Help...need questions answered fast please

[MarieT]

I just found this site and I am really hoping someone can help me. I did the online means test:

http://www.legalconsumer.com/bankrup...tcy-means-test and it is saying that we would be CH7 since we do not have any money left over to pay anyone - we are in the negative. I talked to an attorney's office today and they said we are over the income guidelines so we have to file CH 13. If we have to file CH 13 not sure where they are going to come up with a payment to pay the creditors every month for next five years. Also, if you do a CH 13, do they moniter your checking account and earnings for the next five years?

Also, we have some serious health issues with our house and had set aside cash to get it fixed. Since it is a health issue for our family would they have a problem if we did that before filing BK?

We are in a position where we just got through FINALLY getting a permanent modification on our home but because of many hardships this last year we have over $100,000 in unsecured debt.

[momofthree]

They don't go by the means test when computing your chapter 13 payment. They take your actual income minus your actual expenses (schedules I & J) each month to determine your disposable income.

If you have allowable expenses though, you could pass the means test and qualify for a chapter 7.

[BobMango]

You need to consult with some other attorneys. It is possible to be over the median income by quite a bit (like 10's of thousands) and still qualify for a Chapter 7. Some attorneys don't want to make the effort to get a Chapter 7 for clients that are over the median but it happens all the time. Really depends on the outcome of your I and J schedules.

If you need to make repairs to your house that would generally be fine, provided you are not borrowing money to do it. This is a question best asked of your attorney since they will have a better picture of your situation and the usual practices in your district.

[AngelinaCat]

Hi Marie: welcome to the forum. Please give a few more details about your situation, as well as what state you are located in. Knowing these will help the members give better informed opinions.

Thanks!

[MarieT]

Thanks so much for responding to me...I am very confused as far as how this BK thing works.

* Located in Colorado.
* Over the median income by about $40,000.
* $750 /month for child support/IRS debt.
* Two cars, 2002 worth $8,000 that is paid off and $300 payment on 2006 with $500 equity.
* Husband still has job but will have reduced income
* I lost my job and I am now self-employed as a realtor...so far I have more expenses than I am earning
* $50,000+ underwater on house and think we have $65,000 homestead exemption. Planning to keep house.
* $85,000 unsecured debts, not paid on or used for 6 to 7 months

I met with an attorney and gave him $400 as a down payment and thought we would be filing Ch 7 as I had done the online means test prior to meeting him. I wish I would have interviewed more attorneys but just saw on another thread that "liz" had also paid an attorney then found a different one. If I ended up being out the $400 it would not be the worst thing in the world.

What I am really struggling with right now is if I have to be under scrutiny for the next five years. It also seems I have read on here that some people are paying 100% of their unsecured debt. If they have to do that, why file for BK? I have already negotiated one written-off credit card debt from $20,000 down to $4,000 and one that is $5,000 down to $1,500 (not written off yet). Have not paid on them...that is just what they have agreed to. The thing I was concerned about accepting settlements was that we woulkd then owe income tax on the "forgiven debt" but if a CH 13 is going to somehow require that we pay it all back anyway, I would maybe rather try to negotiate with all the creditors.

I received a permanent modification on my mortgage after a year of struggling though that. I'm not sure I can handle five more years of answering to someone and submitting paystubs and bank statements and documents. I have read about BK being a "fresh start" and if it is a CH 13 it seems like your fresh start is put on hold for 5 years and you aren't really getting a fresh start if you have to pay everything back plus have a BK on your credit for ten years..

[lrprn]

I have read about BK being a "fresh start" and if it is a CH 13 it seems like your fresh start is put on hold for 5 years and you aren't really getting a fresh start if you have to pay everything back plus have a BK on your credit for ten years..

Folks file Ch 13 over Ch 7 for three primary reasons - the vast majority can't file Ch 7 because they have too much disposable income so they have to file Ch 13; others file a 13 because they want to keep assets they would lose if they filed Ch 7; and still others because they can't file Ch 7 because they have a previous Ch 7 filing within the last 8 years and now find themselves unable to pay their bills again.

