Preparing for Chapter 7

[Chrysalis]

Wow, with the forum down for a day (or two?) I missed it! Coming here and reading has been so helpful. I'm glad to see things back up and running!

Thanks to all who've been here and helped me figure some things out. I can't tell you how much I appreciate the advice & support.

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Our first late/missed payment EVER will be tomorrow, and I've felt quite a bit of anxiety about that. There are times when I want to jump on their website and make a payment. But Lady's words keep ringing back to me:

"You say you want to start making good financial decisions. Now is the time to start. Cashing your children's life insurance policies and using their savings doesn't sound like a good financial decision when you know you will file BK and are still making payments on credit cards."

So true. All that would do is delay the inevitable. I know, I know I would just wish that we could have that money back at some point.

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We still have not decided on an attorney. The one we met with who is very close to home has some pros & cons. The one who is ~an hour away seems to just have pros. I had an appointment scheduled to sign a contract and pay the fee with the local guy on Monday, but I woke up with a moment of clarity this morning, and my gut is telling me to wait. I think we really wanted him to be "the one" because he is so close to home. But when I go over some things in my head, I'm just not sure that it's the best choice.

I went back and read through the reviews for the other attorney (the one we saw in January, I believe) and people just seem so happy with him. When we were there, he was alone in his office, and I believe he does all of his own work. Everyone talks about how easy he was to communicate with, how he was there every step of the way, etc. We had a good visit with him, and I think when the time comes, I will contact him again and proceed from there.

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We decided to borrow from the kids' life insurance policies instead of cashing them in.

We still need to find a vehicle for our son to spend his money on. He is turning 16 soon. This will be covered under our exemptions.

We are obviously not using the credit cards at all anymore.

We finally closed the checking account with the bank we have a credit card with. The only thing that makes me a little worried about this is that we no longer have a "brick and mortar" bank. All of our accounts are with Capital One online now. (No, we don't have any balances with Capital One.)

My husband finally got a new cell phone, which I have been telling him he needed to do before our credit took a turn for the worse. We reduced our data and everyone is using the wi-fi when we're at home, so the effect on our bill was negligible.

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Things still up in the air:

Last night, I realized my husband is still considering having back surgery with the Laser Spine Institute. That would be a big chunk of money, so if he's going to do it -- it needs to be soon!

I'm still not sure how it is going to work out for me to pay for nursing school. I am relying at this point on what I have been told: We should be able to get federal student loans because they do not base their decisions on your credit. Another option is a hardship withdrawal from his 401k, but I'm still not sure how that whole process works -- if we'd be able to use it for one semester, or the entire time. My very last option is that my grandmother has said she will give me the money. But she is 90 years old, and I really don't want to do that. I'm also not sure that we could do that with a bankruptcy in process. I have wondered if it would be okay if her payments went directly to the school, and never touched my hands. I don't know.

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It now looks like we should be able to file in July. That would make the 341 meeting just BEFORE I start nursing school, which has been a big concern for me -- having to miss classes in the very beginning, and having no control over it whatsoever.

The local attorney said we would "offer" half of next year's tax return and half of any annual bonus received (if any) because we'd be halfway through the year when we file. He said the trustee would "keep the case open" until those things were paid to them (next spring). I'm not sure what the other guy will say about this. It would be great if this didn't have to happen -- but apparently, it probably will.

[leonel9]

I don't like the local guy. It sounds like you don't either.

I don't understand why this attorney is offering half of your 2017 return due on/around April 15, 2018 (and by "return" I assume you mean "refund"). How has he determined you are getting a refund? And why are you getting a refund? The smarter thing to do would be to adjust your withholding so that you have no refund. Is there some reason why you want to give this money away? If you are not an asset case, why is this attorney creating assets to give to the trustee (instead of protecting them via spendown, proper withholding, or exemption)?

Regarding the bonus -- is this a discretionary bonus? Is it already guaranteed? If the job ended today, would you receive the bonus? As above, why is a bonus that is not yet realized being offered?

