scared and need advice please - high income and $200 under means test

[runnersdelig]

In Sept of 2008, I lost my job and was unemployed for about 2 months. We became very behind on our mortgage and our credit card bills. All of 2009 was a catch up to mortgage payments and trying to satisfy each credit card company. Finally in the middle of 2009, we were unable to make minimum payments to the credit card companies and so we stopped. We made sure to catch up on mortgage, pay utilities, gas for car, car repairs and food for our 3 kids.

At the end of May I was served with 2 summons for Discover Card and Citicard. We sought a BK atty early in June. The atty said we make too much money to qualify for a ch 7 and that we would be better off in a ch 13 making payments of $175 for 36 months. I wanted ch 7 so I can just move on with my life but trusted his word. After I resigned myself to making payments for the next 36 months, last Friday the atty emailed me and said that I needed to really consider 60 months because of some case that the US Supreme court ruled that if debtor is over median on income (which we are), you must employ all available projected disposable income to chapter 13 plan for 60 months, not 36.

In February of this year, DH got a large one time bonus of approximately 6K. We used every last penny of this to catch our mortgage up. But because of the 6 month look back on income, it looks like we're making $9,583 gross per month. But, we really don't We only make about $7,600 per month.

Income: I make $55K and get paid bi weekly so gross is usually $2116.34 per paycheck; DH makes $42,000 and also gets paid bi weekly so gross is usually $1615.39. Total = 7,463

After all taxes, 401k repayments, health insurance etc get taken away, we only take home 5200 per month.

Here are our expenses:

1st mortgage: 2021.27
2nd: 650.03
Daycare: 775 (will be 1000 now that kids are out of school and will need to be watched full time)

Grocery: 1300 - we have 3 kids and they have severe eczema and food allergies. 2 of them are allergic to gluten, wheat, corn and soy. The youngest is severely allergic to all dairy, eggs, gluten, wheat, corn and soy. She is also asthmatic. So we can't buy normal prepackaged food. Most everything is cooked from scratch or else we're in trouble and have to go to the hospital.

Gas/Car Maintenance: 600 - we just spent $2000 to repair both cars earlier this year

Clothing for the 5 of us: approx 250

Medical and Dental bills: 250 (several crowns for hubby and dentist is leting us pay monthly) and this includes co pay for doctor visits an rx.

Auto insurance: 154.60

Home Maintenance and upkeep : 320

Electricity: 160 per month

Water and Sewer: 150

Cable/telephone/internet : 130

Cell Phones: 150

Garbage: 35

School lunch for 3 kids : 165 {(2.50 per day * each kid) * 22 day}

Recreation: 450 for the 5 of us. This includes my gym membership, running shoes, kids sports etc.

Laundry and dry cleaning: 75

RX and copay for my mom: 100

Is there anyway that I could even possibly file a 7? Atty says yes we can file but we're so close with our expenses that he fears it would be scrutinized and he wants to avoid that. But to me, those expenses are there in the bank statements so they can scrutinize away. Should I wait 2 months to file since the February paychecks are where DH's huge bonus took place. I'm scared about getting a lien put on our house because of the lawsuits and don't know how long it will normally take for them to be able to garnish wages etc. If they do put a lien on our cars or house, once we file BK does it strip the lien?

I have an appt with another atty this Friday to get a 2nd opinion. Edited to add that we live in Washington state.

[newbie2]

In Sept of 2008,
At the end of May I was served with 2 summons for Discover Card and Citicard. We sought a BK atty early in June. The atty said we make too much money to qualify for a ch 7 and that we would be better off in a ch 13 making payments of $175 for 36 months. I wanted ch 7 so I can just move on with my life but trusted his word. After I resigned myself to making payments for the next 36 months, last Friday the atty emailed me and said that I needed to really consider 60 months because of some case that the US Supreme court ruled that if debtor is over median on income (which we are), you must employ all available projected disposable income to chapter 13 plan for 60 months, not 36.

In February of this year, DH got a large one time bonus of approximately 6K. We used every last penny of this to catch our mortgage up. But because of the 6 month look back on income, it looks like we're making $9,583 gross per month. But, we really don't We only make about $7,600 per month.

Income: I make $55K and get paid bi weekly so gross is usually $2116.34 per paycheck; DH makes $42,000 and also gets paid bi weekly so gross is usually $1615.39. Total = 7,463

After all taxes, 401k repayments, health insurance etc get taken away, we only take home 5200 per month.


