Reducing income for C7

[kylie84]

Background: Single, renting, making $57K/yr, no kids, no extra medical expenses, $74K in debt ($9K secured). Filing BK since I can't pay my bills anymore- minimum payments out of control + have to pay my dad's bills as well since he's unemployed (he doesn't live with me though). I'm living paycheck to paycheck. Plus I'm facing a judgment from one credit card since I haven't been able to pay for a while.

I've meet with 3 lawyers and they all gave me the same opinion- I can't file C7 since I don't meet the means test ($700 over it). In addition to salary I also get overtime and I've been billing a lot of extra hrs in the last 6 mo. to keep up with my expenses which pretty much screwed me over for filing since my annualized income is now $63K/yr. The allowed expenses are laughable since they don't allow for my student loan payments and giving $ to my dad either.

So, all of the lawyers suggested I go and reduce my income for 6 months which means no overtime and going part-time. By doing that I'd be making just a little above the median income for my state ($200 over).

My question is- wouldn't the trustee found it odd that all of the sudden I went part-time. Would they need a reason for this?
And if I end up doing this, how long after I file do I need to be part time?

I'm barely scraping by as it is now and getting such a hit to my income is really going to be extra tough, but I'm willing to do it as long as I can get through C7 at the end. What I'd hate to do is go through this misery for 6 mos. and then have the trustee tell me no.

They also tested me for C13 and apparently I'd have about $700-800 disposable income towards debts every single month. Have no idea how I'd be able to do that since I get $3K every month (net) with my car and student loan taking $700 of it and my rent alone is $1.2K. That leaves me with $400 for food, insurance, electricity, gas, etc....No way I can do this for 5 yrs.

[helpmeout]

Listen to your attorney. If you want to do a 7, you need to reduce your income. Your dad's expenses won't be taken into consideration at all since he is an adult who is not a part of your household. In a chapter 13, you will not be able to budget for giving money to your dad over a creditor. As for the student loan, the way the Trustee will look at it is that that can be put on hardship and deferred until you are out of the 13.

Now for the part that you aren't going to like. Your dad is an adult. He needs to find a way to pay his own bills. You clearly can't afford to support his household and yours. You can always offer for him to come and live with you but I would make it clear that you won't be paying his bills anymore, the only thing that he will get by living with you is a roof over his head and food. That will help him financially while he is looking for a job.

[frogger]

Listen to your attorney.

That's excellent advice!

[SMinGA]

If you filed chapter 13, most likely your student loans would go into forebearance until after discharge. So you could probably add that back to your monthly budget. And your vehicle might be repaid thru the plan as well. You may want to sit down again with the attorney and question what the $700-800 plan payment would consist of.

Ps-if your net is $3000 then you're only 'taking home' 57% of your gross. Double check these figures... If you net $1500 every 2 weeks, you actually net $3250 a month, and that may make up some of the slack in what the atty sees. Even though most months see 2 paychecks, the 'extra' checks each year would need to be considered. But then, some expenses are not every month - major clothing purchases, car maintenance, etc. don't happen every month. On the bright side - it is possible to have a plan payment adjusted to match your pay period cycle.

[momofthree]

Ditto SMinGA. That $700-$800 probably consists of your student loan (which go into forebearance during bk--although they continue to accrue interest) and your car payment.

If your father is elderly, then sometimes paying for some of his expenses is allowed. A better bet might be to move him in with you and increase your household size by 1. You might be able to file a 7 in that instance....

[kylie84]

Thanks everyone.

I know that I'm only digging myself a hole by continuing to support my dad, but I made a mistake by adding him on to my accounts for everything - such as adding him onto my cell plan, so now if he doesn't pay my cell phone gets cut off as well. It's a mess....

I'm looking into letting him moving in with me. Does the BK law have anything regarding how long does he have to live with me before I can officially increase my household size to 2? He is facing an eviction from the place he lives in now.
If I do put him on the papers, will they look at his income (measly as it is now), bank statements, tax returns as well?
He doesn't fall into category of ill, elderly or disabled though.

[btbeme]

Having an extra dependent in your filing that has not existed on your last two federal tax returns will certainly get you some extra attention. Your trustee will either buy your story or not. That is a big-stakes poker game.

Picture your situation without paying your unsecured debts and having your father as a true dependent. Would you be able to forego the overtime to make ends meet?

