Chapter 7 became our reality TODAY. Need your help!

[Chrysalis]

Hello ~ I posted back in September about "preparing for Chapter 7". We had talked with a couple of attorneys and it seemed like our only option.

Problem was: My husband's income was too high. So he was going to have to stop getting the overtime and bonuses to bring his income down. Well. That is a very hard decision to make. We had not fully committed to that option yet.

His income has come down slightly since then -- due to herniated discs in his back and constant pain since October. He's still been able to work (and they do not know about his troubles) -- but has been on lower-paying jobs and traveled considerably less, due to needing to be home for chiropractor & other doctor appointments.

Things changed this morning and I would say finalized the decision to actually prepare for filing Chapter 7. I could go into details about his job -- but it doesn't matter -- let's just say his income is temporarily going down. WAY down. As of today. This could be anywhere from 3-6 months -- but I'd say definitely enough to bring that 6-month income down to where it needs to be for a Chapter 7.

We are current on all of our debts. We haven't paid anything late -- ever.

We have been regularly using the credit cards for living expenses -- of course including Christmas gifts, and also a recent purchase of items needed to replace a shower. I would not say there have been any "luxury items" ... as we have been in the "oh shit" frame of mind for awhile now ... knowing that we may soon get to a point where we have no other options beyond bankruptcy of some kind.

I don't know what to do next.

I don't know when to stop paying on the cards. I know we're supposed to stop using them and stop paying them -- but how bad does it look if you've JUST charged something (like the shower supplies on a store card we haven't used for awhile) and then just never send them a dime to repay it? It looks intentional... but this was not intentional. We had zero way of knowing what was going to happen with his job this morning.

My husband needs a new cell phone and has been out of contract / eligible for an upgrade for quite awhile. I think he should go get a new phone NOW before our credit is ruined. Will that look bad? I am questioning everything now.

I have the NOLO book "The New Bankruptcy: Will it Work for You?" but I haven't gotten very far into it yet. Most of the things I have read so far were things I already knew from this forum and the bankruptcy attorneys we've spoken to.

It's these little details that I am hung up on. The timing, how things will look, what we will be questioned on. We are super honest people and I want to have all of my ducks in a row to be able to sleep at night and know I did the best I could do with a really crappy situation.

Payday is two days from now and I just can't see not paying these cards.

We have a consolidation loan with Prosper that comes directly out of our checking account -- still need to call and have that changed to self-pay. (So we can eventually stop paying it.)

We have our checking account with Chase -- whom we also have a credit card with. I still need to get his direct deposit switched over to Capital One -- who we don't have a card with. Or at least not one with a balance.

Sorry this got so long. I'm not even sure what I am asking at this point. I think I am asking how bad is it going to look / are we going to look suspect if we have been using these cards RIGHT up to the point when we stop paying them?

Thanks to you all for being here. Can't tell you how much it means to me.

[Chrysalis]

I remembered another question I have:

We already know we will have to spend our kids' savings accounts on necessities ... since we were apparently stupid and put them in our names only.

What about their savings bonds? We have a bunch of them in the safe -- which they have gotten from the Grandmas over the years, ever since they were born. This is not something I even thought of while we were talking with attorneys.

[justbroke]

Knowing when to stop paying and actually doing it, is one of the hardest things. Some will tell you that you should stop paying immediately when you know you can't afford to keep doing this and/or are about to file for bankruptcy. You appear to be at the end of the road when it comes to ability to pay, so I would personally stop throwing away money (paying things that would otherwise be discharged). In fact, if you already met with a bankruptcy attorney then they should have informed you to stop using credit and you should have stopped using credit (and stopped paying the bills in anticipation of filing).

As for whether it would appear to be a purchase on the eve of bankruptcy, that depends on when you're filing. The creditor would decide whether they want to challenge the discharge of "their specific debt." I have personally found that you really need to charge up a card with luxury items for a creditor to complain. I had personally charged some things right up to the day of filing (not knowing). The creditors did nothing about it. I am not saying that it's okay; I'm saying that it happens. Generally, using credit for necessities will not be frowned upon although these really shouldn't be on the eve of bankruptcy.

As for the children's bonds, you would (likely) declare them on the Statement of Financial Affairs as property being held for another person.

[Chrysalis]

Thank you, justbroke. I appreciate your time.

The bankruptcy attorneys did advise us to stop paying cards & start using that money to live on. But ~ they also advised us that his income needed to come way down for a Chapter 7. We had not made "The Decision" to file at all... until what happened this morning... and now I see no other option. Period.

Since I posted here in September, we have been trudging along. As I said, he has been working less because of his back -- but not "enough" less. I have been diligently keeping spreadsheets, trying to track every expense and figure out -- just where does our money GO? How much are we spending each month for categories like food, gas, etc? How did we end up in this mess? How bad is this mess, really? Could we afford a Chapter 13 at all?

And the answers I'm seeing say: It's bad. It's pretty freakin bad.

