housing expense question

[endisnear]

Is the IRS allowed expense amount for your state the ABSOLUTE most you can allow?

Ex: if we wanted to keep our house which has a mtg of $2600 (inc tax and ins) and our utilites are about $250....the IRS allowed for CA is about $1600 for housing and utilities.

We need to use step 2 of the means test to qual for C7, we really don't want to go C13.

[justbroke]

Is the IRS allowed expense amount for your state the ABSOLUTE most you can allow?

Ex: if we wanted to keep our house which has a mtg of $2600 (inc tax and ins) and our utilites are about $250....the IRS allowed for CA is about $1600 for housing and utilities.

We need to use step 2 of the means test to qual for C7, we really don't want to go C13.

Excellent question.

When you are keeping your house... you get $0.00 for the IRS "Mortgage/Rent" expense portion and you get the full amount of the IRS "Non-Rent" expense. You still get to claim the FULL amount of your mortgage as an expense (on Form 22A Line 42)!!!

Example...
On line 26A, you'd put the amount for the Non-Mortgage/Non-Rent expense from the US Trustee's Website.

On Line 26B, you'd enter the appropriate amount for your COUNTY in CA on (a), then you'd enter $2,600 on (b), and then you'd enter $0.00 on (c). Your total for line 26B will be $0.00

Then, on line 42 (a), (b) or (c), you'd enter your $2,600 for your Mortgage (with PITI) and check the Includes tax and insurance boxes!

Best of BOTH worlds. Definitely encourage home ownership.

[endisnear]

thanks just broke!

i guess i should have included this in my prior post but what about if we are unable to keep current on the home and decide to let it go, can we use the full IRS allowed amount for our county to allow for future rent once we are foreclosed on? (which would BARELY cover an apt plus utilities...)

[Tbornetun]

Yes, in that case you would use the full IRS amount.

[jimmydog]

How much can you go over IRS allowed housing expense amount before the trustee questions a higher priced mortgage? Couldn't a trustee make a case that the mortgage is to high, put the house up for sale with the idea that more money can be squeezed and provided to creditors? Just curious?

[justbroke]

How much can you go over IRS allowed housing expense amount before the trustee questions a higher priced mortgage?

It depends. It really depends on the area and if the allowance isn't enough. Some Trustees are strict and others won't fight you over "minor" differences. However, most will use the IRS Expense "guidelines" as just that... a guideline.

Couldn't a trustee make a case that the mortgage is to high, put the house up for sale with the idea that more money can be squeezed and provided to creditors? Just curious?

No. First, in every State there is some sort of homestead exemption. Most people don't have enough equity -- if any -- to even use the homestead exemption.

Second, many many many courts have found that a Debtor's homestead is necessary for an effective reorganization of the debtor. In other words, a debtor's home is necessary for them for their fresh start and to earn income.

Lastly, if you can't afford the house... you just can't afford it. So if you have an extremely high mortgage and you can't pay the administration of your Estate or even what you're required to pay... then they can move to say you filed in bad faith. Generally, they won't attack the homestead, just make a bad faith objection.

(For example, in a Chapter 13, you need to pay your unsecured creditors at least as much as you would have in a Chapter 7 liquidation. Say your home is worth $500K and you owe $100K. You have $400K in equity. Say you're in a State which has a maximum homestead exemption of $100K. So, that means you have $300K which is "property of the bankruptcy Estate". So, if you don't pay your secured creditors at least $300K through the term of your Chapter 13, you can't, necessarily, keep the house! That means a payment of $5K a month for 60 months. If you can't afford that, then...)

[endisnear]

yea, we definately have NO equity for them to squeeze....we're about 120k upside down right now...

[endisnear]

if we were to file C7 and include the home, once it's discharged there's no going back to try to do a workout with the mtg lender is there?

[justbroke]

if we were to file C7 and include the home, once it's discharged there's no going back to try to do a workout with the mtg lender is there?

Sometimes there is. The lender will still get a Relief from stay. They generally, also, ask the Court to allow them to communicate with the Debtor to work out a forbearance, modification, or other deal. (At least that's the standard text in my District).

The Bank would rather you stay. If you can work something out... excellent. However, getting a principal reduction, although it is quite possible, it's not likely. I've heard of some fantastic lawyer working on incredible deal. Your mileage may vary.