Our situation and questions surrounding it

[phigment]

I have been lurking on this board for a few months since our finances began deteriorating last fall and I knew I should begin exploring my options. Our story is similar to most of those that I have read; We have about $80K in unsecured credit card debt, $30K of student loans, two car leases, a home with 1st and 2nd mortgages totalling just over what it's worth and zero in the bank. My wife resigned her job a year and a half ago to stay home with our two children when things were better financially since daycare costs ate up almost all of her take home pay. I work in the financial services industry (ironic huh?!) and have seen a 35% decline in income and it's probably only going to get worse. Needless to say we live paycheck to paycheck but certainly not an extravagent lifestyle. Much of our debt was accumulated over the last ten years as we financed maternity leaves, periodic income shortfalls, home improvements on CC, etc. To date all of our bills are current and I expect that I can hold out for a few more months but something has to give and I don't expect the stock market to recover in time. Within the month I will probably seek out a bk attorney to consult and know we'll need to attend credit counseling before bk would be allowable. I have tried to answer my own questions by searching the site (very helpful!) but have some things I can't find info on and would greatly appreciate anyone thoughts, comments and support. I know bk won't be easy or painless but I need to get out from under this crushing mountain of debt. I dare say the thought of this debt over my head is worse than any shame I will feel by a bk mark on my credit report. Most of all I am excited at the propsect of getting a clean start and taking the opportunity to educate our kids about the pitfalls of debt that my parents did not teach me.

1. By my understanding, at this point we are below the median income for filing Chapter 7. Is it advisable given to file 7 rather than 13 given our situation? Will we be able to keep the house assuming I continue paying the mortgages? Can I keep the cars if I continue paying as well?

2. I have read a lot about the exclusions but still don't have a firm handle on what we keep and lose (NJ resident). The most expensive things we own outright might be my wife's engagement ring (~$7K). Beyond that it really amounts to household appliances, furniture, clothes etc. Certainly no big toys/luxury goods.

3. Are things bought on credit cards subject to repossession? I bought a flat screen TV a year ago on a retailer's credit card for no interest for two more years. I am current on the payment and it's small enough to be paid off in time.

4. Does the fact that my wife is able to work but not currently going to effect our ability to file bk? Will someone make an issue of it?

5. Are there any advserse consequences if my income increases after filing?

6. Is there a reason I would have to tell family and friends? I know it's public info at some point but would obviously prefer to keep it private if necessary.

Thank you all in advance for your replies.

[lrprn]

1. By my understanding, at this point we are below the median income for filing Chapter 7. Is it advisable given to file 7 rather than 13 given our situation? Will we be able to keep the house assuming I continue paying the mortgages? Can I keep the cars if I continue paying as well?

What matters is what your total income from all sources has been for the last six calendar months before filing bk.

Looking back, add up all your income for the two of you over the last six calendar months, multiply x 2 then divide by 12. This is the average monthly income figure you compare against your state's median income for your family size.

2. I have read a lot about the exclusions but still don't have a firm handle on what we keep and lose (NJ resident). The most expensive things we own outright might be my wife's engagement ring (~$7K). Beyond that it really amounts to household appliances, furniture, clothes etc. Certainly no big toys/luxury goods.

I assume you mean exemptions rather than exclusions. In New Jersey you can use the state exemptions or the federal exemptions (no mixing though - it's one or the other).

Here's a link to the NJ exemptions - http://www.bankruptcyinformation.com/NJ_exemp.htm . The worst thing about NJ is that there is *NO* homestead exemption. That's why most NJ filers use the federal exemptions which are far more generous than NJ's. Here's a link to the federal exemptions - http://www.bankruptcyinformation.com/exemp-fed.htm

Keep in mind that although your wife's ring may have cost $7K at purchase, it very likely isn't worth that now. Get it appraised to find out how much it's actually worth now. The federal exemptions protect jewelry up to $1,150. The NJ exemptions don't protect jewelry at all.

If you haven't spoken to any bk lawyers in your area, it's time. Set up free or low cost initial consultations with 3-4, take in all of your financial information, and start getting a sense of what will happen to your assets (including your wife's ring) if you do file.

3. Are things bought on credit cards subject to repossession? I bought a flat screen TV a year ago on a retailer's credit card for no interest for two more years. I am current on the payment and it's small enough to be paid off in time.

Typically not, especially after a year. However, your TV could be considered a secured loan - ask the lawyers you interview about that.

4. Does the fact that my wife is able to work but not currently going to effect our ability to file bk? Will someone make an issue of it?

