I believe we're eligible for 7 but attorneys want you in 13 it seems

[kerril]

Here is a breakdown of our (actually my husbands) situation. He will be filing alone.

We make decent money and there is also his S-Corp in play. Please take a look and give me your expert opinions as to why we cannot get a 7.

I bring home about 1900 and he brings home about 7800 = 9700

We have my expenses, his expenses, and his s corp expenses. He gets a 1099 so we get a huge 6-7k tax bill every year. Here is the breakdown:

His Expenses
1900 Mortgage
528 Car
220 Geico
100 Vehicle Maint.
122 Cell Phone
400 Home Mainaence
10 HOA
550 Taxes
350 Oppenheimer (401K contributions and loan repayment)
150 Personal Care
500 Groceries
150 Charitable Giving
300 Medical / Dental / Pharmacy
100 Clothing & Dry Cleaning
200 Entertainment / Gifts
5500

His S Corp Expenses
307 Customer Gifts
200 Legal & Professional Fees
140 Office Supplies
120 Tolls & Parking
416 Travel
31 Postage
110 50% of Meals & Entertainment
500 Uniforms
1156 Vehicle Expenses
80 Timeshare Maint.
3060

My Expenses:
447 Car Payment
150 Vehicle Maint.
200 Cable / Internet / Home Phone
400 Utilities
110 Cell Phone
75 Work Expenses
200 Personal Care
300 Groceries
150 Charitable Giving
100 Medical / Dental / Pharmacy
200 Clothing & Dry Cleaning
300 Entertainment Gifts
2632


Please note the following:
He is filing alone due to debts that were all incurred prior to our marriage
Pretty much everything in the house is mine - his ex took everything when they broke up
We have separate everything; bank accounts, credit cards, cars, etc.
Gas and vehicle maint expenses are reasonable as he drives 100 miles round trip 5-6 days a week
Groceries are also reasonable due to health issues he has that his doctor can attest to - he is also 56 years old

His debts are:
12895 Chase
10681 Bank of America
4287 Chase
385 Lowes
28248 Credit Cards

140000 House Default
636 Regency Park HOA

17729 2006 Taxes
31845 2007 Taxes
0 2008 Taxes
2483 2009 Taxes
8345 2010 Taxes
2011 Taxes Current
2012 Taxes Current
2013 Taxes Current
60402 Total Taxes
26891 Tax Lien Filed 5/27/10


The house default was a rental house that he was upside down about 75k and in the super ghetto so finding a renter became out of the question as well. We are in Florida and his only assets are the house and car which the house has no equity and the car has about 7k.

Please advise. We really, really do NOT want to deal with a 13 for 5 years.

[keepmine]

What reason did the lawyers give?
Looks like over 50% of his debt is non consumer so he should be exempt from means testing.

[kerril]

He is saying that because the house was not originally purchased to be a rental house it doesn't count as non consumer. It was a rental for at least 10 years though.

[justbroke]

He is saying that because the house was not originally purchased to be a rental house it doesn't count as non consumer. It was a rental for at least 10 years though.

That is typically the position shared by Trustees and Judges. The majority look to the intent of the property when you purchased the property... not how you treat it today. However, if you have had it as a rental for 10 years and purchased a new home pretty close to this home, then it would not be treated as a "second" or "vacation" home and it would be an investment property. You would have to fight, and I don't know how much fighting we can do here in Florida. (I believe that Florida looks at when you purchased the home and classifies the debt accordingly. So, if you purchased it as your residence and don't have an investment or second home rider, it is likely consumer debt.)

[kerril]

Yeah that's pretty much what he told us. I was hoping the fact that it was almost paid off and then refinanced while it was a rental house would be a loop hole but the lawyer isn't thinking that's going to work. When our current house was purchased the only reason he kept and refinanced that house was the sole purpose of renting it out - he thought eventually he would get his money out of it but boy was he wrong.

My other whole thing about this is if you look at our income and expenses, there is no money to fund a chapter 13. Both lawyers we saw don't seem to understand this and don't seem to want to help us find a way to pass the means test. They look at our income and automatically want a 13.