Ch 13 has a completely different purpose than Ch 7 - it's a court-enforced debt reorganization, not a complete wipeout of all secured debts.

Also very few Ch 13 cases are required to pay 100% back to their creditors (and even then only to the ones who actually file claims). Most 13ers end up paying back a far lower % than that.

And by the way, a successfully completed Ch 13 drops off our credit records in seven years after filing, not ten That means that after a five-year plan is discharged, there's only two more years to wait until it's like the Ch 13 never happened. Plus we 13ers get to keep making on-time asset and utility payments that increase our credit scores to higher levels than after Ch 7. We tend to get better loan terms on cars and houses much faster after discharge than Ch 7 folks do.

Those of us in Ch 13 are very grateful that we also have the chance to get a fresh start that would be impossible otherwise. Yes, it takes us a lot longer to get to the finish line. But at least we will get to the finish line - it would be impossible to get there otherwise.

Don't ever look at Ch 13 as a death sentence - it's not. Please go over to the Ch 13 forum area and spend some time hanging out there. You'll find some really inspiring stories and some amazing individuals and couples who say that Ch 13 has been the best thing that ever happened to them.

[MarieT]

Thank you lrprn..that makes me feel a bit better. I have really been struggling and second-guessing the BK thing. I think I may have rushed too fast into this because I was scared...I already gave a BK attorney a $400 down payment as the collectors were getting very aggressive. Really thought we would be Ch 7 after I did the online means test, but he said we would be Ch 13 since our income is over guidelines but if not he could (for a fee) convert it to a Ch 7.

I spent all day on the computer yesterday and wish I would have done that before seeing an attorney. It looks like attorneys actually receive an ongoing payment from trustee for the five year repayment plan when you do Ch 13 so more reason (maybe) to put you in a Ch 13.

This morning I woke up thinking that we should just work with creditors on our own to settle debts if we are going to get stuck with a CH 13. If the house was still in jeopardy that would be different but it is not now since I got the mortgage mod finalized. Also, yesterday, I found a different attorney who tries to do the debt settlement thing first and BK as last resort. We already have one of the big credit card debts talked down from $20,000 to $4,000 on our own. I am thinking that would make more sense. I am not to talk to the collectors until they say they are filing a lawsuit or garnishing wages but I was just reading that is illegal for them to say that.

So maybe I will have to forfeit the $400 attorney downpayment and look at that. I have not deferred any creditors to the attorney yet so other than the "free" consultation and handing me all the forms to fill out, I don't think he has earned any fees yet. I really think the attorney I met with should have looked at whether settling the debt made more sense, but of course, they aren't going to get paid as much for that. I don't want to do it through a debt settlement/consolidation company...I could just do it on my own and pay an attorney to back me up. I have found out that any debts we settle we will have to pay income tax on the "forgiven" part but looking at the darn CH 13 we will be paying that for the next 5 years so that is not good either!!

Once the CH 13 is set up, does the trustee moniter your income and checking account continuously? Being on 100% commission and just starting out I am earning next to nothing but I know if I really put my nose to the grindstone, I can start making more but I am not going to have an incentive to work 60 or 70 hours a week just to hand it all over to the trustee.

[jadams]

Even in the rare 100% to unsecured creditors case, a CH 13 can still be beneficial.

The creditors file a claim for an amount and that's what they get divided up and paid. No more interest and fees on the unsecured debt while you're in the plan.

With credit card interest rates on troubled borrowers easily in the high 20%'s to low 30%'s, stopping the interest really helps to make it possible to actually pay down the debt.

[DeadManCrawling]

Not all creditors make claims in most chapter 13 cases, as well.

Although unusual, one poster here had NO creditors make claims. I assume he paid the trustee a fee and moved on. I can't recall the details, but unlikely as this is, even a 100% plan can turn out to be far less than 100%.

