Ch-13 advice and questions

[chriskfromsc]

Here's my story. I am currently going through a divorce and am awaiting a separation maintenance and support order. We have 2 houses. The one we don't live in (rental) is upside down by almost 100k (when you include the second mortgage). We also own an RV that is about 25k upside down. Our main purpose for the Bankruptcy is to get out from under these 2 money pits. We also have about 50k in unsecured debt. I am a high income earner (>125k) but I can not afford all these payments plus child support and alimony. In the divorce I have agreed to take on all the joint debt of the relationship in exchange for the primary house. There are a couple of credit cards just in her name that she will have to keep in her name, I assume. Couple of questions:

1) If she files for Ch-7 and I file for Ch-13 how does that work with all the joint accounts we have?

2) Will alimony and child support be counted in her disposable income calculation if she does file a Ch-13?

3) I have a yearly bonus that is variable but a pretty significant portion of my annual salary. If they just took that and divided it by 12 to count into my disposable income, I would not be able to afford it the first year. Are they able to just take that out of my salary when the bonus is given?

4) What if my disposable income is high enough that I can pay 100% of my unsecured debts in less than 3 years? Are the payments still stretched to 3 years or do they tack on interest or other payments?

[justbroke]

First, my sympathies for being in this position. Bankruptcy and divorce can be two major financial stressors. I think you are doing well by planning this out.

1) If she files for Ch-7 and I file for Ch-13 how does that work with all the joint accounts we have?

She would no longer have the debt, and your Chapter 13 "might" pay something to the unsecured creditors based on your disposable monthly income (DMI).

2) Will alimony and child support be counted in her disposable income calculation if she does file a Ch-13?

All income counts with the exception of certain payments received as part of the Social Security Act. So the calculation of the ex-spouse's income would include alimony, child support, and any other regular income received which is not Social Security benefits. In actuality, it would count for either Chapter 7 or Chapter 13.

3) I have a yearly bonus that is variable but a pretty significant portion of my annual salary. If they just took that and divided it by 12 to count into my disposable income, I would not be able to afford it the first year. Are they able to just take that out of my salary when the bonus is given?

This depends on two factors. The lookback period and how your attorney creates your Plan of Reorganization. I had the same concern as my bonus was in my 6-month lookback, so it inflated my income for the 6 months. Your attorney would typically take your annual earning and divide it by 12 and put that number on the means test.

4) What if my disposable income is high enough that I can pay 100% of my unsecured debts in less than 3 years? Are the payments still stretched to 3 years or do they tack on interest or other payments?

This is something that your attorney would need to work on. In some cases, the Trustee will fight to make sure you contribute all of your DMI regardless. However, the bankruptcy code only reads that you must pledge all of your DMI only if you are not paying 100%. So, if you're in a 100% plan, it would be your Attorney's careful crafting and defense of your Plan to make it so that you do not need to pay the entire 100%.

Also, did you know that you get to claim the alimony and child support as an expense? This may actually lower your DMI. If you are not going to be the custodial parent, this could also mess with your calculations since you'd be "single" with no dependents, for purposes of the means test. Just find an attorney that can help you get the best plan possible.

[chriskfromsc]

Thank you very much for the information. It is greatly appreciated. I did have a question though if someone is familiar with SC state exemptions. In my research it says that Alimony and Child support are property in SC and aer exempt. Does this mean that this income is not used in the calculation of DMI?

[justbroke]

Thank you very much for the information. It is greatly appreciated. I did have a question though if someone is familiar with SC state exemptions. In my research it says that Alimony and Child support are property in SC and aer exempt. Does this mean that this income is not used in the calculation of DMI?

You are misunderstanding "exemptions" versus the definition of "current monthly income" (CMI). An exemption protects the money from the BK Estate and from attachment by creditors. An exemption does not change whether it is considered CMI for purposes of the means test.

Think of an exemption as you have $$$ in the bank and it is (non-mingled) Alimony or Child Support and it is protected from attachment. That means the Trustee can't take it to pay unsecured creditors and likewise, the unsecured creditors can not claw at it either in a non-bankruptcy context. That doesn't change that it is defined as "income" (CMI) as far as the Bankruptcy means test defines it.

Now, your attorney could argue that it's not income (CMI), but that would be shot down by the Trustee/UST.