Considering Ch7 Bankruptcy

[SoFloSinking]

So glad I found this forum!

Hi all, as many come here to for, I’ve found myself in a bad situation of poor choices, tragedies, and some sprinkled in bad luck. I’ve come to terms with being so underwater it’s not even funny, I kept that outlook of “if I could just get that one consolidation loan…” for a while, but no one wants to loan that amount of money, no matter if I can afford the payment and have never missed a payment on anything in my life.

Income: $1,168/week salary after health insurance and taxes.

Add’l Income: $300/month for caring for grandparents.

Car payment is $781/month ($37,000), I use it for commuting to day job. But also run a separate business using the car, it’s just breaking even at the moment, but the profit margins are looking high within the next 12 months.

I have (3) personal loans (remaining balances listed):
- $17,523 ($930/mo.)
- $13,640 ($311/mo.)
- $11,299 ($358/mo.)

I have (11) cards with balances:
- $15,867 ($450/mo.)
- $6,939 ($200/mo.)
- $4,958 ($120/mo.)
- $4,954 ($100/mo.)
- $4,864 ($100/mo.)
- $3,637 ($85/mo.)
- $3,504 ($70/mo.)
- $3,390 ($120/mo.)
- $3,104 ($100/mo.)
- $1,800 ($50/mo. 0% interest)
- $1,000 ($50/mo.)
- $500 ($50/mo.)

Monthly Expenses (avg): Gas, Groceries, Utilities, Streaming, etc.: ~$900

Storage: $430

I have no housing payment at the moment as I stay with my grandparents as their aid since my father passed in 2022.


I currently am engaged and planning to get married early next year.

I was in such a poor mind that even though I know exactly not to fall for debt settlement garbage, I got convinced in the moment. Luckily my rational mind has prevailed before my first payment was made and before I started not paying the accounts’ payments (they agreed to enroll for settlement only selected accounts which were the $17,523 and $11,299 loans plus the $15,867 and $4,954 cards) I'll be cancelling this this week.

I have been heavily weighing bankruptcy at this point as it’s before I am married at least, and having us use my fiancé’s credit score while I’m backing it with my income. My only other considering factor I’m worried about is that as I’m working to get my own business off the ground and continuing to grow, 1) I can’t be without my vehicle or an equivalent type as it relies on it. 2) any business lender either wants years of financial data for business lending or a personal guarantee based on my SSN vs my company’s EIN.

Any advice from people experienced would be immensely appreciated. I simply cannot do this anymore. I went from $30K in total debt in 2021 to this mess now and I see no end in sight let alone just getting ahead of it. Thank you!

[justbroke]

I'm going to go out on a limb and say that you earn more than $80K a year. (Bankruptcy Means Testing is based on your gross income and not your net income after taxes, insurance, and other mandatory deductions.) Since you are single and have no dependents--you didn't list any children or other dependents--then you are over the median income for Florida. This means that you will almost assuredly be in a Chapter 13, and for 60 months (5 years).

There are a few things a Chapter 13 can do: (a) possibly reduce your vehicle payments by cramdown, change to Till rate, or the re-amortization to a 5-year term, (b) remove all payments on the credit cards, and (c) discharge those loans and any other debt.

I can't guess as to what your disposable monthly income (DMI) or a potential payment.

You do not list that you are renting or own a home. Whether or not this will affect your DMI can only be determined by someone doing a full analysis of your "allowable" expenses. Unless you're in Monroe County or a major Florida county**, your non-mortgage/rent expense for a single person would average less than $800/month. Your utilities and other rent/mortgage related expenses can't exceed $500/month. Your food and other expense will be $808/month for a single person.

The car payment is an issue unless it can be brought down (through the bankruptcy tools) below $619/month or you'll be forced to pay into the plan. There are things that can be done if the vehicle is more than 910-days old (or you have refinanced it since purchase). If there is a very high interest rate, you may be able to get it down below 10% by using the Till rate. (If that vehicle is on a 7-year loan, then you are paying a very high interest rate. Even if that payment is on a 5-year loan you are paying a high interest rate.)

Despite everything that I wrote, I think that you should sit down with 3-5 bankruptcy attorneys and get a free consultation. See what they think. Some will quickly run the numbers and give you a ballpark of what to expect. It is quite possible that you could be in a 100% plan. At least you won't be paying interest.

Business outlook: a company that is fewer than five (5) years old and has not established credit will almost always need personal guarantees. I was able to build business financials. We had computer leases from Apple with no personal guarantee. We had equipment leases over $30K with no personal guarantee. We even signed two (2) mall leases with no personal guarantee--we had solid financials developed over many years.

Your business' cash flow, daily balance, and banking relationship is what matters. If you use factoring, the business needs to have decent daily/monthly/weekly credit card charges (we used Square factoring loans as necessary). In other words, you either need to have strong individual credit for those guarantees or your business must have strong financials.

