if you lose your second job, you can always have the plan payment adjusted to your new income levels.

It would seem that the number of dependents you have is less important than the actual, verifiable monthly expenses. If you are referring to the published median income guidelines that dictate your eligibility for Chapter 7 filing - that is another matter. Household size may be rigidly defined by the number of persons living under one roof on a full-time basis.

There are plenty of rental opportunities everywhere that do not require credit checks. You just need to look for them. Such places may not be what you would prefer, but neither is bankruptcy.

[LadyInTheRed]

Welcome to BKforum!

1. Your plan should be based on your forward looking income. However, things will go smoother if you wait the six months, or at least part of the six months. Dodging creditors for 6 months is pretty easy to do. There are lots of tips in the collections forum.

2. I believe there are inconsistent rulings on the question of household size. So, it may depend on what district you are in. This is an excellent question to ask when you go on free consultations with bankruptcy attorneys.

3. Actually, most in Chapter 13 report improvements in their credit scores during their plan. After over 2 years, according to creditkarma.com, mine has remained steady at around 670 after an initial drop to around 600. I believe landlords are more interested in your rental history than your actual score. It may be a bit of a challenge to rent while in a 13, but it isn't impossible. Don't worry so much about your credit score. If you are bankrupt, that should be the least of your concerns. Beside, if you don't file and your debts go into collections, your score will probably be lower 5 years from now than it will be if you file Chap 13.

4. You can save money while in Chap 13. In fact, it is necessary to pay expenses that don't occur monthly. The trustee cannot take savings that you accumulated. Whether you can keep $5,000 that you have on the day you file depends on your state's exemptions. I have a $10,000 CD that I was able to exempt under California's generous wildcard exemption. It is still there earning 5%, a lot more interest than anybody is offering today. I hope to be able to avoid touching it for another year until it matures. But, it's comforting to know it's there if I need it.

What is your 3 year plan? Are you working with a debt consolidation company? If so, you should be aware that many bkforum members regret trying that before discovering it was not helping and filing BK anyway.

[brandv1]

I can tell you that I'm one of those that LITR is referring to regretting the debt consolidation/settlement route before filing 13. Biggest mistake ever. I should be getting my 1099 for the one account they did settle any day now. Hopefully that does throw my taxes so far off that I owe this year because I've only been able to build about 300 into savings so far.

[gnarfle]

I currently have about $25k in debt on a DMP (2 years in), $8k on other unsecured credit (amex, not eligable for DMP), $8k car loan, $10k student loan and soon to be an IRS installment plan (as I recently sold the marital home which has been a rental the past 4 years and even though I paid cash at closing was considered a profitable sale by the IRS rules).

The upshot is, there are 3.5 more years on the DMP. If I keep paying what I'm paying now, the unsecured credit will be done in 3 years. The car loan has 34 months left. The student loan is only 3.8% and isn't going away in bankruptcy either so I don't worry about that. The IRS installment plan scares me but I have little choice...

So in about 3 years the DMP and car and unsecured debt will all be gone, which will free up a lot of monthly income to pay off the taxes. And this is currently no problem, I can pay all the bills and have some extra to set aside with my 2nd job. However, if that goes away it will all come crashing down. My main focus, right now, is to build up savings so I have a cushion. With my second job there really is no point in thinking about bankruptcy now anyway, my income is way too high and it wouldn't get me anything so at best I can just wait and hope for the best. That uncertainty is slowly driving me crazy though, so I'm trying to assure myself that worst case scenario, it will be ok. My big concern is that because of the family size issue, my monthly expenses would be deemed unreasonable and I'd have to pay more than is comfortable in a chapter 13 plan...

[gnarfle]

Hmmm maybe someone else knows this, I can't find anything on google...

Will I ever have to pay back more than 100%? I reasonably confident my second job will last through the next year. Assuming that's the case, with my current course I would expect on January 1 next year to have about $25,000 remaining in unsecured debt. Which, is a pretty small amount all things considered. If I had $25k in unsecured debt, is there any way my chapter 13 payment could ever be > $25,000 / 60 = $420 a month? In other words can the plan require me to pay back more than 100%, like adding in some for interest?

Like I said I'm really just preparing for the worst here. My sincere hope is that my second job continues for at least a year and no disasters happen, and I feel like if that does getting the debt down to $25k gives me options (for example, if need be I could leave the DMP and lower minimum payments on the closed accounts, though this would come with higher interest and longer payoff). If my side job lasts for 2 years I should be pretty safe. BUt if something happens in a few months, well, I'm trying to mentally prepare and reassure myself. I suppose it's a bit nuts but I've been so worked up lately, not being able to sleep, anxious and scared, even though everything right now is OK. But the thought of what could happen scares me so much and I'm trying to make peace with it!