DMI Questions

[Cavedog]

Hi all,

I need to make sure I got this straight from the previous recent threads I have read recently. I do have an attorney and I would like to have blind faith in him, but want to make sure I know as much as possible in the process just in case. After all, this is my life here, not his.

Chapter 7 bankruptcy. Family of four in Florida. Going to file first week in August. We are under the means amount by about $1600. Good there. From what I understand, even though I pass the means test I might be forced into a chapter 13 if I have a positive DMI of over $117. Is this correct so far?

Assuming that is correct, I have gone over my attorney's BK packet and got to the schedules I & J (they are his forms so dont know if they perfectly match up to what the courts use. His paralegal might just swap them over). OK..I fill the forms out. Here's what I got:

My Gross income is $4530 monthly. After payroll taxes, medical/dental insurance, and 5% 401K contribution,
my Net income is $3265 monthly.
My expenses are $3400 including rent and 2 car payment that I intend to reaffirm.
So, would my DMI be negative 135?

Should I reduce my 401K to zero percent which would then increase my income to $3400, bringing my DMI to zero? I would like to reaffirm both cars (payments of $281 and $153) and with a negative DMI my attorney will not sign off on them.

ALSO, for DMI calculation, do I have to use the IRS expense allowances if my actual expenses are lower than what they have?

Thanks

[debee]

If your car loans are with credit unions, you don't need your attorney's certification to reaffirm.

You might already know this, but just in case you don't, most lenders don't require reaffirmations. They let you keep the car so long as you remain current. Is that an option you've considered? You could call your lender (even anonymously) to find out what their policies are.

You don't use the IRS standards on J. Some people use them as guides of how high they can stretch before bumping their heads. You're supposed to use your actual expenses.

edit: rest of your post - negative dmi, etc - all looked fine.

edit again: you can see the forms here.

[Cavedog]

I like it when I see a debee response..makes me smile everytime!

I checked the actual forms out. Much easier to fill out then what i got! Thanks!

The cars have got me confused. We get 8K in wildcare exemptions and 1K each car. So we get a total of 10K in exemptions since we arent exempting a house. Between the household items ($5700) and rental deposit ($1300), we got 7K right there.

According to my attorney, the trustee's here in Orlando use yellow nada RETAIL value, not the trade in value.

The first car we owe 5K(Santander financed). Trade in value is $6500, but retail value is 9k. Pretty sure I can just use my 3K remaining in exemption and call it even with the trustee (my car has some small dings and wear and tear).

The wife's car we owe like $12,500. Trade in value is like $15,500, but clean retail is like $19,000. I know that I know that the trustee is going to want $5,000 from us if not more. Even if he lets us pay him back $400 over 12 months interest free, I cant afford that with my current expenses. Now, if I give that back to Fifth Third, then my expenses will drop down by close to $350/month with the savings in the payment, insurance and upkeep. And then my DMI goes to positive $350, forcing me into a chapter 13?? So confused that giving a car back may force me into a 13. Do I have this right? I feel like I am missing something here.

[olivies]

I'm just stuck on the fact that a judge would let them use retail value. Because retail value is not what they or the bank will collect if the vehicle is surrendered so you really don't have that equity. I think a good attorney would also be able to argue that if you're giving up the one vehicle, that doesn't eliminate the need for another vehicle in it's place, thus maintaining the expenses for it.

[Cavedog]

I hope I only have to go through BK one time. It's driving me crazy! I reviewed my notes and saw that some trustees are using the private party price, not necessarily the dealer price. Still sounds high to me. When I asked my attorney about that, he said that ever since the housing took a dive here in Florida, the trustees arent finding any value in the houses so they are looking elsewhere. And now that we have a wildcard exemption that pretty much covers everyone's household items (yeah! no more 2K total) if you pass on the homestead, that automobiles are where they are looking at the most.

Regardless, even if we are able to keep the 2nd vehicle, I am still thinking about getting rid of it. My wife is a stay at home mom now, so we are trying to unlearn some bad habits such as thinking that we NEED two cars, versus making one car work. I am on board with that but my wife isn't there. She likes to get out of the house and do things which is great, but probably not worth the expense of a second car.

[olivies]

Regardless, even if we are able to keep the 2nd vehicle, I am still thinking about getting rid of it. My wife is a stay at home mom now, so we are trying to unlearn some bad habits such as thinking that we NEED two cars, versus making one car work. I am on board with that but my wife isn't there. She likes to get out of the house and do things which is great, but probably not worth the expense of a second car.

I don't think having a car for a stay at home mom is a luxury. Emergencies, doctor's visits, school pick ups, etc. Sure, you could "rough it" with one car. But when the child bumps his head and your wife wants to check him out at the doctor, or she gets a phone call that he's puked all over the classroom and needs to go home, or YOUR car breaks down and then there's no car for the family.... just saying some luxuries are more like insurance. Besides, I can attest to the fact that the term "stay at home mom" is an oxymoron. As a mom to 6, I'm saying you need to go with your wife on this one.

[Cavedog]

Ha. I see what she does around here. I wouldnt want to do it.

We were very wise in picking our rental home. It's 2 blocks from the school and maybe 6 blocks from the doctor's office.

I see your point about thinking of a second car as 'insurance', and agree with that in theory. There is a difference though (or at least the point I am trying to get my wife to see) in having an almost new 2nd car versus a good quality certified used car for 1/2 the cost. I admit having a newer Honda Odyssey is nice with the TV and DVD player and the automatic 3rd door, but maybe a 3 year old Dodge Caravan would make more financial sense, or even (dare I say it) ditch the van and get a nice sedan that gets 30+ mpg! As a mom, what are your thoughts?

[debee]

We get 8K in wildcare exemptions and 1K each car. The first car we owe 5K(Santander financed). Trade in value is $6500, but retail value is 9k. Pretty sure I can just use my 3K remaining in exemption and call it even with the trustee (my car has some small dings and wear and tear).

If you get 1K each car, I don't think that you would be able to surrender one car and keep 2K car exemption on the other car. So you may only have 2K remaining exemption to put toward one car. (1K car + leftover wildcard). And 1K toward the other.

The wife's car we owe like $12,500. Trade in value is like $15,500, but clean retail is like $19,000. I know that I know that the trustee is going to want $5,000 from us if not more. Even if he lets us pay him back $400 over 12 months interest free, I cant afford that with my current expenses. Now, if I give that back to Fifth Third, then my expenses will drop down by close to $350/month with the savings in the payment, insurance and upkeep. And then my DMI goes to positive $350, forcing me into a chapter 13?? So confused that giving a car back may force me into a 13. Do I have this right? I feel like I am missing something here.

I don't have a lot of suggestions for you, Cavedog. If there's an obvious fix, I don't see it. Perhaps someone else will come along who does. Meantime, this is what I've got:

You could look into trading in or selling one or both cars now before you file. Just don't sell to an insider and get fair market value. Use the proceeds to buy one or two new cars with warranties. Keep your equity position in the new car(s) at or below 1K. If there is any cash in hand after doing it, pay your lawyer, stock the pantry, see the dentist, get glasses, and other allowable expenses. Keep receipts.

The wisdom for buying a new car before filing bankruptcy is that you can get an excellent warranty which will cover you in the years after bankruptcy when you won't have credit available for tow trucks and repairs. That is the reason for doing it. The rest is a side benefit.

Another thing to do would be to reconsider your schedule J. Most people forget many expenses when filing, likely because they have let a lot of things drop in the years or months leading up to bankruptcy. There may be ways you could bump it up. You could post your expenses from schedule J and invite feedback.