After COVID we shutdown two of the mall locations because the locations were closed for months. The standalone location closed later because post-COVID business environment was too different from what we could maintain. In fact, no one wanted to work and we were competing against an unemployment system that paid much more to be unemployed than to be working!

** Florida counties where bankruptcy allowance for a single person filing bankruptcy is > $1,000/month: Broward, Brevard, Clay, Duval, Flagler, Hillsborough/Tampa, Lake, Lee, Leon, Martin, Miami-Dade, Nassau, Okaloosa, Orange, Osceola, Palm Beach, Santa Rosa, Sarasota, Seminole, St. Johns, St. Lucie, Sumter, Volusia, or Washington.

[SoFloSinking]

So it sounds like it would be better to have no job/crap job for six months and then file? Has anyone done that? I know many people do similar things to lessen child and alimony payments.

Otherwise I essentially need to have living expenses of $6500/mo (even though I take home nowhere near that) to qualify for Ch7 as someone with a decent job?

Basically I should have swallowed my pride and filed when I was making $40K/year and not even bothered getting a better job. Is that about correct?

Either way I'll be consulting a BK Lawyer of course. You mention running numbers, so typically what would a Ch13 payment be looking like for me? Because freezing my credit for 6 years while still having to put out large suns per month is no better than what I'm doing and not burning all relationships with creditors.

[SoFloSinking]

For the details you were inquiring about:

$80,000 salary.

Car is 5-Year loan 15 months in and is a used 2015 vehicle.

Correct in no children.

If you crunch the numbers on the figures I gave I of creditor minimum payments plus the rent/mortgage payment you listed as $800 and $808 for food and other expenses, Im left with -$27/mo. I take it that's not underwater enough for Ch7 then?

[justbroke]

So it sounds like it would be better to have no job/crap job for six months and then file? Has anyone done that? I know many people do similar things to lessen child and alimony payments.

I would not try to game the system. Any smart person, when dealing with child and alimony, will make sure there are provisions that allow for readjustment or no adjustment. In other words a person not working and is behind in domestic support obligations (DSOs) is actually in arrears and they still owe the money. But let's not talk about that.

Otherwise I essentially need to have living expenses of $6500/mo (even though I take home nowhere near that) to qualify for Ch7 as someone with a decent job?

You can't do that. The bankruptcy court, under the United States Trustee Means Testing Program, uses the IRS Financial Collection Standards (FCS). Those standards don't allow you to puff-up your numbers. They are pretty firm. The numbers that I gave you are from the Means Testing (which is based on the IRS FCS). This is an area where the Trustees are very good at determining if you are exceeding any expense. In fact, the entire purpose of the FCS is to force so-called belt tightening on the debtor.

Here's an example of what a Trustee would do when they see your storage expense. The United States Trustee (UST), Chapter 7 Panel Trustee, and a Chapter 13 Standing Trustee, is simply not going to allow $1 of that expense. That $430/month is now worth $31,800 to creditors over the life of a five (5) year Chapter 13! That storage expense, all by itself, would force you into a Chapter 13. You should also think about whether what you're storing is worth $5,040/year in storage fees. (Please make sure you inform the attorneys providing consultations that you have a bunch of stuff ($$$) in storage.)

Basically I should have swallowed my pride and filed when I was making $40K/year and not even bothered getting a better job. Is that about correct?

Perhaps. Hindsight is always 20/20.

Either way I'll be consulting a BK Lawyer of course. You mention running numbers, so typically what would a Ch13 payment be looking like for me? Because freezing my credit for 6 years while still having to put out large suns per month is no better than what I'm doing and not burning all relationships with creditors.

I can't tell you but I'm going to try to answer your question using the numbers from your additional post.

In bankruptcy, any dischargeable debt is not included in the calculation of the DMI. For you, all of your unsecured debt, and even your vehicle, is dischargeable debt. If you keep the vehicle and the re-ammortize the vehicle, the payment will likely be lower. My simple calculation would show about $1,600 in housing/food, plus $400 for misc (maybe), plus $600 for car loan, plus about $300 for ownership allowance, is about $2,900/month in allowed expenses. That means $5,200/month in income after taxes and insurance. (The $5,200/month is based on your $1,200/month figure after taxes/insurance.) That leaves $2,300/month possibly as DMI.

This is why you should grab 3-5 free consultations to get an idea.

Whether or not you can file for a Chapter 7 is first based on your annual income and whether it is under-the-median. The second test, the Means Test, is more about your calculated DMI. The DMI calculation is very specific... you don't get to include existing payments on unsecured debt. (There is also a Schedule I/J test that may be used to make this calculation. The Means Test is the start of the inquiry into whether you can afford a Chapter 13 and how much you will need to pay to the unsecured creditors.)