Gray Area - 7 or 13?

[mysterie91]

My husband and I know we will need to file BK. Here is our situation.

We have met with one attorney who told us we made more than the median income for our state (NY) {$68k versus median of $62K}, he did not calculate the means test, and told us we were forced into filing 13. The most outrageous thing he said was that my husband would have to default on his student loans because their was not enough money to pay it and file 13. Default is a HUGE deal and we were not confident with him so we have another appt scheduled with someone else. I know student loans are not dischargable but DEFAULT??

We have a few issues that make me unsure of how things will turn out. We have about $38kin credit cards, $48k in student loan, own a house assessed at $85k, owe $68k, have 2 cars - one is a 2002 paid off with 120k miles and a 2005 with 75k miles with a loan of $14k. Have a 2 year old in daycare for $615.00 per month plus usual utilties and such.

Right now if I do the means test we are above the median income, and it shows that we have $231 free after debts to pay into a 13 but that does not include the student loan payments of $306.11 per month. If I do the Schedule I and J we show as having about $68 availabe each month but that includes the student loan payments.

My boss has asked if anyone would like to work 4 days a week (32 hrs/week) on a voluntary basis before we institute mandatory cut backs. I could take this cut and stay home with my baby 1 day a week This would reduce my income - it would still make us aliitle over the median but we would not show as having ANY disposable income on the means test. It would be really tight but maybe they will raise the median income for our state (I think I read they do that in February) and if we can get a 7 maybe I can find a better job.

So I have a few questions:
(1) How long can we go without paying the credit cards before they sue us. We paid them last in July. We have been trying to save $$ for the BK attorney fees by not paying them but the calls a re constant.

(2) How will the student loans play into this. If the loans are include in the CH 13 monthly payments for 5 years they are going to be paid down so little that after the 5 years we will have a crazy balance on them. Is it arguable that since these cannot be discharged they are more of a priority debt - especially since its so much money? We will not be done paying until after our SON is out of college - how can that be?

(3) Does it make sense to try to wait out the 6 months of reduced hours to TRY for Chap 7 or file now with a 13 and if we MUST take reduced hours or layoff then try to convert?

I appreiciate any help anyone can provide. This board is a great resource so far and I hope someone has some helpful advice!

[JollyGG]

He should have said that your student loans would be placed in forbarance or deferment (not sure which is the right term in this case) not that you would need to defalt. Unfortunatelly interest would accru while you were in bankrupcty and your student loan would be larger than it is today.

Our student loans were included in our budget for our chapter 7, however we were below the median (barely) and I understand that this does seem to be one of those areas of the law where different areas treat student loans differently.

Talk to a few more lawyers to see what they say.

Also make sure you are including absolutely everything in your budge.
Here is a calculator to help you remember some of your expenses. A link to it can be found in the general bankruptcy section under "Links for members".

http://www.ca-bankruptcy-attorneys.com/calculators/expense_calculator.html

[lrprn]

First, be sure to set up free initial consultations with at least 2-3 more bankruptcy lawyers. Sounds like lawyer #1 was not as knowledgeable as you need when you are close to the median income for your state.

(1) How long can we go without paying the credit cards before they sue us. We paid them last in July. We have been trying to save $$ for the BK attorney fees by not paying them but the calls a re constant.

Your are pretty safe for 5-6 months, often much longer, before creditors or collectors will head to court. Until then all the calls are just deliberate aggravation trying to annoy you enough to get you to pay to stop the calls.

(2) How will the student loans play into this.

It really depends on which chapter you file and how the trustees in your local court treat student loans in bankruptcy. If you do end up in Ch 13, since student loans are considered non-secured, to include them in your plan you MUST pay the loans off in full within 3 or 5 years (how ever long your plan lasts). Unfortunately most people owe so much on their student loans that it isn't possible to do that - it makes your monthly payment far too large.

Because of this, during Ch 13 student loans are placed in forebearance or deferment (not default - poor choice of words by the lawyer). Here's a good explanation of all your options when you can't pay your student loans - http://www.nolo.com/article.cfm/pg/5...3/208/135/ART/

(3) Does it make sense to try to wait out the 6 months of reduced hours to TRY for Chap 7 or file now with a 13 and if we MUST take reduced hours or layoff then try to convert?

I understand that you are hoping there's a clear answer, but in truth it depends on your family circumstances. You've already not paid your unsecured debts for three months. Put this on your question list when you meet with other lawyers.

And when your income is close to the median as yours is, any lawyer that tells you on the basis of your income alone that you have to file Ch 13 and doesn't even ask about your debt structure or expenses, IMHO that lawyer is taking the easy way out - keep looking.

[keepmine]

I'm never a fan of reducing income but in this instance, I'd look at this as the "ace in the hole". Do as others suggested and get some more opinions and really put your budget under a microscope.
Worse case, take the voluntary cutback. You'd be justified financially since it would tend to lower daycare costs.