Before my rant just now, I was thinking how many times I met with my attorney in her office. It was once for an initial consultation and another time to sign the paperwork before filling. Don't let the fact that this guy is an hour away cause great concern. I'm sure he doesn't want to have multiple meetings with you, just as you don't want to make multiple unnecessary trips. A lot can be accomplished via email and phone. In fact, nearly all of it can be accomplished.

[Chrysalis]

leonel, good to hear from you ~ thanks!

What the heck, yes, I meant tax REFUND ~ can't believe I typed that, even after reading the sticky here! Lol.

My husband has his exemptions set at "10" which is the highest he can do himself in the computer. He has had it this way for awhile, and yes we still get a big refund. If someone legitimately had more exemptions than that, I suppose there is a paper form to fill out somewhere? But there are only five in our family. Why his employer holds out so much -- I don't know. This is just the way it's always been.

Our tax refund this year was almost $9000 but part of that was because I am in school and there were education credits. I have already decided we won't claim those credits on our next tax return. I believe (at least with the one) you can use it a total of four times, and we aren't sure how many times it was used when I was getting my previous degree 20 years ago. So we'll wait, claim it probably one more time after all of this is behind us, and that will *probably* be my fourth time.

The bonus is a yearly "performance bonus" based on the profits of the company, and NO, there is absolutely no guarantee there will be one. This is a small piece of our puzzle that brought us here -- we'd come to rely on them, but in 2016 they paid ZERO. And there is no forewarning. They decide & let us know *maybe* a week ahead of time. It can be anywhere from 1-10% of his previous year's earnings, paid in February. Or it could just not come at all. And if he lost his job today, nope. We'd never see one again.

[leonel9]

So as far as the bonus goes, I would for sure check with another attorney. If you didn't get it in 2016 and there's no guarantee of getting it in 2017, it seems silly (to me) that you would go out of your way to offer to keep the case open until this non-guaranteed discretionary bonus is paid.

As far as a tax refund, you should still have the option of updating your W-4 to claim that you are exempt from withholding. I'd check with an accountant or the IRS withholding calculator to determine how to get your refund as close to $0 as possible. Keep in mind it may not be a good idea to set your withholding to "exempt" right before filing, as it may show you have more disposable income.

[Chrysalis]

There was no bonus in 2016, but 3% in 2017. I agree, I'd definitely like to see what the other attorney has to say about that.

[Chrysalis]

One thing I am wondering about today, after reading Lady's refinancing thread, is whether mortgage lenders will try to negotiate better terms to get you to reaffirm? I have been on the fence about whether we should reaffirm or not.

My sister filed Chapter 7 maybe 7-8 years ago. They have moved several times since then, and have always been able to get a mortgage. She stressed to me how many times people have told her that it was SUCH a good thing they reaffirmed their mortgage during their bankruptcy. She said it has really helped them. They see that you take your mortgage seriously, etc etc. And also there is the benefit that it reports on your credit report vs. not.

But I have read through the thread here with all of the reasons not to. So I pause.

As of right now, I see no reason why we couldn't pay our mortgage. We have no PMI, payment is only $624/mo. But who knows what the future will bring? This quote from despritfreya comes back to me time and time again:

“Why on earth would someone say to a creditor ‘despite my bk I will pay you and if I don’t you can sue the crap out of me’”?

But I also tend to agree with the most recent post on that thread, where the person is talking about having equity in their home, being able to sell it if they really needed to, etc.

We have never refinanced our mortgage and we have ~16 years left at 5.25%. Do you think they will offer lower interest / shorter term / anything to get us to reaffirm? Does that happen?

[justbroke]

One thing I am wondering about today, after reading Lady's refinancing thread, is whether mortgage lenders will try to negotiate better terms to get you to reaffirm? I have been on the fence about whether we should reaffirm or not.

To some extent but I didn't have luck on the rate. I was able to take arrears and put them at the end of the term with a modification. I actually put "reaffirm" on the paperwork, but the creditor sent me a modification instead and I did not need to meet any "trial" period.

[Chrysalis]

Thanks, jb. I was thinking earlier, I've seen that term "loan modification" around here, but I probably didn't pay much attention. We are current on our mortgage, and I always just thought we'd leave it as-is... just not sure whether to reaffirm or not. There are definitely positives and negatives to each option.

