Considering Bankruptcy - I have a little bit of time.

[movian]

I am considering filing Chapter 7 Bankruptcy. The idea really dawned on me about a day ago and my husband is in agreement.

My husband is unemployed and his unemployment benefit runs out next week. (Unless Congress issues another extension). Our income will go down substantially. I'm only able to work part-time as I'm full-time graduate student. I feel like we are never going to get out of this mountain of debt. My debt is unsecured credit card debt and student loans. I'm current on my credit cards. I know that the student loans aren't typically not dischargable. To make the minimum payments on all my cards - I pay about $1200 per month. We're lucky in that we're able to rent the basement of my parent's home. We have very minimal charges on the credit cards for the past couple of months.

We have a meeting with a lawyer for an initial consultation next week. But I have some questions that I'm anxious to get answered.

I have taken out a 401k loan (TSP since I'm a federal employee) earlier this month of about $8500 and paid off several cards and tried to make a dent in a couple of others. (I know it is so stupid. But it is done.)

I receive a small stipend from my graduate program plus the income I make part time (about $1500).

Here are my questions.

1. How can I best manage the stupidity of the 401k loan? I have a little bit of time before I would declare bankruptcy - I can scrap by for probably 3-4 months. From what I've read, it sounds like that money is no longer protected and the payments I made to those cards would be considered preferential payments and could be voided.
2. As part of my financial aid package at school, I receive about $2500 every quarter in student loans. I will receive another payment in January. What should I do with that money? Should I cancel the loan?
3. My sister is getting married in Hawaii at the end of December. My parents bought the plane tickets for my husband and I and are also paying for the accommodations. I have $1000 of the 401k/TSP money set aside for the trip. How can I best to handle this? Not going is not an option for me - this is my only sister and I'm the matron of honor.
4. Can I give my sister a wedding gift or bridal shower gift? If so, how much would you spend? I also have some money from the 401k/TSP money set aside.

I'd really appreciate any of your feedback.

[keepinitreal]

Sounds like a perfect time to file Chapter 7. Glad you're meeting with an attorney soon.

The payments to credit cards will be declared on your bankruptcy forms and the Trustee will decide what to do. It won't really affect you personally if the Trustee decides to contact them and get the money back.

If you don't have money to pay your attorney for your Chapter 7, I would suggest using some of that saved 401(k) money or the January money to pay the fee in full. The rest can go towards living expenses.

Since you're going to be filing bankruptcy, can your parents pay for your Hawaii expenses and a present for the bride in your name? You can always repay them when you're out of bankruptcy.

How you spend the remaining 401(k) money will be looked at by the Trustee. You'll be turning in your bank statements. Try to only spend on defensible items like food, car maintenance, clothing, dentist & doctor visits, home repair, etc.

Good luck!

[bk2009]

When you say that you can scrape by for 3-4 months, are you including payments to CCs in that time period?

I'm just wondering how a vacation to Hawaii (and spending $1k on it) is going to be looked at by the trustee. If you could put a few more months between your vacation and your filing date, I think you'd be much better off as far as any questioning.

I don't think a trustee will question a gift though, as long as the gift is $100 or so. If you get up in the $500 range, he could say that you're trying to hide assets.

When are you going to have to start repaying your 401k loan?

Finally, it sounds like with your husband out of work and unemployment compensation, things are going to be even tighter than they are now. Have you prepared a monthly budget for this scenario? Are you able to make ends meet in this scenario, as far as repaying the 401k loan, utilities, insurance, gas, rent/mortgage, etc? If not, how far off are you from being okay? Is it possible for your husband to take any job, any at all, in order to make up the difference? There's no use filing if you won't be able to survive regardless.

[movian]

Thanks for both of your advice.

Yes, we are on a budget. I'm pretty neurotic about tracking where the money goes. Technically, I could hang on until June or July making the minimum credit card payments. July is the last month I get my stipend payment for school. The problem is we just aren't making any progress. And only one of my student loans is in repayment and we're not paying rent.

My husband is willing and able to take any work. He even went to interview for a position as a Salvation Army bell ringer. He was competing against 80 people for 7 positions. This economy just sucks. He'll keep trying but it appears that I'll be the breadwinner for the time being.

The TSP loan comes out of my paycheck.

I'll keep my gift to my sister minimal - probably will do something hand made and then something small off her registry.

I'm just so tired of these balances. I started off when I was 18 with a credit card from my parents. I'm 30 now and just wish I could be moving forward.

Appreciate all of your advice.

[tcreegan]

Hi movian,

...ack!...if you are going to file BK stop paying on any debt that will be discharged in the BK, that is throwing $ away!!

I dont think you will have a problem w/ the 401K/TSP money or your stipend....take everything for the last 6 months, add it up and divide by 6...how close to $5184 are you?

$5184 is median income for a couple in Wash. I suspect that a grad student and unemployed guy aren't going to come close.

Spending $1,000 on incidentals during a trip to Hawaii is not going to go over well w/ the BK trustee, best case scenario might be to have parents cover everything (you can pay them back post-BK) and spend the money on a BK attorney.

Whatever you do, don't give $ to relatives or friend and don't use credit cards and do not get a cash advance

Welcome aboard, keep asking questions, lots of good folks around here to help out!

Tom in Colo

[movian]

So I have income from the following sources over the last 6 months when I review my bank statements. Which are included?

Stipend from school
Wages
Loans from parents
Overdraft protection
Reimbursement of travel expenses (for work)
Student Loans
TSP Loan

I also received an accident settlement from a lawsuit in August. I used this money to pay off my car and some extraneous bills. Does this need to be included?

If I consider my stipend, wages, unemployment and student loans, I'm under the income cap. The TSP loan and auto injury settlement would push me over.

[tcreegan]

Hi again movian,

You have a couple gray areas and need to get an opinion from a local BK attorney.

1) Is the 401K/TSP loan income on the means-test? This varies, some courts have ruled Yes and some No

2) Is unemployment income on the means-test? Again, some courts have ruled Yes and some No

3) Is the 'living expenses' part of the student loans income on the means-test? I have heard yes and no but don't know any court cases

And even if you are over median income, you can still file for Ch7 BK, it means you need to fill out the part of the means test where you deduct expenses from your income.

How far over would you be with stipend, wages, travel reimb, TSP loan, and [settlement divided by 12 then multiplied by 6]....

Tom in Colo

btw; in WA, umemployment and injury settlement money can sit in your bank and not get taken in a BK