Chap 7 Being Converted to a 13...ugh

[gwar11d2]

So the BA decides now (even though she filed a presumption of non-abuse) that she wants to challenge our post-bankruptcy expenses. Prior to BK, we could not afford anymore than the 3% for our 401K. After we filed BK we started saving more (obviously because we weren't giving money to CCs anymore).

Now the BA wants to dismiss the case immediately because she thinks the money that is in the 401K should be used to pay for creditors. BUT the attorney says that using these should be allowable but the BA is very much a number cruncher and doesn't seem to like the post-bankruptcy budget the way that we filed it...(Even though most cases in the district are somewhat like this)

To make a long story short, now the attorney is recommending a 13. He said the 401K contributions are perfectly accepted in the 13 and since we were riding the 7/13 line, there will still be no distribution to our creditors except for my car payment which we planned on paying for in a reaffirmation anyways.

....not sure where this is going now but all in all, payments for 5 years on a new reliable car is what I was going to do anyway. Now I'll pay the trustee instead of the car company.

What's really upsetting is I was hoping to close this chapter quick in my life, but now I'll be in a payment plan for 5 years. I guess though maybe this is the best thing for now.

Thoughts?

[JRScott]

Well sorry to hear about this.

I suppose if the 13 doesn't work out you could reconvert it to a 7 at a later point, might ask the lawyer about that just in case.

[tlcabk]

Had you gone to your 341 already before this happened? Had the Trustee file their report in Pacer? Just curious at what stage you were when this change happened.

[StartingOver08]

Interesting, so the only things that will be paid in your plan is the car payment, your additional attorney fees (because it is a 13 and costs more than a 7) AND the trustee gets a commission on each and every car payment you make. Are they going to cram down the car payments or are you stuck making the car payment + the Trustee fee + the attorney fee montly?

Somehow this does not seem to benefit the creditors - only the attorney and the Trustee.

[justbroke]

What's really upsetting is I was hoping to close this chapter quick in my life, but now I'll be in a payment plan for 5 years. I guess though maybe this is the best thing for now.

Your attorney never told you that 401(k) contributions are not an allowed expense in a Chapter 7? That's like... Bankruptcy 201. I'm sorry to hear that you learned this the hard way.

Please realize that the presumption of abuse and the "totality of circumstances" (TOC) are two totally separate things. I don't like to get posters on this forum too concerned TOC, but it is there. The Trustee probably should have filed a Presumption of Abuse, so your attorney should be able to fight it, if that's what you want.

What I'm saying is, that the UST is attacking a specific expense and should have done so under abuse (11 USC 707(b)(2)) and not under the Totality of Circumstances (11 USC 707(b)(3)). I think the UST messed up. Your argument would be that first, if the UST was attacking an unallowed expense, s/he should have done so under the Means Test. The second argument is that, in a hypothetical Chapter 13, the 401(k0 payment would be an allowed expense and you'd have a negative disposable monthly income. Along with the commission payment to the Trustee, unsecured creditors would not receive any dividend in a Chapter 13.

Yeah, I would fight this.

[LJoutWest]

Seems that many UST's are attacking the wrong way lately. Did you get a copy of the Motion to Dismiss and did it contain a propose budget for funding a 13? In our proposed budget for funding a 13 it did not list our 401K loan or allow for our current contributions which are $100 a month for me and $300 a month for my wife which are not much in terms of our income (.03 of my annual income and .06 for my wife). Nor did the budget allow for some other expenses that were not part of our means test but put on our schedule J to show we could not fund a 13. In reality then if these expenses, which are allowed in a 13 show that we cannot pay our creditors in a 13, then we should be granted a 7. As our lawyer told us this week, at this point it is up to him to write a response that makes the argument firm and legally sound. Hopefully when the UST sees the response they decide to dismiss the motion. If not it goes to a judge in early Feb. and at that point the worse case is we convert to a 13. Our lawyer has a different view to this than yours. We are on the 7/13 border but a 7 makes more sense in our case so fight for it. I like his attitude, his arguments and am willing to fight to try and get the 7. Good luck to you in your decision.

[gwar11d2]

So the attorney did say it wasn't allowed on the pre-bk expenses. BUT, he said in his opinion with expenses going forward (Sched J?) they should be allowed.

What is interesting is that it wasn't the trustee objecting to the 7, it was the BK administrator. She was also the one who filed the non-presumption of abuse and we thought everything was going forward just fine.

So yes, that is exactly what is happening. Because now the 401K contributions are allowed, no money is available to pay to creditors. My current payment for my car is right around 450/mo. (53 payments remaining) Plan payment proposed is something like 490/month for 5 years. So in some way, it feels like I'm just refinancing my car. Another thing the Chap 13 allows me to do is include back taxes I owe to the Fed. Something that the Chap 7 didn't.

It is frustrating, but in some ways it feels the 13 might be better and in other ways it feels that the 7 would have been.

As far as fighting it, the attorney said that they just lost a case fairly similar to mine recently with the same BA and Judge....

Your attorney never told you that 401(k) contributions are not an allowed expense in a Chapter 7? That's like... Bankruptcy 201. I'm sorry to hear that you learned this the hard way.

Please realize that the presumption of abuse and the "totality of circumstances" (TOC) are two totally separate things. I don't like to get posters on this forum too concerned TOC, but it is there. The Trustee probably should have filed a Presumption of Abuse, so your attorney should be able to fight it, if that's what you want.

What I'm saying is, that the UST is attacking a specific expense and should have done so under abuse (11 USC 707(b)(2)) and not under the Totality of Circumstances (11 USC 707(b)(3)). I think the UST messed up. Your argument would be that first, if the UST was attacking an unallowed expense, s/he should have done so under the Means Test. The second argument is that, in a hypothetical Chapter 13, the 401(k0 payment would be an allowed expense and you'd have a negative disposable monthly income. Along with the commission payment to the Trustee, unsecured creditors would not receive any dividend in a Chapter 13.

Yeah, I would fight this.