Motion to dismiss section707(b)

[MikeinGR]

Filed my case under new law may 2006

I am in a chapter 7

Have monthly income of 5185
monthly expense of 5417

We have a house payment of 1773
car1 260
car2 277
car insurance 190
medical expense 200
daycare 860
health/dental ins 270
term life ins. 67
groceries 850
clothing/personal care 210 ( we have 2 young children , and I had weightloss surgery and have had to replace my clothes 4 times this year and this will continue for at least a year I need professional attire)
recreation 125
phone/internet/cell phone 160
cable 80
storage unit 53
water/trash/power/gas 200


We have re-affirmed on both cars
We are not going to reaffirm the mortgage, but try to
keep the house after discharge by refinancing. We have contacted
a few companies that deal with foreclosures and we should be able
to get a payment around $1600 but need the BK to be final. Also
the house payment went up $225 after filing (it was 1550 at time of filing)
because it was adjustable rate mortgage. Because of our situation we have
not been making mortgage payments, but saving $ to redeem and refinance.

We have had a rule 2004 exam and now trustee has filed motion to dismiss.

I work for a company that pays a large annual bonus based on performance of your location, However I had surgery earlier this year and after return from leave I was unable to work the hours needed to keep that position so I was moved to another location in the same position Salary remains the same but Bonus is essentially nothing. This is what preceded my BK filing. But 5 months before my surgery is was given $15000 by my employer to pay for out of pocket surgery exepense. Because of the plan this comes out of it does not count as gross income for tax purposes. The trustee says it should have been used in my means test calculation. BUT... This money has to be paid back in future years out of my bonus, and I will not make the bonus I had in the past So instead of paying this medical advance back in 1 year as the plan is designed it will take 2 more years and maybe more. I disclosed this to my attorney and it was not disclosed anywhere on my schedules. My attorney is taking the position that this is a loan and not income. The trustee accuses me of bad faith for concealing this, I didn't conceal it and this entire amount was turned over to pay for my surgery along with another $11000.

Also the attorney is questioning the Directv expense ( understandably) the storage unit ( i have a small house , where am i going to keep it?) Recreation expense ($40/month for 1 kid(dance class), $35 for the other(kindermusic) leaving $50 For myself and my wife) and the term life insurance (It refers to this as necessary on the means test form) Also the Trustee has used some mystical formula to add bonus income to my monthly average and is saying I have $208 a month to contribute to a chapter 13 plan.

I have $189000 secured debt and $92000 unsecured (ALMOST $50000 of it consists of medical expenses paid with credit)

My attorney says he may just be bullying me to try and get me to convert to a 13, But I don't see how I could afford it. The trustee had to add an assumed amount to my income to get me to $208, because even taking away the expenses he is questioning I am still negative by $100.

The attorney said we have a chance but it all hinges on the judges opinion , and because we have not reaffirmed on the house it could cause an issue because the trustee says we could rent an apartment for $1000 ( not a chance. Its $1200 minimum more like $1400 to $1500 in a decent neighborhood )

Just looking for some opinions
Thanks

[HHM]

Whew...you have quite a few issues going on.

First off, who advised you to surrender the house but try to keep it with a refi after the BK is over. I don't see how that would work and even be in your favor. If your surrendering the house, and the bank gets a motion to lift stay so they can foreclose, then you only have the redemption period (usually 30 days, but it varies) to pay off the note, otherwise the bank will foreclose. If that redemption period expires while your still in BK and cannot get a loan, you're screwed. I suppose you could take a chance and try to buy it at auction...but what makes you think you will "get a better payment" after filing BK through a refi, or for that matter, even get financed?

When I have more time, I will come back and address some other issues raised, but it just seems your plan on keeping the house is ill-informed.

[SinkingFast]

I can see where the Trustee is coming from about the "loan" from your employer. Just playing Devil's Advocate here for you to give you the other side's prospective.

As a Debtor/Filer you are supposed to disclose all debt. In essence the "loan against future bonuses" is an Unsecured debt. So you can't have an either/or situation here. Either the money is a loan that should have been included for discharge, or it's income to you and has to be included in the 6 month CMI if applicable.

You cannot pick and choose amongst Unsecured Creditors who you wish to pay and who will be discharged. The loan from your employer for surgery is an Unsecured Loan and should have been disclosed and included in the BK.

I think HHM is right as well about choosing not to reaffirm the mortgage. That decision gave the Trustee leeway to decide that potential rent payments could be lower than your current mortgage payments. And the Court does not care what it costs to live in a decent neighborhood. Cost of living basis has been established for the Court with the Schedules allowables.

[HHM]

I am honestly not sure what leg you have to stand on here...SinkingFast is right...the money given for medical expenses is either a loan or income, if its a loan, it should be included in the BK as a debt, but then your in the precarious position of having discharged a debt from your employer; if income (which is apparently what the Trustee thinks it is), then you have a whole barrel of issues. Remember, the money was given "explicitly" against future bonuses, so the trustee sees that you have significant, regular bonuses that apparently was not made clear in your schedules, hence the motion to dismiss. And since it was income, it appears to have given you excess income for the means test or puts you over the state median.

However, if you do convert to a 13, you get a different trustee, and you will have some room to negotiate what the payment will end up being, and given they are more realistic about what counts as living expenses, you may get a break. (You will probably lose on the storage unit, but the kdis stuff will be ok)

[MikeinGR]

screwed

The problem is It is not really a loan it is an advance, there is no option not to repay , even if it was discharged I would lose my job unless I paid, and as far as income like I said It is technically a medical reimbursement arrangement That is excluded from income by the irs so we
assumed it would not be income as far as the means test is concerned. And even if we included the income on the means test line 10, we would also include the surgery expense on line 56 the two would cancel each other out.
My attorney said they were going to list my employer as a creditor but it somehow got missed.