[keepmine]

The problem you have is, your HH income is nearly $10K/month-that's a lot of money.
Your expenses aren't reasonable. You spend $800/month on food and $500/month on gifts/entertainment.
And the $3K a month on the S corp. expenses.I doubt there is very much an attorney can do to help your situation.

[justbroke]

My other whole thing about this is if you look at our income and expenses, there is no money to fund a chapter 13. Both lawyers we saw don't seem to understand this and don't seem to want to help us find a way to pass the means test. They look at our income and automatically want a 13.

The "Means Test", which determines whether you can provide a dividend to creditors in a Chapter 13, is all about allowed expenses. While you may believe that a particular expense is necessary, it may not be necessary in your particular bankruptcy case.

Since your husband is a small business owner, you should find 3-5 attorneys that know how to deal with small business owner's bankruptcies. Subchapter S corporations are interesting in that income is passed-through, but it is still its own entity. If your husbands business expenses are done right, then your husbands income should be allowed to deduct these business expenses. Again, you really need an attorney that understands the difference because marketing, business insurance, business entertainment, travel costs, are all allowable business deductions. You would need to prove them, of course.

I don't think $800 for food, per month, is high if you are a family of 4. (My Schedule J showed $850/month for the 4 of us.) If you are a family of 2, then that's a problem.

[LadyInTheRed]

You say your husband brings home $7800, but then list business expenses. Is the $7800 before or after deducting business expenses? I think you should be looking at the net he receives from the corporation. He isn't paying corporation expenses from personal accounts, is he?

The means test will look at household income and expenses. If any of your income is not contributed to the household, then you use the marital adjustment to deducted that amount from household income. Many of the expenses you list separately will be considered household expenses. Here is an article that discusses what kind of expenses may qualify for the marital adjustment: http://www.nolo.com/legal-encycloped...eans-test.html.

You can find allowable expenses for the means test here: http://www.justice.gov/ust/eo/bapcpa...anstesting.htm

If your husband's medical condition causes high food expenses, he should be ready to support that with documentation. Being 56 years old will not help justify high food expenses.

Your husband should take justbroke's advice and consult with several attorneys who have experience filing BK for small business owners.

If he doesn't qualify for a Chap 7, Chap 13 is not such a terrible thing, assuming he doesn't try to keep asset he can't afford and you are both willing to make any necessary adjustments to your spending habits. It is also essential to have a good attorney who will fight for every reasonable expense.

[kerril]

Just wanted to let you guys know that I really started researching the non consumer thing. The rental house that was foreclosed on was originally purchased w/his ex wife over 20 years ago. He moved out and rented it out about 15 years ago. In 2003, he bought the house we now live in now and obviously has had homestead since. In 2006 the rental house was damn-near paid off when he was sold on refinancing it for the 140k that he defaulted on in 2011- well I found the refinance papers and sure enough it's clear as day that the mortgage was for an INVESTMENT. So being the mortgage he defaulted on was an investment which is non-consumer and taxes seem to be non-consumer and the cc debt isn't really that much - it should be a easy non-consumer chapter 7 and we don't even have to do the dreaded means test. We are seeing the lawyer this afternoon with the mortgage papers for the rental to see what he says......anybody have any ideas of how this should go? Every case that I've found in my research where there was objections by the judge was because the mortgage app was marked residential. This app is marked investment clear as day!

[sy53]

Keep Trying

Although I believe the laws are different from state to state (I'm in Calif), my husband and I had a very similar situation and income. I also had 3 attorneys tell me that we would have to file chap 13 and really pressed the benefits of doing so. At the time we were struggling with my husbands business, credit card debt, 2 rentals and trying to maintain our mortgage in good standing. I finally found an attorney who automatically said, "we need to file a small business chap 7". Any expenses related to the rental houses and seconds, credit card debt related to repairs etc., his business expenses and credit card debt, and his business taxes older than 3 years got us to the amount we needed to file chap 7.

I was told the reason many attorneys push for chap 13 is that it generates more revenue for them...it is more costly for sure and only 30% of filers are actually successful. I knew we would fail if we went that route... It took a good chunk of time to go back 3 years of statements to make sure I had all the business related credit card debt, but it was well worth it. We were discharged last Oct., filed in July and were able to go through a deed in lieu processes for the rentals. We are now debt free and his business is thriving, what a relief it is to actually live a life without the debt looming over our heads.

