Chapter 7 do i qualify?

[srganesh]

This site has been great, lot of good info, May be some experts can help me with my situation, Family size of 3, My gross paycheck for 8900 per mon and net is 5600 after all deductions and 401 contributions. My primary home 285k on 1st and 170k on 2nd from same bank is in foreclosure. 1 yr behind on payments. I also have a investment land which is alos in foreclsure with 300k loan amt, Both the properties are upside down. Credit card debt of 30k. 1 car worth 6k paid off, 1 bike worth 3k paid off, bank balance of 6k.
I want to surrender both properties wih BK, contacted 5 lawyers, 4 of them told me i can only file chapter 13 since my income is high, 1 lawyer told he can do chapter 7, He said since i am prepared to give away 10k worth of assets he said the trustee would,nt question too much since he gets his share percentage. but also cautioned in case trustee questions he might have to convert me into chapter 13.

now my question is would filing chapter 7 cause any issues?
i live in fl broward county.

[btbeme]

Welcome to the forums!

When you say your net income is $5600/mo after "deductions", do those deductions include withholding for taxes and/or a medical savings account? How much? Certain deductions from your check can create a worthwhile target for the Trustee - withholding, which equates to a tax refund, is a prime target.

Have you plugged your numbers into the Means Test yet? If so, what did it say? Since you are over median income you will have to pass the Means Test to be able to file Ch 7.

The Ch 7 attorney is probably talking about the fact that some of your assets total about $10k more than your allowable exemptions (cash in the bank being one). It isn't terribly difficult, given an adequate amount of time, to convert assets into exempt items, so that may not be a huge issue. Better to sell stuff, like your bike, on your own and spend the cash on food, etc that would normally be exempt - the other choice is to surrender it to the Trustee and let him pay your creditors. It is almost always better to be a No Assets case rather than an assets case, which takes much longer and undergoes much more scrutiny than a no-assets case.

Right now, I'd say it all pretty much depends on your Means Test, given your income.

[keepsmiling]

How upside down is your house?

[daylate]

As I mentioned in another thread (and many others have as well), passing the Means Test is only the first hurdle to pass; you must also not have "too much" left over income based on Schedules I & J-which compare your expenses and income after you file and your debts are gone. You should search through the forum to find out info about I & J and make sure you understand. It has tripped up many a newbie but can also be worked around if you know all the expenses to list on J. Good luck.

[justbroke]

now my question is would filing chapter 7 cause any issues?

I don't like that statement that since you're surrendering $10K in liquid assets the (panel) Trustee would not "question" too much. It's not the (panel) Trustee that is the problem. It is the United States Trustee (UST) that is the problem. With an income that high, your case will be scrutinized. Since you are surrendering the properties, you will not have enough expense to justify a Chapter 7. Your "disposable monthly income" (DMI) is going to be quite high and you will be pushed towards a Chapter 13 or a dismissal.

I don't appreciate that the attorneys said that you can't file Chapter 7 simply because your income is too high. That's just not the case or how it works. Qualifying for a Chapter7 is about how much DMI you have left over after accounting for "allowed" expenses. With $3,300/month being taking out of your paycheck (monthly), it looks like you either have overwithholding -- with large refunds -- or a significant amount (> 6%) being stuck into your 401(k).

The simple fact is that you earn practically twice the median income for a family of 3 in Florida. Without significant mortgage expense, you will have some trouble.

[despritfreya]

To add to JB's comments and, just out of curiosity, what was the $170k 2nd used for? Was it purchase money? Was it for home improvements or other family purposes? Or, was it used to help purchase the investment property? JB, you know where I am going with this. Are we dealing with a non-consumer filing?

Des.

[srganesh]

thanks guys for all your responses,
Here is my biweekly paycheck deductions, I am contributing 12% towards 401k plan.

Gross pay 4115.38

Before-Tax Deductions
Medical 154.62
Dental 10.65
Vision 10.27
401(k) 576.15

Taxes
Fed Withholdng 272.59
Fed MED/EE 57.29
Fed OASDI/EE 244.97

Total Deductions : 1326.54
I will do go thru the schedule I&J and see what my DMI would be. THanks

[srganesh]

How upside down is your house?

House is worth 250k and investment land is worth 120k

[justbroke]

JB, you know where I am going with this. Are we dealing with a non-consumer filing?

I was thinking about that, especially with the land being almost as high!

Here is my biweekly paycheck deductions, I am contributing 12% towards 401k plan.

Unless your employer has a match all the way up to 12%, it is highly unlikely that the UST will allow it. Most USTs start barking when it gets above 5-6% where most company matches end. Also, what type of tax refunds are you getting each year? Your withholdings seem large, but I can't compare that to mine. Typically, you get to claim a lot from your 1098 from your lender. However, it may be that you're not paying your mortgage so you're loosing the deduction for mortgage interest expense.

You can actually do a sample Means Test on legalconsumer.com. They keep the numbers up to date so it should give you a quick estimate.

[srganesh]

Also, what type of tax refunds are you getting each year?

I am self employed till last year and was only showing abt 60k till last year, Because of the client pressure i had to take up fulltime as they were not willing to continue on contract anymore. so my income was always less then 70k for last 5 yrs, only last march i took up this new job with higher pay.

Also one question if i go back to contracting or get a new job and show lesser pay and pass the means test would it raise any issues?

[justbroke]

As Desprifeya wrote, have you evaluated whether the majority of your debt is "non-consumer" (business) debt? I don't think that changing jobs is an issue at all. We're trying to figure out if you even need to do the Means Test!

[keepsmiling]

I wondered if op has thought of the option to lien strip if he does a 13. Perhaps he didn't know that was am option.

[srganesh]

I wondered if op has thought of the option to lien strip if he does a 13. Perhaps he didn't know that was am option.

Ya i thought about it but the thing is i dont want to keep the house as i am planning to move to a diffrent city after this headache is over.

[srganesh]

if i enroll for florida prepaid education plan for my kid this year would it raise any questions, is prepaid plan exempt from bankrupcy? I am planning to file in july this year