But I needed to have those numbers gathered, you know? In any event, we have to know what sort of money we need to get by. I have given up on pretty much all dreams and juvenile thinking... I feel I really have, through this process. But we have to be able to get by. We've never had a budget. His income is all over the place and we would have had to start budgeting 20 years ago based on ... what? His lowest checks ever? Only spending a certain percentage of each check and then squirreling the rest away for those lower-income times? I don't know. I just know we didn't do it. And now here we are.

Ok, well, I know ~ now I'm just blah, blah, blah... and you probably see this all day, every day. Thanks again for your post! I really do appreciate the support.

(He delivered the bad news this morning, and then had to go straight to bed.) -_-

[justbroke]

It looks like you're at the point where you stop paying credit and worry about your health and welfare. Keep a roof over your head and food in the refrigerator. Life is what happens when we're too busy making plans. I always budgeted, but never stuck with it. Bankruptcy has taught me some lessons that only life can give you when it kicks you in the butt.

Hang in there.

[Chrysalis]

Thanks again for your support, justbroke.

Well, it turns out that his income situation is not going to be as bad as he had predicted. It will definitely be down for ~30 days. BUT he will also be getting bonuses this month that will probably make up for that. Sigh.

We've been having so many bankruptcy discussions and so many questions. So I called the one attorney I had talked to a few months ago, to ask him some more questions. He wants us to send every pay stub from July-December so they can do a means test. Even though he knows that as of now, the income is going to be too high for a Chapter 7... I guess this is to see *how much* we really need it to come down. And he wants to charge us $250 for this. When we decide to file, we will still owe the $1430 fee which is supposed to include "everything".

I guess I am trying to decide if this makes sense? Does this seem like a logical next step... and a reasonable cost?

Thanks to any who answer -- I appreciate it!

[Chrysalis]

I also should add that for our family of five in Indiana, the income limit is $85,000 for a Chapter 7 with no means test.

July-December his income was $107,619.

BUT there are so many mandatory things that come out of his check -- a 401k loan, union dues, disability insurance, etc etc... When I started asking those questions today about exemptions, that is when he told me they just need to gather all of the info and run the numbers.

The more I think about this, the more I think it does make sense to do this. Otherwise, we may be bringing his income down way more than is really necessary. And who the heck wants to do that when you are already in a bind? o_o

[Chrysalis]

Actually, the more I think about this...... I am not sure I want to go with this attorney.

When I called today, I really wanted to see if we could meet with someone and get our specific questions answered. I was willing to pay an hourly rate for this. But I never got to ask about that.

I DO feel like we need to do a means test -- but I don't know if I feel like that alone is worth $250. I have printed & tried to fill out the forms myself, as well as doing the online calculator which has been mentioned here on this forum. I understand most of what needs to be filled in on the form -- I just had specific questions about a few things I wasn't sure about. So when I started talking about that, that's when he got a little bit pushy and told me to send him all of the pay stubs from July - December (completely knowing that the income is entirely too high) and that he'd have "his guys" run the numbers. "But I'm gonna charge you $250 for that, because, as you know, that involves some work."

I WANT to like this guy. I wanted this place to be the one. I don't want to make more calls. But I'm just not sure that's where we're at.

He actually told me at the end of the conversation that "you're making this more difficult than it needs to be" and when I sort of laughed and agreed with him, telling him I'm sure I AM overthinking some things -- because this is a HUGE decision -- a life-changing decision -- he pretty much cut me off and told me he had another call and needed to go. Now, we had been on the phone for 25 minutes... and I have not paid this guy a dime... and I understand that time is money... BUT. That one phrase just keeps going through my mind:

"You're making this more difficult than it needs to be."

This is probably THE most difficult thing we have ever done. There are specifics to each individual situation, and those details DO matter. He kept saying, "worst case, you end up in a Chapter 13" -- even though I'd explained to him all of the reasons why we DON'T want to do a Chapter 13.

Am I reading this situation right? Do these things stand out to others? Because my gut is telling me... move on. Move on.

[leonel9]

My two cents: You need to talk to more attorneys. You need to ensure that the person you hire is competent and has your best interests in mind. I can't speak to whether or not it's commonplace for attorneys in your area to charge a fee to walk you through the means test. I do know that I did not pay a fee up-front in Orange County, CA. I also referred to a post on Avvo.com titled "Ten critical questions to ask your bankruptcy attorney before you hire him or her." In that post it suggests that attorneys should determine if you pass the means test during your initial conversation.

I have a hard time reconciling the fact that the attorney said you're making it overly difficult, while at the same time asking you for $300 to determine if you could even qualify. Maybe it's commonplace, maybe he/she feels you have taken up a lot of time without a retainer, or maybe it's a sign of someone who is more motivated by money. If it doesn't feel right to you, check out other attorneys. There are a ton out there.