Regarding the house I am screwed either way, It is my intention of keeping the house, (and i would have reaffirmed, but in the interim they raised my rate the maximum they were allowed) the problem is the mortgage company will not modify the mortgage. There are mortgage companies that handle this at higher rates , but that higher rate would be lower than the ARM is on my current mortgage so the payments would be less. I have no leverage if I reaffirm , The mortgage company will lose more auctioning the house than if they short sell it. I have a 6 month redemption period, plus the stay doesn't expire until 11/22/06 so If they start the process that day I have 5 weeks plus 6 month redemption period. Hopefully this is resolved before the foreclosure sale because I would pay a few thousand less to redeem it. Regardless I would be able to save a few % from the 9% that I am currenty paying on the mortgage.

[MikeinGR]

Mortgage

I have been in contact with a few mortgage companies that handle 1 day after discharge loans and such. And have been told they would approve the loan. I am not sure exectly how it works but basicaly I refi for 30 years pay a higher rate than what a new mortgage is and supposedly they can negotiate with my current mortgage company as far as how much has to be financed. The only problem would be if a foreclosure sale took place then I have to pay all costs associated with the sale plus full amount owed to get title back in my name. But even if that happened the payment would still be lower because of how high my rate is. also the house has $20000 in negative equity
probably more because I doubt they would get appraised value at auction.
PS . I could care less if my current mortgage company loses money, I have been in contact from day 1 of this process and they have not budged or even been willing to help. Hey they don't have to. When I refinanced to them in the first place I recieved 3 different Disclosure notices because the mortgage terms kept changing, the payment was so good I went ahead and did it not really paying attention to all the disclosures after the first one I ended up paying a ridiculous amount of fees ( almost $10000 rolled into the mortgage when we refi'd that I think the broker snuck through on me. Buyer beware .

[HHM]

I really don't know how your case will come out. I think you should fight it and see what happens. I understand the practicalities of your situation, i.e. the advance is not "really" a loan, and I think you have a good analogy to argue to the court in that, as you said, the IRS does not treat the advance as income, so I don't think the Trustee (and BK court) can.

As for the house...I think we are talking about two different things...in most states, as soon as foreclosure begins (i.e. you receive the notice of foreclosure) you typically get 30 days in which you can pay the balance of the loan (Redeem), or pay the arrears to STOP the foreclosure. Also, if you are surrendering the home, odds are the mortgage company will file a Motion to Lift the Automatic stay so they can proceed with foreclosure before you receive your discharge. After that, the home goes up for auction. Also, BANKS AND MORTGAGE COMPANIES don't short sell, in order to complete the foreclosure, they must auction. Only you can short sell. If you let it go to auction...even if you have the right to redeem, YOU CANNOT LIVE IN THE HOUSE PAST THE AUCTION DATE, unless the new owner, or the bank, if the house becomes a REO, allows it.

[CindyLou]

Just curious, if you are filing BK, wouldn't it make more sense to give up a house that has $20,000 negative equity? Isn't the purpose a fresh start? And I think HHM mentioned earlier the risk you are taking if your case is delayed AT ALL. If you go into foreclosure and then something delays your case and it goes beyond your redemption period, then you lose the house and you are still stuck with the bill because you didn't include it. Something just doesn't sound right. Be very very careful with these types of lenders!!!

[MikeinGR]

Question again

Maybe I am confused, My attorney says that in MI I have a 6 month redemption period, Even if the house is sold at auction. I would like to give up the house but the reality of the situation is I don't want to live in a $1000 a month apartment I don't think it would work. It is my understanding that as long as I stay in chapter 7 I would be OK. I will need to get by the totality of the circumstances. And I will need it to be resolved quickly. The trustee did not question the house expense but did mention that we have not reaffirmed in the motion to dismiss. My attorney said that he only questioned the 4 expenses and if the judge allows just one of them then we are OK.
The advance and the house I guess depend on the judge.
Thanks for the replies

[CindyLou]

I misunderstood the length of the redemption period...sorry. I though it was 30 days. It still seems to me that giving up a house with negative equity just makes more sense. But reading a few paragraphs on here and making a suggestion is so easy, when the reality of the situation is so much more complex. So, we are here to support you through whatever decision it is that you make! I'll say it one more time though, BEWARE of these types of mortgage companies... They say they can negotiate with your current lender on the amount refinanced. But then when it comes down to it, they may not be able to get them to budge. And with negative equity it puts you at a huge risk and at the mercy of both your current lender and the potenital lender. Your current lender will know for sure that you are liable for that entire debt and the potential co. will know you are desperate to refinance because of your situation. I still just don't have a good feeling about the uncertainty of not reaffirming and going on the premise that the new mortgage co. "should" be able to approve you and get you the rate and amount of the mortgage you need. What about giving up the house; living in an apartment temporarily and the buying a different house once this is all said and done??

[rrockinggramma]

Out of curiosity are you in the Eastern District of Mich or the Western? I filed a chapter 7 in 01 in the Eastern District so was curious who your trustee was etc? There is indeed a 6 month redemption period in Mich. My house sold at auction on Jan 2 of 02 and I was able to stay in it until June 2 of 02. In the mean time, I could have come up with the money to save it but was so upside down in it was not worth it. But in a chapter 13, might have been able to strip the lein back to FMV but oh well, live and learn. Good luck with your situation.