Decided to File for Bankruptcy

[BKdinOhio]

Hello,

I am glad I found this forum after being recommended for bankruptcy from a Credit Counseling Agency. I really didn't know what the BK process was, and we didn't know if we would be able to keep our home.

I never thought I would even want to file for BK and swore to avoid it at all costs. However the Credit Monster, and increased costs, short term disability for a broken foot two years ago snowballed to today.

Today we own an approximately 43K in unsecured debts. On our home we have a 1st mortgage currently @ 77K, we have a HELOC @ 18K.

Our combined Monthly income is 2100 and not including our secured debts, just living expenses, we fall short by over $300/month.

At first I wanted to keep the home, but after carefull consideration, and calculation I think we've decided to surrender the home altogether. Her parents would allow us to live with them for a year or two. They're struggling financially too, and we could help them with a couple of things as they've helped us when they were better able.

By surrendering the house we'd be able to save over $20K within 3 years, more if we put it in a good interest bearing account.

We have not spoken to an Atty, yet but plan too soon. I do have a couple of questions:

1) I have 2 scooters in my names, one of them is my Brother-in-Law's scoot. Would there be a problem if I sold them now in order to pay for an Atty?

2) My wife has several Savings Bonds, maybe a little over a thousand dollars worth. Would those be covered under Ohio's new exceptions?

3) When looking at values for our car and van; the car is free and clear ('01 Mercury Sable), and the van ('05 Dodge Grand Caravan SXT) was purchased last summer. We are upside down on that loan by a few thousand dollars.

Should I be looking at the Trade-in-Value or the Private Party value?

[keepmine]

This close to filing, I'd not sell anything unless your lawyer gives the OK. In general, it's OK to dispose of assets to pay legal fees or pay basic expenses. Just don't sell them to an insider.

Most districts will allow you to use private party sales value. Have no idea about Ohio's exemptions.

One caution here- if you are surrendering the home, you may not be able to claim mortgage payments as an expense. The result could be enough dispsoable income to throw you into a Chapter 13.

[smoore530]

i just spoke to an attorney on Friday...the scooters will have to go in a chapter 7 and you have to pay back 100% in chapter 13 to keep them. i was told to go to a dealer and get an estimate and that we could only keep the one that is paid for but would have to buy it from the estate.....motorcycles are considered a luxury item in ohio.

[BKdinOhio]

One caution here- if you are surrendering the home, you may not be able to claim mortgage payments as an expense. The result could be enough dispsoable income to throw you into a Chapter 13.

Would you care to elaborate more on how the court would come to that conclusion?

My income is below the median of my families size (3) and

I still pass the test without including the Mortgage on line 42, as the Test then defaults to the allowance on line of 784.

[Phillymanhere]

BkinOhio,

Here's the deal: the means test is a two-parter:

1.) is your income below the median for your state ...

2.) how much money do you have left over at the end of the month after "reasonable expenses." This is schedule J.

3.) I dare say that most newcomers investigating bk think #1 is most important.

4.) In fact, I've learned from this forum that #2 is probably more important. You can indeed have a higher income than the median for your state and still win a chapter 7 discharge. But ... you must not have much money left over at the end of the month once you calculate those "reasonable expenses." You can read through the stickies and threads on the "means test" to come up to speed on all of this.

5.) My understanding is that some districts vary in how much they examine #2. But the thinking of this board is to be aware of requirement #2 so that you raise your chances of qualifying for a chapter 7. My attorney for example, said flat-out he wasn't worried about whether or not my income was below the median. Instead, the key thing, he said, was my expenses.

6.) Just run this by a lawyer in your area. You may need to rent a place for a while to raise your spending as you head into bk. (You don't wanna have more than $100 to $150 left over at the end of the month.) Then after you're discharged, assuming you file, you can move to the free rent situation.

7.) I'll close with some good news: most people filing for bk have higher expenses than they initially think. They fail to think of car repairs, clothes, shoes, parking, dental bills, eye glasses, etc. (Not anticipating these predictable expenses is one reason a lot of us are in this situation.) So no need to panic.