I have an appt with another atty this Friday to get a 2nd opinion. Edited to add that we live in Washington state.

First, I'm glad you are getting a 2nd opinion. That's always wise when considering bankruptcy, especially a Chapter 13.

Yes, with the new BK laws (started in the fall of 2005) if you are over the median income your payment plan runs 60 months. It sounds though that the attorney you consulted was a bit confused about this at first, then realized it. Makes me wonder if he actually practices bankruptcy, because this surely has been in place for all filers since late 2005 :-) Again, glad you are getting a 2nd opinion.

As for your expenses, it sounds like you'll be able to document the food costs because of the health issues for your children. (Keep your receipts) The only other thing that pops out at me is the recreation budget. That appears high (to me) for a family of 5. Ask the 2nd attorney about it.

Before you meet with that 2nd attorney bring a good list of what your expenses are, and also ask him about that bonus. I'll try to find the link for you, but there was recently a Supreme Court decision about not using unexpected income in a filers repayment plan. (If the first attorney didn't realize over median= 60 month payback, I doubt if he was up to date on recent court decisions :-)

Good luck to you, and please let us know how the 2nd opinion works out.

[newbie2]

Here is the link regarding the Supreme Court decision that I spoke about above.
Please note: This only affects those who are entering a Chapter 13. It would still be best if you could wait out filing until that bonus dropped off the 6 month look back, unless of course your 2nd opinion attorney feels your expenses are sufficient to avoid a Chapter 13.

http://www.bkforum.com/showthread.php?t=57848

[geye]

Slightly off-topic...but the food allergies and school lunches. Is the school hand-making everything to avoid the allergens?

Is your copays listed twice? I see medical/dental.. and then rx/copay for mom.

If you'd like to compare, I have 135 for home maintenance and 50 for recreation. We're a family of 6.

I'm seeing way too many expenses to actually live on 5200 take-home. I was at a mental 5500 by the time I got to gas.

Are you taking your pay and multiplying it by 26 and dividing by 12? Bi-weekly is more often than only two times per month over the course of the year.

[BCA2009]

If you are trying to determone if you qualify for Chap 7, you need to complete the means test. Based on salarlies of 55K and 42K you have an average monthly gross of $8,083. The means test categories are not broken out like your expenses are above, it's hard to guess if you will qualify, but it's going to be tough with 97K in annual income. You need to have a very high mortgage note or very high medical/special needs expenses to get you there and it doesn't look like you have enough expenses.

I was over (but not as much as you are). There have been some people on this board that made well over $100K and qualified, but it is rare. you have to have the right mix of expenses.

Do either one of you have jobs that can relatively easily be replaced in 4 to 6 months (nurse, accountant?) If so I may consider quiting a quitting a job to qualify and waiting until discharge to go back to work. That is extreme, and Chap 13 may be a way better option, but I was willing to go that route if it had come to it because I knew I could replace my job with a similar one.

[momofthree]

I'm curious about the school lunches as well. My son has a gluten allergy and can only eat about 2 school lunches a month because of it. Is there some sort of disabilities law in place that says they have to accommodate for allergies? I'd love to hear about it!

I'm not sure if 401k loan repayments are allowed as an expense in means testing. But I do believe they are allowed to be scheduled in a ch.13. Maybe someone can chime in on that. How much is your 401k loan?

At $8083 gross per month, you have excessive deductions if you're only netting $5200/mo. Do you get a large refund each year? Are you contributing to a 401k each month? You can expect your deductions to be scrutinized. If you're overwithholding each month and getting a large tax refund, they will expect you to adjust your W4 to get more money in your paycheck each month to help fund a ch.13.

IN addition to the withholding issues, you can expect the following expenses to be questioned: recreation ($450), groceries ($1465), home maintenance ($320), mother's expenses ($100), and possibly your transportation expense--although if you don't have a car payment, this will probably be fine.

Being above the median, and having a reasonable house payment, you may very well end up in a ch.13. However, if you find the right attorney, he may be able to squeeze you into a 7. If the attorney you already saw didn't even realize you HAVE to be in a 60-month plan when you're over median income, then you NEED to find a different attorney.

Will you be able to strip your 2nd mortgage if you file for a 13?

[SMinGA]

Looking at your expenses I see a few areas that you'll probably need to cut back on. Namely, clothing & recreation. You're bankrupt - you're not going to be allowed to spend $450/mo on entertainment/recreation. And $250/mo for clothing + $75 for laundry/drycleaning = $325/mo seems excessive. ~$75-125 is probably the most you can do on recreation. You don't need a gym membership, and if you can't afford it - extra curricular activities may need to be trimmed back for the kids.