So when I see people talking about this, it's probably in cases where there are arrears, as you say? Not just people trying to get into a more affordable mortgage option. I thought it would be nice if we could negotiate a lower interest rate and take some time off the loan. Like refinancing without having to go through all that is involved with refinancing.

[justbroke]

There are times that you can negotiate the interest rate but I have not personally seen that happen. I do know that it's used, such as in my case, to fix arrears. I have even read where people have had their mortgage re-amortized back to 30 years (based on the balance) or being re-amortized with a 40 year term. I know for a fact that in Chapter 13s in the Middle District of Florida, they push a modification program that typically ensures that the mortgage payment (PITI) is less than 31%. They use a court-backed mediation program and it has been highly successful. In some of those cases, the interest rate was even lowered to 1% and increased to up to 3% over the life of the plan with a not to exceed and fixed rate after discharge. (That program was the brainchild of the former Chief Judge and the other Chief has continued and expanded the program.)

[Chrysalis]

I will definitely mention it to attorney(s) when we start talking again. Just to see what they have to say. Thanks!

[kberly69]

I would add this: try to relax about some of the little,uncontrollable details (like when the 341 may be). BK is like a medically necessary surgery. It's done to correct an ongoing problem that is making you (and your family) sick. Follow your attorney's orders and let the process unfold. Then be wise with your new self, follow aftercare recommendations and you will wonder why you waited. There may be bumps in recovery, but there's nowhere to go but up after you file. For me (also a detail-oriented worrier), the hardest part was scheduling that surgery (filing). The beauty of it is that you get a second chance, armed with the knowledge you were lacking before. Just think, you could be discharged this year! I'm looking forward to that post

[Chrysalis]

Thanks, k. Of course you're right. I hope you will continue to check in with your words of wisdom!

Right now I am trying to figure out the details of how to pay for my schooling. Thankful for someone's post yesterday about how you cannot get federal student loans with an active bankruptcy -- they want to see discharge papers.

If our case has to remain open until after tax return & bonus time (which I will have to consult with the other attorney about), my idea for now looks like this:

Apply for a federal loan to pay for fall semester

FILE

Hardship withdrawal from 401k to pay for spring

(which will also give us less of a tax refund, having to pay taxes on that)

Federal loans for my last 2 semesters, as we should be discharged by then.

I sent out an email to the local attorney to ask if he sees any issues with this. We'll see if he responds or if he's just tired of me by now.

[leonel9]

Just curious: Are you able to get a student loan now for spring, before filling? (not entirely sure when these semesters last -- unless you're talking about 2018?)

Also, if you can't, why not do a 401(k) loan and avoid the taxes. I'm still not entirely convinced that you will need to keep you case open for 11 months, while you wait for a potential return and potential bonus. Though in all fairness, I am not a bankruptcy attorney.

[Chrysalis]

Thanks leonel

I'll explain further, because I welcome input. And quite honestly I am ignorant about the student loan process.

We paid cash for this semester I'm finishing this week (spring 2017). Summer, somehow, I miraculously got a financial aid award for the one class I am taking. Even if that hadn't come through, I am going to qualify for a free class through an incentive program they're doing. So summer is covered.

I should be getting my acceptance letter for the fall nursing program, maybe around July 1. Then at some point they will put me in classes & I will have a bill. I believe at that point I can apply through their site for a Stafford loan (federal). They do not go by credit, but by need. If they somehow decide I don't need it ~ wow, we'll have no other option but 401k hardship withdrawal at that point.

But spring 2018 is what I was talking about. If we're not discharged by then. I will have to pay for those classes in December/January. If the case is open, it's not going to be a loan.

I think it is going to work out, somehow. I'm pretty determined to find a way.

And yes I will be emailing the other attorney with the question of "do we HAVE to leave it open like that?" If I have two attorneys in the area telling me the exact same thing, then we'll have our answer. Thanks again!

[Chrysalis]

I emailed financial aid today, and was told that there are fall/spring loans, where half is distributed for the fall, and half for the spring. If I were to get approved for this before we file, I may be okay. What I have to make sure of is that none of this money actually touches our hands/accounts, or negatively affects our ability to file in any way. I have a bad feeling that this is not the case. I will definitely be asking more questions!