I know that is not the sort of risk-based answer most people want to hear, but it is "something" that can be beneficial.

[HHM]

It really depends on the situation. BobMango's claim that over median file BK 7 all the time is a bit of an overstatement. Is it possible, yes; it really depends on the individual circumstances of the case. If you are substantially over median with no obvious exception to the means test (i.e. non-consumer case, military serving over seas etc), a good attorney will at least set an expectation that a chapter 13 is likely, but not impossible. But as was pointed out, many attorneys are not going to bother. The few that do, will take on the challenge but you are going to have to pay for it. However, being $40K over is a lot; it is one thing to be a 5-10K over and have some justifiable out of the ordinary expenses to eat into that income, but to be $40K over, that is a stretch. Again, that is not to say it is impossible; but you better have a very high mortgage, or demonstrably, significant out of pocket medical (or something like that).
LRPRN's comments provide a good perspective on chapter 13's. Chapter 13's are about getting back in control of your debt (which your are NOT in control of now). That control is a great trade off vs. the alternatives. However, getting a chapter 7 is all about the argument and circumstances of the case, just because your look back says your over median, doesn't mean you can fund a plan, if you are not working, and your husband knows he will have decreased income, that all plays to your benefit.

As for the house, if you are that underwater and need repairs to deal with health issues, why are you even bothering holding onto it. Let it go.

I wouldn't waste your time, or money, with Debt Settlement...at least not initially, it is usually too expensive relative to BK for no real benefit (debt settlement is no better on your credit report) and you do not have control, in Debt Settlement, you give your creditors the control (they have to say yes to the settlement), in bankruptcy, (whether 7 or 13, you have control).

I don't normally do this, but since you are in Colorado, visit the firm referenced in my signature. They are one of the few firms that will push borderline chapter 7's and be realistic with you about your options.

[MarieT]

Thank you all for answering. I will call the Methner office. I read through their entire web site and wish I had found them before I met with and paid this other firm. I really think I want to try for Ch 7, realizing that it ultimately is how I meet the guidelines and not my choice. I guess on the attorney that I have already paid the $400 to if I decide to go with another firm, I will just be out that downpayment which is a bummer.

When I was talking about settling with the creditors, I meant just for me to work with the creditors for reducing the amounts owed, not a debt reduction company as I know that costs a lot and the way that is reported is hard on your credit report too. On the house, it was a tough decision to keep the house but that is what we decided.

[MarieT]

Thanks again HHM..I called the Methner office today and made an appointment for nect week...

[MarieT]

I am wondering now...since I paid the first attorney I met with two weeks ago $400 as a "downpayment"....is there any way I can ask to have that refunded if I go with another attorney? He advertised the initial meeting was free and I have not referred any creditors to him or called with any questions so I do not feel that he has done anything yet to earn the $400. I have received far more info in the meetings I have had with the other two attorneys and they have even said that I can call and ask questions. They have both also told me that I would be working with them or a partner attorney, not a paralegal whereas the one I paid the downpayment to said "that I would mostly be talking to the paralegals as he was, as I could see, very busy".

So now I feel like a complete idiot for not doing my due diligence and I am willing to give up the $400 rather than get stuck with an atorney that I now do not have such a good feeling about since meeting the other two. There is one more I have to meet with and then I am done. I just have to be sure and I am finding that they are all so different.

I was really stuck on trying to settle my debts myself but the more I learn about that, the less likely I will be doing that. I am really hoping that I can do a Ch7 but now that the CH 13 has been explained more in depth to me by these other two attorneys, it does not look so much like a prison sentence.

[HHM]

You can always ask for a refund. Do not be afraid to ask. The more you push it, the more likely the attorney is not going to waste his time and will simply give the refund.

[MarieT]

FYI..that first attorney gave me $100 of the $400 back...said it was a consultation at $300 an hour...now I am really glad I did not use that attorney! One other attorney gave me 2 hours time at no charge initial meeting plus another half hour on the phone for free. Live and learn...my fault I just jumped the gun on that one!