Your food budget is high, but you have medical reasoning and I'm sure you can back that up with letters from doctors.

You increased daycare for summer - but isn't that pretty close to what you pay in school lunches? Meaning you don't pay school lunches when you do pay more for summer day care. Kind of a wash there.

For the medical/dental bills: is the work done? If so, its unsecured debt and will be incluuded with the rest. You won't keep making payments. But do need to provide a monthly alotment for future medical/dental needs.

Home maintenance seems high. Is there major work that needs to be be done, or is this based on prior spending to upkeep the house?

For your mortgage: what is the value of the home? How much do you owe on the 1st?

OTher than that, for income make sure you are counting monthly and not just for 4 weeks. The bankruptcy court will average it. Such as if your net is $2000 every 2 weeks, that is NOT a net monthly of $4000. Its actually $4333 since you have 26 pay checks in 12 months. Your plan payment can be deducted according to your pay schedule, taking an equal amount every paycheck. BUt some bills (mortgage, utilities) must be paid monthly no matter what. That means you would use the 2 'extra' checks each year for some of the irregular things. Like car maintenance, clothing, etc. (Those expenses that come up occasionally, not as regular on a monthly basis as groceries, bills, etc.)

[runnersdelig]

In our school district, they send out paperwork annually asking about food allergies and I assume they're taking that into consideration. Kids only had an outbreak 2 times this year and it was because they were served french fries that were cooked in corn oil. After that, I think the school switched to using vegetable oil. My youngest daughter is in preschool and the teacher actually buys the treats for the kids and she's very watchful of what each kid can have.

We get a refund of around $2,000 a year. Our mortgage payment is huge and the interest paid every year in addition to the 3 kids gets us a refund. Prior to the purchase of the house, we only received $500 back or so. I'm only contributing 3% as is DH to the 401ks.

In order to avoid foreclosure in 2009, we took out 401K loans and a large chunk of our paycheck goes to paying that back. I believe we ended up paying $16K to catch up our mortgage, which the 401k and Dh's bonus allowed us to do.

Sorry, recreation expenses includes dinners out as well, in addition to running shoes for me every 300 miles, kids sports and school activities. As for the grocery expense, I have tried cutting it down but it's difficult with so many kids allergic to so many things

Mom cannot work due to stroke, diabetes and severe lung disease. I help out with her co pay for the doctor and medicine. My father's on the verge of being laid off as he works in the steel industry and they hardly have any work coming to them.

No car payment but DH drives 45 miles one way everyday to work. So gas is really high as is car maintenance on the car. We just spent around $2000 getting repairs done to both cars. They are older cars 1998 lexus es300 with 150,000 miles and 2001 mitsubishi montero with 160,000 miles.

No, we won't be able to strip the 2nd mortgage. Our house is valued at $311K and i believe we still owe $350.

I am hoping that I can wait 2 months to file because the 6 month look back won't include DH's bonus. Does anyone have any experience with how long it takes for them to garnish wages and put liens on property?

[momofthree]

Dinners out pretty much need to be included in your grocery budget, since that is super high already, you probably won't be able to get that to fly.

Like someone mentioned, when you enter bankruptcy, you're basically saying that you can't afford to pay your debt anymore. When you submit this budget, you're showing where your money goes. The trustee doesn't look favorably on someone who spends $5400 on recreation each year but claims they can't pay their bills. Trustee is going to want you to pay that towards your creditors each year instead.

I totally understand about the allergies, those are some nasty ones to have. I think corn is the WORST. Worse even than gluten, IMO. My youngest son was allergic to corn (thankfully outgrew it) and since i was breastfeeding, *I* couldn't eat anything with corn and corn syrup, corn oil, corn starch, etc is in EVERYTHING! It's insanity. We're also gluten-free and I found the most delicious site for GF recipes. The cookies and muffins you can't even tell are GF, they are soooo yummy! http://glutenfreegoddess.blogspot.com/p/site-index.html We manage on around $450 a month for groceries for a family of 5 with gluten & dairy allergies, but it's not easy, and we don't have the corn or soy allergies (EEK!) on top of it. Necessity is the mother of invention though. This also includes all our diapers & household supplies. I am admittedly the coupon queen though.

