six months of planning, ready to file next week... need help on couple of questions.

[stephvgr]

little background info. pro se filers. I don't currently have a job and relying on early IRA withdrawals ($1K/month) and wife's income ($40K/yr with overtime).
have about 67K unsecured debt and 17K secured (auto loans) our income minus expenses is negative by about $1,090 (for six months now)... we are below median in CA.

questions

1) our gross income for the last two years and current is as follows:
2009- $57K (I had a full time job and wife part-time)
2010- $87K (both of us full time)
current YTD - $38K (my wife full time)... is past income going to be a problem? can we be denied base on "potential income"? (before job loss in Feb we were on track to make $100K)

2) I've been making early IRA withdrawals to keep us a float... I listed the amounts as income on the means test but not on schedule I (because they're early withdrawals, will be penalized and taxed) is this going to be a problem?

3) we want to keep our cars as we have a little exempt equity on them. but because our current negative income... how likely is it for the judge not to approve? also the fact that the cars are 2003 Mercedes and 2004 BMW matter?

Thanks for your help!

[btbeme]

1. Potential income isn't as important as "totality of circumstances." The last 6 months income is the biggest factor in income. Only if your total file seems a bit...suspicious...would a Trustee want to dig deeper. For instance, having a 6000 sq ft home and an income of $150k a year the last two years, then listing an Ikea nightstand as your only asset...that is suspicious.

2. STOP! Don't pull more money out. First, it hurts your income for filing. Second, it is for retirement, and early withdrawls, as you know, are costly in many ways. Third, if your IRA is your "go-to" plan after BK, well...you have bigger fish to fry than just a BK. You need a master plan for Life After BK. Myself, it involved getting employed after discharge, which took 9 months, as well as surrendering the house (and DirecTV, and high speed internet, and Friday nights at the bar with my buds). That hurt. As for Schedule I, if it has been a source of income in the last 6 months, I would list it. Others here may have a more informed opinion, but I'd rather have it there than be asked why I did not list it by the Trustee.

3. What they are isn't critical. Getting an accurate valuation is important. The bigger question is whether you can afford to keep them, exempt equity or not. Are you paying on them? Could you get by for a while on a "beater" until you have a positive income flow?

Now...it is almost impossible to get a Ch 7 dismissed because you are too poor to survive after the discharge. It is easy to get one dismissed for not having your paperwork filed in an honest, open, and complete manner. Have you spoken with an attorney or two?

[stephvgr]

Thank you for your reply. Yes we are filing pro se (not enough to pay for atty) plan after BK.. get a Job.. we have been current on auto loans.. and wanted to re-affirm them and perhaps sell them after discharge (i didn't want to have any more things going on right before filing)..

another question.. I used to work at a bank and had special rates on Credit Cards (cash advance was the same as purchase, rates and terms) well instead of making purchases I used to make cash advances... that was back in 2004 to 2008 then in 2008 i stopped making cash advances/purchases and just kept paying on them... so it was a solid 3 yrs of payments and no purchases.. can they presume abuse?

also, same deal but my wife used credit cards to pay for school.. about four years ago.. then stopped charging and kept paying on them.. can they consider these as student loans?

Thank you!

[btbeme]

Easy answers first. Cash advances that far back are not going to be on any radar screen, regardless of how they were used. It would be difficult or impossible for a creditor to convince a BK judge that you had a master plan to file BK five years into the future. The BK laws protect you from wild claims like this. Besides, your interest payments alone probably paid them back and then some.

Now, the cars (and what I like to call The Redemption Opportunity). If you were to file reaffirmations, and you have negative income, the Trustee (or the judge) will likely take a close interest in your intentions here. In AZ, the judge would most likely disallow the reffirmation since there was no evidence that you could afford them after discharge. How a reaffirmation is read differs from place to place, but in AZ, if you asked to reaffirm and were denied, it is essentially the same protection as having it confirmed. Where you are, however, a denied reaffirmation may be enough to trigger a repossession.

Which brings us to The Redemption Opportunity. Here is your once (hopefully only once) in a lifetime chance to correct past transgressions and bad luck and restart your financial future. No judgement, only a fading history of your BK. Take it. Seriously, take it and do something good with it. Coming out of a Ch 7 with a negative cashflow is a Very Bad Place to be. Make your plans as if you will not be employed. Dump whatever albatrosses are hanging around your neck and get on with your new life.

Want my unsolicited and sometimes not so welcomed advice? Ditch the cars. Stop making payments the moment after your 341. Do not reaffirm anything. Find an inexpensive place to rent, even if your belongings won't fit. Cancel cable, move to a cheaper cell plan, start couponing like mad, stop drinking booze and smoking, carpool, use the neighbor's WiFi (with their permission), you name it - get to a positive cashflow situation, no matter what you have to do. Stop paying everyone anything and consider delaying filing until you are about to get kicked out, repossessed, and sued - and bank that cash (you have a generous wildcard exemption in California - use it to the max). You will come out of BK with many months of car payments, mortgage payments, credit card payments, etc in the bank to buy basic transportation and have a safety net. You will have what is left in your IRA (I believe it is exempt - check your state laws). You will have basic needs covered with one income, meaning you will eventually have a second income to put into savings and retirement. You will have dignity as well as a second chance.

[ValleYum]

Wow, seriously this is an awesome and inspiring set of suggestions, btbeme!! Applause!! Bravo!