Filing Chapter 7, just a couple of questions

[up2myeyeball]

Hello folks, I've not post here for quite a while since a little over 2 years ago I decided to just go with paying my creditors through consolidation with the CCCS. But just last week I received my 60 days notice layoff paper. With the economy and employment this days. I'm not sure if I'm going to be able to find a job within 2 months. Since I will be loosing my job in two months. I decided to just file for Chapter 7 since I won't have any income coming after 2 months.

Here's my info.
I've still have about $40K in multiple unsecured loans, cc, stores, personal loans. I have one car and is paid up. I don't have any savings whatsoever due to paying CCCS every month. I do however, will be receiving severance pay worth about $14,000 before taxes. I'm guessing it will be more like $8,000 after taxes. I've been working with the company for 17 years so I will be receiving unemployment. I also don't have any assets beside the car, a camera/lens, video gears, and furniture. I live in California, Bay Area, and I'm a renter. However, my wife and I own a home in Vegas which is getting rented at the moment. The house has no equity and the monthly rent doesn't cover the mortgage. I'm also going to stop payment with CCCS since I am going to file BK to help save money just in case I don't find job right away.

My questions.
Will I be able to file Chapter 7 due to no income? Also, will we be able to keep the house in Vegas. Because if things don't work out here for me within a year. We were thinking of moving to Vegas or at least just me for the time being. I'm filing separately.

Sorry for the long post and thanks in advance.

[keepinitreal]

I was in a very similar situation to you. I had to wait 6 months after I received my severance pay so that lump sum would drop off my 6-month look-back.

I also received unemployment and was able to file Chapter 7. Find a good attorney, pay him while you have the money, and follow his advice. Good luck!

[up2myeyeball]

Thanks, keepinitreal. well part of that severance money is going to pay my parents since they had loaned me $5K a year ago. But i guess the court wouldn't care.

Is there anyone else out there that could chime in regarding the property. Also, do I really need to wait 6 months to file. I was thinking like January or February which will make it 2/3 months.

thanks

[drowning123]

The trustee will most likely go after the 5,000 you pay back to your parents. You may not be allowed to keep the house through re-affirmation, but you may be able to work something unofficial out with your lender so that you can pay and stay.

[ccsjoe]

Hi up2,

drowning and keepin have it right. If the severance is going to make you not pass the means test, you will have to wait 6 months for it to come off. In addition, any payment you make over $600 to any single unsecured creditor may be considered preferential, and the trustee may request the creditor reimburse it to the bk estate.

As far as the house, as long as you are current, (not going to get into why you want to keep a property that's causing you a net outflow) I would likely indicate reaffirm on the statement of intent and then just continue paying it without ever signing any reaffirmation agreement.

If it helps, I'm also Bay Area, over median, renter.

[tcreegan]

Hi uptomyeyeball,

money is going to pay my parents since they had loaned me $5K a year ago. But i guess the court wouldn't care.

The court WILL care, very much. This is called an insider payment. No insider payments for a year b4 a BK!!

No income, no problem for filing, just a problem for putting gas in the car and food on the table.

Your 14K severance is counted as income, no mater what you do with it.

The income for the means-test (1st step in a BK) is the 6 months prior to filing, hence the advice to wait 6 months so it is not counted as income.

For CA, median monthly income for a household of 2 is roughly $5,500 a month. Ideally you want 6 months of income close to that, but you can make higher amounts work, maybe even up to 9K a month or higher depending on your expenses (and the Bay area is not cheap!)

Add up 6 months pay/unemployment + 6 months of wife income* + 6 months Vegas house rent + 14K severance and divide by 6.....
If the number is less than 10K, you might be OK for a BK. If not, rack up some unemployment until you get your income down, and if necessary wait over 6 months so you don't have to average in the severance.

*even filing separately it is 'household' income. There will be some adjustments, but for a rough estimate leave it in.

With no equity in the Vegas house, not only would it be OK in the BK, it probably will help you.
You have to work some things out with the lender, but given the Vegas housing market....shouldn't be a problem.

Hope this is not info overload, keep the questions coming...

Tom in Colo

[up2myeyeball]

Thanks ccsjoe! and congrats to your 341 yesterday. and to you tcreegan for the reply.

My last day at work is 11/30/10. So I have to wait until 6/1/11 to file? Because the court looks at your income for the last 6 months. I figure that the court will let you keep your severance knowing that you've got laid off and that you might not find another job within a year. I'm just assuming. I'm also filing individually and not joint.

After tax I would probably get only $8000. So tcreegan, if I decide to file before 6/1/11. The court will average my severance. Is that right? Were no way making close to $5,500/month even with my current job. Because my wife is only working on temp job and most of the time she's collecting unemployment check. Yes, it's been that kind of a year for us. The reason were making it right now is our rent is less than 1k/month. We been in the same apartment for 20 years.

My co-worker told me that I should try to settle my debt with my creditors first. She told me that's what she did. She called her creditors and wrote a letter when they requested for one. And she had settle with them. IS THIS A GOOD IDEA? I figure if worse comes to worse and they don't settle. I would just file for BK.


Thanks for any advice.


PS. I am now getting a headache from all this thinking!

[tcreegan]

Hi again uptomyeyeball,

I figure that the court will let you keep your severance Sorry to be the bringer of bad news.....

....but I also bring the silver lining: you will most likely file under CA System 2 which has a wildcard that should cover the severance since you don't need it for equity in a home.

Unless you need the BK to discharge other debts, settling cc debt is a good option.
Do NOT fall prey to debt settlement companies, there are a lot of sharks out there....
Your co-worker has the right idea, call them yourself and see what they are willing to do.
You have it right, if they don't settle, you can file BK.

Tom in Colo

[ccsjoe]

I fully agree with Tom in avoiding debt settlement companies like the plague. As for settling your debts yourself, well, if you're successful your credit is still gonna take a major hit, accounts closed & settled, plus you will be 1099'd for the forgiven amount. CH7 BK, accounts show only as closed, IIB, and no 1099, so no taxes owed on discharged amounts.

As for your severance, IF you can receive it and still be below the median for means testing, then you should have no problem. If you are going to receive it post-filing, then yes, if you are using CA system 2, you should be covered since no home.

Word of caution. If you have accounts in both names, it would be in your best interest to look at the scenario of filing joint vs. filing individual. I'm not saying do one or the other, just make sure you have enough information to make an intelligent decision.