[momofthree]

Really, I think your biggest goal right now is to find an attorney who will fight for you, know what numbers will fly and how to put together a budget that will draw little attention from the trustee. For example, you can claim $300 a month for medical for a family of 5. Since your cars are older and you don't have a payment, you may be able to claim higher operating expenses, etc. The key is a good attorney.

[Pandora]

I think you're going to have to adjust everything in your budget or be able to account and explain why they're so high. You need to see what your state allows for a family of 5 and then if you must go over that amount, you have to account for why.

School lunches - trustee can tell you to pack your kids lunches half of the time given they have allergies and your food bill is already so high to account for that aspect.

Gas / Car expenses: We have 3 vehicles and are only allowed $75.00 a week for gas. As far as repair/expenses, we're allowed $70.00 a month for repair work as most vehicles dont break down every month - and oil changes/tire rotations ect are every 3 months.

Tags/Inspection/county stickers for vehicles: These are separate and we are allowed $22.00 a month for all 3 vehicles.

Clothing: we get $25.00 a month per person, so $75.00 for a family of 3.

Recreation: $60.00 a month.

House maintenance & upkeep: We are allowed $70.00 a month; your $320 seems a bit excessive.

Medical and Dental: We were allowed $300 but had to provide a complete print out of RX receipts and drs. visits for the entire year, proving we actually spent this every month (and we do as I'm on many meds). Trustee balked at this amount on our schedule, until we could prove we actually spent it. So be prepared to be able to prove on paper you spend the amount you're claiming every month.

As for your mom and paying for her meds - thats going to be tricky as the trustee will probably ask why she doesnt / isnt on some type of assistance to help her pay for her medications.

Your tax returns: you'll probably have to adjust the exemptions more than likely or the trustee can take your return. Thats a call only the trustee can make.

We get to contribute to hubby's 457 but only $50.00 a pay period, and so far the trustee hasnt objected, but then again, we're not confirmed yet either.

[SMinGA]

For the question of how long til garnishment is possible - where in the process are you? I believe you said you were served in May. Did you file an answer, get a court date? Or did the time to file an answer pass? IF it passed with no response, the creditor may have gotten a default judgement. Once a judgment is entered against you, garnishment could happen at any time.

Is $350k the total owed 1st & 2nd mortgages? What is owed on the 1st? If 1st is under $311k, you can probably strip the 2nd. Also, make sure you're considering an accurate, current value. Basic test to strip a 2nd: 1st balance is more than what the home is now worth.

With a good atty you should be able to fight to keep the $ helping your mom in, and the expenses for groceries even though they are high. But you will probably have to cut back in areas of recreation & eating out. You can't really tell a trustee/judge: I can't pay my debts but I can afford to spend $450/mo on entertainment for my family. And some of your arguments (thinking devils advocate here) will be hard to win. Running shoes? That goes into apparel/services where you're already just over your limit. Gym membership? You don't need that, you can run/excercise without it. And any penalties for breaking the contract - unsecured debt.

As to the 401k loan - that gets tricky. My understanding is they ARE considered for a ch. 13 payback, lowering your DMI. But not for a 7. Since you are over median income, have 401k loans - you'll probably have a hard time filing a successful ch. 7. Not legal advice, of course, but I'm guessing it will go better to file ch. 13. The 401k loans will be taken into consideration, though your plan payment will likely go up when the loans are paid off. (Assuming they are paid off within the 5 years of your plan - you won't have the option of 3 years.)

Also - you may need to adjust your withholding to take a little less out per payday. A ch. 13 works off of DMI, and if you get back a refund then that is really more DMI. BUT if it turns out you CAN strip the 2nd - the loss of interest deduction may offset the refund somewhat...

[Pandora]

No, we won't be able to strip the 2nd mortgage. Our house is valued at $311K and i believe we still owe $350.

Is the 350 the amount owed to the 1st mortgage only? if so, and the house comes in under the value of the 1st, and you meet the critera for $ amounts, yes you can strip the 2nd ;)

Check with your lawyer on it.

[SMinGA]

ps-reasonable 401k contributions should not be questioned - though some districts may oppose ANY contribution when you're repaying a 401k loan. Again, goes to getting a good atty who knows your district & what to expect & is willing to fight for you.

[momofthree]

IF you are for sure going to end up in a ch.13, you'll probably want to buy at least 1 new car with a payment under $489 (IRS standard). Your 2 older vehicles will not likely last you thru your 5-year repayment plan....