You will want to do a P&L for the lowest months of income for your husbands business - that was key to qualifying for Chap 7. I hope this helps, keep trying and don't give up. Best wishes

[Jongo]

Of course some attys will predict a Ch 13, but it isn't just because of the revenue they will generate for themselves (which isn't a huge amount, really). In many cases, its because it is the logical projection of the data that they have on hand at the moment.

Given the more detailed and recent information regarding the house and mortgage, this might look a little more realistic to a Ch 7 attorney. However, you must realize that, just because we see some things and know of some avenues to try to travel, the attorney would better know what the local Trustees are willing to do and not do when starting to pull apart a Ch 7 filing that has plenty of "warts." And this is where it becomes critical that you have an attorney that is great and not just good.

A great attorney who knows the whims of the local Trustees will likely already have a battle or three like that under their belt and will proceed with your case only after filtering it through their experience. A great attorney will wade in and go toe to toe with the Trustee to argue for your point of view. The Trustee might see it your way and might not - and that is the chance that you take. For instance, even though the mortgage refinance papers may say "investment" because that is what it looked like to them in 2011, the Trustee may take a stance that the ORIGINAL intent some 20 years ago was different. A drawn-out Ch 7 with adversarial proceedings can get mighty expensive mighty quick. And despite all you might try, you may still be back at a Ch 13, only with an attorney bill that is not dischargeable.

So... I disagree that an attorney would argue Ch 13 just for the money. They build their reputation on winning cases, yes - but also by not over promising and under-delivering. A hard-fought Ch 7 that comes out glowing for you may not be a bold predictor for the next Ch 7 case that needs a good fight. So attorneys will, by default, usually tell you the worst and try to fight for the best.

At least, that is the attorney I would want.

[justbroke]

Any attorney pushing for a Chapter 13 to make money, has a fool as a boss. A Chapter 7 bankruptcy is more lucrative in the end. Chapter 13s can be complex, require multiple hearings, multiple objections, policing of claims, and much more litigious than a Chapter 7. Add in lien stripping, motions to value, cramdowns, and motions for relief from stay, and the Chapter 13 attorney is working really hard for a "standard" (no look) fee.

Now, if you go to an Attorney that primarily does Chapter 13s, expect that you will fit in that box... a Chapter 13. Some attorneys will just look at your income and say... Chapter 13... immediately. That is not the attorney that you want if you "believe" you might fit a Chapter 7. You want an attorney that will review all your numbers and then advise you on the best chapter given your very specific circumstances. In some cases, a Chapter 13 is the only way to preserve property, so that in and of itself would shoehorn you into a Chapter 13 immediately.

So find the right attorney that will represent your interests. That may in fact be an immediate response of "Chapter 13" when you are trying to preserve property.

[LadyInTheRed]

One other thing to remember about attorney fees and Chap 13s is that most attorneys get a large portion of their fee through the plan payment even though most of the work is done early in the case. So, there is a delay in getting paid for their work and a risk that the client won't finish the plan and they will be left with unpaid fees they have to try to collect.

[daytona]

Some great advise on here. I would also suggest finding out who the trustees are for your district...many also practice privately. If you find one that does then set up an appointment with one of them, who would know better on what could go through as a Ch7? Don't worry as if you meet with that Ttee for a consultation they cannot be the ttee for your case.

[brokehmowner]

I actually thought 13 must be more beneficial also. My 1st is on a mod and my 2nd hadn't been paid on in a while and they were no longer contacting me. The attorney tried to convince me to do a 13 so that I could lien strip, even though even the 1st is way under water, to say nothing of the 2nd. I assured him that if and when the 2nd wanted to come after the house, it would be fine with me. I waffled for awhile but decided to do chapter 7, and about 2 months after my hearing my 2nd was completely extinguished under the Hamp program. This happened to a co-worker of mine also but she had done a chapter 13, so they just rearranged her payment to the 2nd to other creditors, so she got no benefit from the extinguishment.