No, this will not affect a thing. Trustees can't force anyone to go to work, even if they are able.

5. Are there any advserse consequences if my income increases after filing?

It depends on when the income increases come and how much they are. It also depends on which bankruptcy chapter you intend to file. Ch 7 is not impacted by significant income increases as much as Ch 13 is.

6. Is there a reason I would have to tell family and friends? I know it's public info at some point but would obviously prefer to keep it private if necessary.

Unless your family and friends are in the habit of reading the paper deliberately looking for filings, chances are very good the only people who will find out are those you choose to tell. Whether you tell anyone or not is completely up to you.

[phigment]

Thanks for all the great information but I have some follow up questions:

What matters is what your total income from all sources has been for the last six calendar months before filing bk.

Looking back, add up all your income for the two of you over the last six calendar months, multiply x 2 then divide by 12. This is the average monthly income figure you compare against your state's median income for your family size.

Multiplying my income by 2 is interesting. My wife could make at most 50% of my current income. If she had the education and experience to make what I make she'd go back to work and we wouldn't be in this situation. Does the bk process really assume spouses have the potential to make the same amount? What if I were a surgeon and my wife was a waitress; would the same rules apply?

I assume you mean exemptions rather than exclusions. In New Jersey you can use the state exemptions or the federal exemptions (no mixing though - it's one or the other).

Here's a link to the NJ exemptions - http://www.bankruptcyinformation.com/NJ_exemp.htm . The worst thing about NJ is that there is *NO* homestead exemption. That's why most NJ filers use the federal exemptions which are far more generous than NJ's. Here's a link to the federal exemptions - http://www.bankruptcyinformation.com/exemp-fed.htm

Yes, I meant exemptions. As I read the links I see the federal exemptions provide $17K of wildcard/unused homestead and $18K of household goods plus the $2K for jewelry.

Keep in mind that although your wife's ring may have cost $7K at purchase, it very likely isn't worth that now. Get it appraised to find out how much it's actually worth now. The federal exemptions protect jewelry up to $1,150.
The NJ exemptions don't protect jewelry at all.

I assume from the above that I can cover any of the appraised value over $2,200 by the other exemptions?

Typically not, especially after a year. However, your TV could be considered a secured loan - ask the lawyers you interview about that.

Can my exemptions also cover the TV even if it is considered secured?

More importantly; If I continue to pay my mortgage and auto leases can I keep them?

[Trixie007]

Multiplying my income by 2 is interesting. My wife could make at most 50% of my current income. If she had the education and experience to make what I make she'd go back to work and we wouldn't be in this situation. Does the bk process really assume spouses have the potential to make the same amount? What if I were a surgeon and my wife was a waitress; would the same rules apply?
[/B]

Multiplying by 2 is just part of the calculation - you add up your previous 6 months' income, multiply by 2 to reflect a yearly total, then divide by 12 to get a monthly average that is based on the previous 6 months.

[phigment]

Multiplying by 2 is just part of the calculation - you add up your previous 6 months' income, multiply by 2 to reflect a yearly total, then divide by 12 to get a monthly average that is based on the previous 6 months.

Apologies. I overlooked the Divide by 12 part of the equation and incorrectly read it that they would somehow account for us not being a two income household. It makes sense now.

[brokenbuthealed]

You will be able to keep your house as long as you keep making payments. You'll have to sign a reaffirmation agreement. As far as you leases, you typically can keep cars as long as you keep up with the payments, although I'm not sure about how leases are dealt with differently than loans. For valuing your jewelry I was told to value it at a pawn shop price, which was significantly lower than retail (like 10% of what I paid).

[fltoo]

True on the jewelery. Was told the same thing.

Add to that fact, in this economy where people are pawning to stay afloat, there is an oversupply of gold and diamonds in the used market and demand being low, price is even lower. Gold can be melted down, diamonds are a worse scenario.

[phigment]

Thanks to everyone again for the advice and support afforded on this forum. It gives me some comfort in this otherwise unsettling time.

As suggested in another thread I have reached out to my local bar association and am awaiting their reply with the names of some local bk attorneys. Hopefully I can have some productive conversations with them and get moving in the right direction.

Is it safe to assume that a competent bk attorney will steer me towards a chapter 7 when I explain that my CC bills greatly exceed my disposable income, I pass the means test and have ZERO assets above the exemptions? Do ethical attorneys have a bias based on professional experience?

Assuming I proceed down the chapter 7 road, as I read the federal exemptions in NJ I can cover about $35K of property between the wild card and household items. I am confident that all of our possessions will be covered but are there any loopholes or catches I should be concerned about?