Strange Meeting with BK Attorney

[olysan]

Hi. I've been lurking for awhile and find this info very useful. I met with a prominent BK attorney today and I'm very surprised by something that he said.

Very Brief Description of My Situation:

Getting Divorced, Wife and I both made good incomes at some point and over spent dramatically. With the real estate melt down we are in a house that we can't afford and can't sell for what we owe. We have lost $100K in equity. Most of our debt including the 1st mortgage is in my name. Divorce is amicable, and I'm considering personal Bankruptcy as a way to give us both a good start and the ability to care for our twin 3 year olds.

The meeting:

So I met with an attorney today. He asked a lot of questions, and initially I felt pretty good that he was not going to simply dismiss me without considering the facts of my individual case. After the questions he asked what I wanted to do. I told him that I would like to file Chap 7, and I'd gone through the means test and think I might qualify. I also told him that I could not afford my house payment on one salary and that If I couldn't sell I assumed that the bank would take it back. Similar situation for my Yukon where I'm very upside down. This is where it got interesting. He proceeded to say that there is no way I can file 7 because I'm planning to let the house and car go back to the bank and without those expenses I don't qualify. Furthermore it would be fraud to try filing with them included knowing that I'm not going to keep them. We discussed this for quite a while, and after an hour or so he started coming up with some ideas about structuring my divorce settlement so that it would make my income lower or my expenses higher so that it would be easier to qualify. Some of these ideas seemed very marginal to me i.e. buy term life (helps with the means test)and cancel after the bk, but he would not budge on the house and car position.

Am I missing something here?

I realize that BK is not meant for those who can pay their bills, and I wouldn't be considering this if I wasn't getting divorced, but I am, and without 2 incomes I can't pay my bills. I net ~$4000 monthly and my house payment including the 2nd mortgage is nearly $3700. So it just doesn't add up.

Do these statements about the house and car make sense? It seems like BK is the only tool to keep me from getting sued and my wages garnished, because the bank is going to take the house one way or another?

Any suggestions?

Mike

[keepmine]

Personally, I'd get another couple of opinions.
But, you may live in a district that requires you to either reaffirm or surrender and in that case, payments on debts you wish to discharge in bk can't be counted as an expense.
Did he talk to you about a Chapter 13?

[Cali]

I learn something new today, I didn't know the reaffirm or surrender was dependant upon the district you live in.

Personally, I'd get another couple of opinions.
But, you may live in a district that requires you to either reaffirm or surrender and in that case, payments on debts you wish to discharge in bk can't be counted as an expense.
Did he talk to you about a Chapter 13?

[olysan]

Okay this is making a little more sense. I guess the theory is that you can't consider the house and car as expenses if you won't have them after BK. This still seems a little skewed to me but I guess the idea is not to keep people from filing but to drive them to chapter 13.

[keepmine]

I learn something new today, I didn't know the reaffirm or surrender was dependant upon the district you live in.

Well, I should have been a little clearer. In theory, that's the letter of the law. In reality, spme distrcits and lenders ignore it and let you have a defacto ridethrough. I've no idea if this is the case on the OP's district. Just a possibility.
To the OP:

All isn't lost by a longshot. SO you give up the house and the Yukon. You still need a place to live and a car to drive. Plus, all the other normal living expenses plus, any sort of court ordered child/spousal support.
Start looking at some new numbers reflecting rent and a car payment on a reasonable priced car as you speak with other lawyers.

[Flamingo]

You are going through a divorce and a BK at the same time which makes things much more complicated. The attorney you spoke with is only trying to protect you as to filing as to what he described to you as what could be considered fraudulent. You received some good advice but it always pays to shop around if you are in doubt. Remember, trustees are not stupid and have seen it all and your attorney knows that.

[cool33097]

I agree with Flamingo and your lawyer (mine said the same thing). If you don't have both payments you might not qualify for7 but for 13 even if you do not pay 100% back. Talk to other lawyers and see what they have to say.

[2confused]

This makes total sense...During my 60 days (after 341) I decided we probably cannot afford the house and was/am nervous that this could mess up discharge. I mean, how can you qualify, if you no longer have the huge payment? Just passed objection date and hope/pray to get discharge soon...I will try to work something out with mortgage company but am not holding my breath. However, my cu offered me a Wholesale price for our vehicle, if we pay it off in 3 months...so, we are going to try this. It's all still very scary.

[Cali]

I thought you had up to 60 days after 341 to decide if you really want to keep a car or house??

[2confused]

I think you have as long as you want...as long as you stay current(depending on company/bank)...it's just a matter of whether or not you plan on reaffirming.

[olysan]

This has been an enlightening discussion. Now that I'm considering Chapter 13 I have a question about spikes and dips in income. I'm in sales and my income can vary by $10-$20K or more. My bonus is based on growth which means if you have an outstanding year it is typically followed by a poor year. This year looks fantastic which means that my income could easily drop $20K next year, in which cas I would struggle with any type of payment plan. Is there any way to compensate for this?

[justplaintired]

To the OP:

All isn't lost by a longshot. SO you give up the house and the Yukon. You still need a place to live and a car to drive. Plus, all the other normal living expenses plus, any sort of court ordered child/spousal support.
Start looking at some new numbers reflecting rent and a car payment on a reasonable priced car as you speak with other lawyers.

The means test is based on what you actually pay, so if you file on the house and car you won't be making these payments so that makes them non usable, however, you will need a place to live and a car to drive, those are the actually figures you will be required to use. All your figures for the means test need to be what you actually will pay, not what you used to pay if your filing on those things.

[olysan]

I ran some new numbers and I still may qualify without the house and car. In fact dumping the car works in my favor because I also loose the reimbursement which is slightly higher than the allowance. My employer would provide a company car so I would not have any ownership expense.

[Flamingo]

This has been an enlightening discussion. Now that I'm considering Chapter 13 I have a question about spikes and dips in income. I'm in sales and my income can vary by $10-$20K or more. My bonus is based on growth which means if you have an outstanding year it is typically followed by a poor year. This year looks fantastic which means that my income could easily drop $20K next year, in which cas I would struggle with any type of payment plan. Is there any way to compensate for this?

The only way to compensate for fluctuations in income is to get another job in which one is exempt from overtime. Then you have straight salary. In your situation, if you do consider filing, the attorney you consult with and eventually may retain will probably average things out for your filing and advise you how to handle the coming years if you file a Chapter 13. I certainly would consult with an attorney in the state in which you reside so you can get a better handle on your finances because your situation is a bit more complicated than the average BK filing due to your divorce at the same time.

Best of luck to you.

[CindyLou]

You should talk to another attorney. Many Many people have surrendered homes and cars after being discharged from a chapter 7. The only catch is you must stay up to date on the payments and not reaffirm.