The first attorney I spoke with immediately said I would need to be in a Chapter 13, and didn't begin to calculate means test figures. I knew he was not the one when it appeared like I knew more about which state's exemptions I would be required to use. The second attorney I met with (and ended up retaining) pointed out what would be concerns for local trustees, provided information on the amount of life insurance premiums that would aide in the means test. Chapter 13 never came up as a suggestion.

Had I not met with additional attorneys, I would likely be in a Chapter 13 plan today.

[Chrysalis]

leonel9 ~ you are so right. Good points! Thank you for sharing your experience. We are going to shop around for sure. I thought about this and thought about this last night, and I finally realized the word I would use to describe him is condescending. Not overly so, but just enough to make me uncomfortable. The situation is uncomfortable enough without my attorney adding to it. We are hiring them to make the whole process run more smoothly… Not add more stress to it.

Will post more later! Thanks again. I really appreciate you guys.

[brokehmowner]

Do the means test yourself. Our attorney tried to talk us into a 13. I think both the trustee and attorney benefit more from a 13. I'm so GLAD I didn't. His reason was mostly because of our 2nd mortgage, which ended up being completely extinguished. So do the means test to see if you qualify for the 7. 13 is such a harsh sentence (at least that is how a friend of mine viewed it). When her financial situation changed, her bk ended up being extended by 6 more months.

[Chrysalis]

Thank you, brokehmowner. I agree ~ Chapter 13 seems pretty awful if you don't HAVE to go there. We have acquaintances I've spoken with about this who just finished a 13. She says it was their only option. And she was so so so glad to be done with it. Five years is a long time. We have no idea what could be coming in five years' time -- good, bad... We have no idea what is even going to be coming tomorrow. That has been shown to us multiple times lately.

I sent an email to this attorney I talked about above ^ and explained the reasons we will not be hiring him. I wasn't too crappy about it ~ but I did make some good points. He took it well, and was not nasty in return. I guess that's all I can ask for in that situation. ...Moving on...

We are going to meet with another attorney tomorrow morning for a free consultation. We'll see how that goes. I like his website, and he has good reviews on avvo. That's about all I know for now.

I have done the means test myself and there were just a few things I wasn't sure about. He has so many mandatory things come out of his check, and I don't know how those factor in. He works for the railroad and they have their own retirement -- they don't pay social security. So there are three different RRT "tiers" listed on his pay stubs, in addition to all of the taxes. Union dues, two separate disability payments, job insurance, and a 401k loan. May sound great to say he grossed $107k last year, but net was $67k. I don't know what counts on a means test and what doesn't, but I'd like to have some definitive answers, for sure.

[Chrysalis]

Met with the new attorney today, and I really liked him. His communication seems to be great so far. I felt like I could just be myself and speak openly with him. The free consultation was supposed to be one hour, and it turned into closer to two. (And no, I don't get the feeling he is going to bill us for that, either!)

Found out the 401k loan will not be counted as a deduction on the Chapter 7 means test. This was disappointing to hear, and I don't quite understand it. He says it is applicable with a Chapter 13 but they won't consider it with a Chapter 7. Makes no sense to me ~ as it is a big chunk of money that comes out of every single check, and we have no choice in the matter.

[justbroke]

It's not a deduction because you are paying yourself back and the Chapter 7 portion of the bankruptcy code do not have a specific allowance for a 401(k) loan or deduction. The Chapter 13 portion of the code which speaks to the contents of a Chapter 13 plan allow this deduction explicitly.

I suppose that the Chapter 7 code ws never modified in 2005 to allow this deduction. A Chapter 7 debtor has an some advantages over a Chapter 13 debtor in that the employer will still take the deductions anyhow, you're paying yourself back anyhow, and you'll be discharged about 90 days from filing... not the 1,095 to 1,825 days under which a Chapter 13 debtor will be subject to the court's jurisdiction. If I understand Congress' intent is that they wanted debtors to be able to save. A Chapter 13, as you can see, is a VERY long time to not save for retirement.

justbroke's study guide: the specific "law" allowing a 401(k) loan deduction in a Chapter 13 is in 11 USC 1322 (f). It specifically marks the amounts necessary to repay the loan as "NOT" disposable income.

11 USC 1322 (f) A plan may not materially alter the terms of... loan [amounts withheld and collected are used solely for payments relating to a loan from a plan] and any amounts required to repay such loan shall not constitute “disposable income”... (The bolded/underlined section is from a different part of the code, referenced by 1322(f).)

[Chrysalis]

Thank you, justbroke. I did some googling after I posted here, so I could better understand. I'll post the most helpful link I found here, in case it may help anyone in the future:

http://www.scbankruptcyattorney.com/blog/bankruptcy-and-your-401k-loan/2011/02

And I found this part to be important:

"For Chapter 7 cases, while 401(k) loan repayments can’t be counted on the means test, it’s still important to point out that 401(k) loans are being repaid. That tells the U.S. Trustee’s office they need to factor those payments into their “abuse” analysis when they review your case. After all, there’s no point in debtors being in a Chapter 13 plan if their creditors would receive only a nominal distribution–or even none at all."