CH 7 is generally reserved for those who cannot afford to pay back their creditors because of an imbalance between income and (allowable and legitimate) expenses for living. Increasing allowable expenses or decreasing income are the two allowable portions of that formula. Each will have its own set of rules and get its own share of scrutiny.

You need an attorney that will assist you in planning a BK filing. I would expect to spend some time to make and carry out those plans. My attorney said he AVERAGES 6-7 months between retainer and filing. He has no qualms about helping people plan for a successful filing. Many attorneys I interviewed simply wanted to pick the low-hanging fruit and file cases as quickly as clean and easy ones came in.

Find the right attorney. Follow their advice.

[kylie84]

Having an extra dependent in your filing that has not existed on your last two federal tax returns will certainly get you some extra attention. Your trustee will either buy your story or not. That is a big-stakes poker game.

Hmm...I was under the impression that household size is not the same as claiming dependents for IRS purposes and that it goes by how many people are living together (and how many you financially support).

[newbie2]

Hmm...I was under the impression that household size is not the same as claiming dependents for IRS purposes and that it goes by how many people are living together (and how many you financially support).

If your dad moves in with you then be prepared to include his income in to the mix. You will be able to back out his expenses, but it's likely his expenses will be less once he is under your roof.

If you were under the median it would be less scrutinized, but you're not and that's going to be a problem (claiming him as a household member so close to filing bk)

[kylie84]

If you were under the median it would be less scrutinized, but you're not and that's going to be a problem (claiming him as a household member so close to filing bk)

It does look fishy, but would showing the his eviction papers to the trustee help?
He makes between 800-1700/mo. and he can barely cover his car ($700), a part of his rent (mostly goes unpaid), some utility bills (here and there), basic food and gas. I've been supporting him for the majority of the year now and have 2 of his bills in my name, other than that I've been giving him cash (so I have no way of proving that it actually went to him and not under my mattress)

[newbie2]

It does look fishy, but would showing the his eviction papers to the trustee help?
He makes between 800-1700/mo. and he can barely cover his car ($700), a part of his rent (mostly goes unpaid), some utility bills (here and there), basic food and gas. I've been supporting him for the majority of the year now and have 2 of his bills in my name, other than that I've been giving him cash (so I have no way of proving that it actually went to him and not under my mattress)

I don't know how a trustee in your district would perceive it. Perhaps your attorney would be able to answer that for you, as he/she will know what is the norm for your district.

I'm sure you probably already know this, but it's time to take Dad off your accounts. You have been supporting him to the detriment of yourself. It's commendable to help a parent in need, but right now you need to get your finances in order.

[helpmeout]

Thanks everyone.

I know that I'm only digging myself a hole by continuing to support my dad, but I made a mistake by adding him on to my accounts for everything - such as adding him onto my cell plan, so now if he doesn't pay my cell phone gets cut off as well. It's a mess....

I'm looking into letting him moving in with me. Does the BK law have anything regarding how long does he have to live with me before I can officially increase my household size to 2? He is facing an eviction from the place he lives in now.
If I do put him on the papers, will they look at his income (measly as it is now), bank statements, tax returns as well?
He doesn't fall into category of ill, elderly or disabled though.

Take him off of accounts. Personally, I plan on getting rid of my cell phone once the plan is up and switching to prepaid. As often as I use the phone, it will be cheaper. You may want to look into that. Also, look into how to cancel his plan. You may pay a cancelation fee, but in the long run, it should run cheaper than paying for the rest of the plan. And if he complains, simply tell him that you don't have the money to pay and then suggest he get a prepaid phone.

[momofthree]

Will adding a second person to your household put you under the median? And you only have to consider the amount of income that contributes to the household, I believe. If he makes $1700 and has a car payment of $700, car insurance, cell phone, etc. then he's not contributing much.

This is something you should ask your attorney about.

[kylie84]

Even without his contribution, I'd still be over the median by $4K for household of 2.
If I can claim his car for operating expenses (22A) that would probably cancel out his share of contribution to the household ($251-$350).
But as I said, I'm worried that they'll start looking into how long he's been living with me, so going down this road might not be such a good idea and the easiest way would be just to file after a couple of months of part time....

I'll talk to some more lawyers next week and see what they have to say.