Good luck.

[lrprn]

i just spoke to an attorney on Friday...the scooters will have to go in a chapter 7 and you have to pay back 100% in chapter 13 to keep them. i was told to go to a dealer and get an estimate and that we could only keep the one that is paid for but would have to buy it from the estate.....motorcycles are considered a luxury item in ohio.

Whoa, smoore! This was the situation for YOU. It's great that you arranged for the lawyer consult - good idea.

However, each filer needs to have their specific situation evaluated during their 3-4 free or low-cost lawyer consultations with experienced bk lawyers in their area. Just because your situation turned out this way doesn't mean that every filer in Ohio who owns scooters will get the same legal advice.

Keep in mind that the new Ohio exemptions don't go into effect until some time in September. If someone files before the date the exemptions go into effect, they will have to use the current, woefully inadequate Ohio bk exemptions. Probably in any Ohio bk filer's best interest to compare whether it's best to file now or wait to file to take advantage of the new exemptions.

[BKdinOhio]

BkinOhio,

6.) Just run this by a lawyer in your area. You may need to rent a place for a while to raise your spending as you head into bk. (You don't wanna have more than $100 to $150 left over at the end of the month.) Then after you're discharged, assuming you file, you can move to the free rent situation.

Good luck.

In regards to that Budget that has to be filed, is that a current budget not including Unsecured debt payments? or a future budget?

Oh, the rent really wouldn't be free. We'd be helping with their bills, and giving them some extra. They're struggling financially too. However since the court considers them an insider would that pose a problem???

Not only that how would the court take having a budget that goes into the negative if we kept the house (what we'd really like to do...but)

It will probably be next week before I call some attorney's and schedule a meeting.

[starting_over]

What does "insider" mean?

I read that in the statement of financial means form & didn't really understand. Just assumed that did not apply to me or my situation.

[keepmine]

Would you care to elaborate more on how the court would come to that conclusion?

My income is below the median of my families size (3) and

I still pass the test without including the Mortgage on line 42, as the Test then defaults to the allowance on line of 784.

Phillyman pretty much nailed it. It comes down to a "Totality of the Circumstances" argument. Nobody will let you get a Chapter 7 discharge if you have sufficient disposable income to fund a Chapter 13.

Insider transaction refers to having some financial relationship to a family member or close friend and you do something prior to filing that places them in a more advantgeous position than your other creditors.

[Phillymanhere]

The schedule J list of expenses is based on a budget that excludes all the debt you want to discharge. The logic is, "let's see how much money you will have after we discharge your non-secured debt." It's that amount that the trustee will be looking at to determine if you should be required to file a chapter 13, which requires payments for 3 to 5 years (though at a much lower level that you're currently paying).

But I repeat: it's quite possible that you have more reasonable expenses than you imagine (even after you exclude current debts). Just prorate gas costs and car repair costs ... I'm up to like $500 a month just on those two areas, and I own my car outright. The reason a lot of us are in this situation is that our current expenses were quite close to or more than our current income. That's why a lot of people borrowed!

Renting from a relative isn't a problem, I don't think--as long as you're not paying them double the going rate for renting.

[Frogge]

I read on some other posts about the rent to family members - I agree I think it's ok as long as you keep a paper trail and can show that the rent is comparable to market rents in your area. Is that right?

[smoore530]

Whoa, smoore! This was the situation for YOU. It's great that you arranged for the lawyer consult - good idea.

However, each filer needs to have their specific situation evaluated during their 3-4 free or low-cost lawyer consultations with experienced bk lawyers in their area. Just because your situation turned out this way doesn't mean that every filer in Ohio who owns scooters will get the same legal advice.

Keep in mind that the new Ohio exemptions don't go into effect until some time in September. If someone files before the date the exemptions go into effect, they will have to use the current, woefully inadequate Ohio bk exemptions. Probably in any Ohio bk filer's best interest to compare whether it's best to file now or wait to file to take advantage of the new exemptions.

i spoke to 3 attorneys and was told the same thing by all....