Chapter 7 vs Chapter 13 and Options

[mormand]

Hi there,
So I just learned that I may not qualify for Chapter 7 and need to know what recommendations you might have to potentially qualify.
$340K in Credit Card / Personal Loan debt
$100K in Student Loans

Employed with $160K Salary

3 person household with 1 income

What would qualify my for Chapter 7?
If no other option than a Chapter 13, what will those payments look like?
Currently live in Orange County and rent is extremely high, hitting $4K / month

If my wife is pregnant I may need to find a job that allows me to WFH, which will probably mean lower income, but don't want to jeopardize my options.

Thank you in advance for all inputs.

[justbroke]

Welcome to BKForum!

Owning a home would likely have helped. You see, the highest rent for Orange County for a family of 3 is $3,018 (according to USTP Means Testing as of 5/15/2023). That's nearly $900 on the table right there which will definitely put you into a Chapter 13. Unfortunately you are renting. If you owned a home and was paying $4K a month in a mortgage... all of it would have counted.

I cannot even guestimate your payment. There are so many variables that it takes a person, looking at your total picture and apply the rules, laws, and allowances, to come up with a number. An attorney would tell you the same thing. The calculation is individualized.

What I see, without looking at anything else, is that you have at least $900/month in disposable income. It may even be higher given that you make $13K a month. You may not be "forced" to move but you may be encouraged to move due to your housing be outside the allowances. There's just too much here on which to speculate.

I would worry more about keeping a roof over your family's head than a WFH with less salary. That's just my take. If being home is important, then that may mean you have to move which could put additional pressure on you (commute to work, kid's school district, etc).

Just sit down and work with your attorney and see what number they derive from your individual circumstances.

[mormand]

Thank you JustBroke, I appreciate the detailed input.

Is there a place I can do a true Means Test, I think most attorneys will ask me to be on retainer before doing any calculations.
All I have found so far is very vague and just wants my information to connect me with an attorney.

I've also read that a reduction in my salary might bring me within the Chapter 7 qualification. Hence my question about WFH with a reduced salary. Especially with the layoffs that have been taking place, I may not even have an option.

I'm also going to school for my MBA, I'm concerned that I may need to drop from the program.

Sorry, a lot going on and I'm obviously new at this.

[justbroke]

Unfortunately there's no where to do a "true" means test since it is an art form. Most attorneys use a software package (such as Bankrupter or Best Case). That's combined with the knowledge of how and what exact expenses to apply. Having wrote that, you could do the online Means Test but I would say it's less than 50% accurate. Only an attorney looking at your very specific expenses, family composition, income, arrears, mortgages, vehicles, and other facts, can come up with a a closer number.

The on line means test is located on Legal Consumer's website. The software which is used by the attorneys allows them to see across all the various schedules (forms) and tweak the numbers to the individual. You could also get all the forms (Means Test, and Schedules I and J), go the UST's Means Testing website for current expense numbers, and try to come up with something yourself. It's usually not a good idea.

[mormand]

An update to my calculations:
$162K Salary with 15% yearly bonus = $186K

Liabilities
Credit Card / Personal Loan (Unsecured) = $340K
Student Loan (Mohela) = $100K
Car Loans (Secured) = $9K
Rent= $3,700 / Mo

Assets
Car Value = $25K
401K Value = $70K

We are a single income family.

I need at least a rough calculation of a range of what monthly payments would be.

Per the DOJ Mean Test National Standard for our household = ~ $6,000 / Month
(which is honestly very underestimated considering Orange County's cost of living)

Are taxes considered part of the disposable income?

What should I include as part of my disposable income?

What would be the absolute maximum payment based on these rough numbers?

Would it be too late to try and get a mortgage to help instead of renting?

Thank you for the support in this tough time.

[justbroke]

Per the DOJ Mean Test National Standard for our household = ~ $6,000 / Month
(which is honestly very underestimated considering Orange County's cost of living)

You use the Trustee's standard which is at https://www.justice.gov/ust/means-testing. Do not use the IRS FCS (financial collection standards) because the UST mucks with them.

So, having wrote that, I don't know how you came up with ~6,000 a month. Also realize that the FCS is based on median values... not where you live but across the county.

But, there's always an exception. If you own your home then whatever you pay is whatever you pay so the FCS doesn't technically apply. That is, unless the UST thinks you have exceeded the standard significantly. My home was $5,200/month and was ab out $1,600/month over the standard. The Chapter 13 Trustee didn't seem to care. That's because it was normal for my income range. Had I had a lower income that didn't justify the housing, then it becomes an issue. (Generally, if your housing costs you > 35% of your income, it's questionable if you can actually afford the housing.)

Are taxes considered part of the disposable income?

No. Income taxes are calculated in the means test as an allowed deduction to reduce income.

What should I include as part of my disposable income?

You don't. It's a calculation.

What would be the absolute maximum payment based on these rough numbers?

There is 0% way to know. This is why you need an attorney to review your specific details. Every person is different and will come up with a different value. Family composition, vehicles, housing (ownership/rental are big differences), other secured debt, 401(k) savings and loans, medical, cost for certain educational requirements for children, medical differences, support for dependents (aging parents). This is just way to difficult to do on a website and is why you need an attorney if you want to find the "real" number. Even then, the Chapter 13 Trustee is likely not to agree.

Would it be too late to try and get a mortgage to help instead of renting?

That's up to you. You need to determine what is best by running all the numbers. I can't tell you what that number could be. And right there you brought up another issue: equity. I didn't even mention it above but the amount of equity that you have in your property (homes, cars, stocks, bonds, life insurance policies, etc), could put you into a 100% plan because you have the equity to payoff the creditors.

I know I sounds like a broken record, but there are too many factors to guess. Because you have home ownership, in a high-income and high-expense county, a family of some size, and high income this means that you need to sit down with an attorney to work your specific numbers.

The means test is an art form. It's not just the means test but also Schedule I and Schedule J. It's about which expenses are allowed, and which you may have to fight. It's about the equity that you have. It's about trying to keep you out of a 100% plan unless there's no way to avoid that. This is why your Chapter 13 is going to cost you north of $4,500 plus another $50/month monitoring inside the plan.

[flashoflight]

Thank you JustBroke, I appreciate the detailed input.

Is there a place I can do a true Means Test, I think most attorneys will ask me to be on retainer before doing any calculations.
All I have found so far is very vague and just wants my information to connect me with an attorney.

I agree with everything JB said.

You're right. Most attorneys including mine will want a retainer before putting in your numbers into his software. Your attorney will probably be very reluctant to tell you how to manipulate the numbers even with a retainer so you are on your own for the most part.

I'm also going to school for my MBA, I'm concerned that I may need to drop from the program.

Asking as the potential trustee:
Why should your creditors sacrifice more so you can go to school? They are already getting a big haircut. You should pay your creditors rather than the MBA school.