Chapter 7 vs. 13

[Mommyoftwo]

I've been searching through threads most of the morning and can't seem to find a similiar situation recently and wondered if anyone faced the same problem as I am.

We filed on 9/30/09 and our 341 meeting is tomorrow (gasp). We filed as a chapter 7 but got a letter from the US trustee that our lawyer had to answer on abuse. It seems as in the Chapter 7 we have income left over at the end of the month that we should be paying back some of the creditors (although very little). However, when our lawyer runs the chapter 13, because of our 401K and a loan from them, we have no income left over at the end of the month and would have $0 as a monthly payment. She's answered the letter and we're awaiting a response to see what our next steps are.

Has anyone had to go through an abuse letter and how has it turned out? anyone else struggle with the same 7 vs 13 situation?

BTW- I've been reading this forum for many months now but just finally took the initiative to join. The posts have been incredibly helpful as I've gone through my journey and realized that I'm not alone. Thanks to everyone who participates and realize that not only are the members benefiting from this community, but also others who aren't yet brave enough to share their stories and struggles.

[AngelinaCatHub]

I wish I could help you more. We had an insider payment 2004 examination.

It just may be that the Trustee is not counting your loan from 401K as you borrowed your own monies. This would change those figures. The money is outside of the 401K so it does not get the exemptions credited to retirement funds. 'Hub

[kornellred]

Repayment of 401K loans is a legitimate expense which subtracts from disposable income. At least it was in my own case, or else I would be paying about 300 dollars more per month to the Chapter 13 trustee. How this particular situation figures in a Chapter 7 determination is probably a bit more complicated. If it's cut-and-dried, and your disposable income is reduced to zero on account of 401k loan repayments, and the other parts of the Means Testing criteria are met, I don't see why the Court would deny you a Chapter 7 discharge, rather than stick you in a Chapter 13. It's an interesting conundrum that the formulators of the 2005 Bankruptcy law revisions did not give adequate thought to. They're probably kicking themselves because of it.