Negative net income (disposable income) and Chapter What?

[lorelei]

Hi everyone, first post.

I'm considering bankruptcy and trying to figure out some of my options. I've looked at the forms involved and did a trial run. When I actually file, I plan on doing so with the help of an attorney. In fact, I plan on consulting with a few before settling on one. But I'd also like to have a general idea of things before I start making those appointments.

In running my numbers, it seems I won't qualify for Chapter 7 because of the means test. However, when I run through the schedule I & J, it seems I have either very little disposable income per month, or possibly even a negative net income.

If I don't qualify for 7 and I have little or no income to pay towards a Chapter 13 plan, what happens?

I do own a home, and I'm not broken hearted at the thought of giving it up. Can the house be surrendered in a Chapter 13 to free up disposable income?

[SMinGA]

First question - what expenses seem to look like you need a ch. 13 on the means test, but leave you with no dmi on the schedule I vs. J?

Giving up the home is a possibility, in either chapter. Its sometimes a wise financial decision - depending on how far upside down you are, whether or not you can rent elsewhere for less, etc.

[lorelei]

First question - what expenses seem to look like you need a ch. 13 on the means test, but leave you with no dmi on the schedule I vs. J?

Giving up the home is a possibility, in either chapter. Its sometimes a wise financial decision - depending on how far upside down you are, whether or not you can rent elsewhere for less, etc.

It's all these student loans! When they come due in September, it'll be about $550 a month. Can they be included on the means test? I see conflicting opinions.

I know the ultimate answer is to get with an attorney, and I will, but I want to be as informed as possible before-hand, too.

[SMinGA]

That becomes a bit of a sticky situation and it varies by the district, I believe. In a ch. 13, student loans can be put into deferrment/forebearance. (I forget which is which!) Meaning even though interest accumulates, you don't have to actively repay so it frees up DMI for a monthly ch. 13 payment.

What is the situation on your home? About how much owed on 1st? 2nd? What is the home worth now? How are your payments compared to what you could rent? (Where I am, for example, I could not rent for less than my mortgage payment.)

[lorelei]

The home was bought for $132,000 with about $97,500 on the first mortgage and $23,000 left on the second (HELOC), for a total of about $120,500. I tried for a refi in February and the appraisal came in at $102,000.

Monthly payments between the two are $1,038 and I could rent a good place for $700 or so.

[lorelei]

Not to make my situation more complicated (but why not!?), there's the career thing. I'm wrapping up work on a master's degree to start a new career within the next year. I'm expecting a pay cut will come with that, that would put me under median income. So, on the one hand, I'm thinking that if I could wait it out until the new job starts + 6 months, I could just go Ch. 7. On the other hand, I don't know that I can hold out that long. And if I file Chapter 13 now, how would I be able to change jobs later? Ugh! I did not just accrue all this student loan debt only to be unable to change careers!

[SMinGA]

Roughly $18.5k 'under water'. May not seem like alot by some standards, but its more than 15% of what you owe AND you could save money by giving it up.

There are other monetary consequences of giving up the home. Most to your advantage...

You'd have less maintenance/upkeep. (I say less because even renters tend to spend some money on a rental house - but the major things are the responsibility of the homeowner.) You would not be tied to negative equity - in some areas home values are still dropping.

You would possibly need to adjust withholding for taxes - since you'd no longer have the interest/home owner's deductions. You'd probably still be ahead though.

The home was bought for $132,000 with about $97,500 on the first mortgage and $23,000 left on the second (HELOC), for a total of about $120,500. I tried for a refi in February and the appraisal came in at $102,000.

Monthly payments between the two are $1,038 and I could rent a good place for $700 or so.

[lorelei]

This is Michigan, there's no bottom in sight for home values far as I can tell. *sigh*


Thanks for all your info, though. It takes some of the anxiety out just talking about it.

[SMinGA]

Do you have a reason to rush? Such as about to face foreclosure, garnishment, repossession?

If not - and you know your financial situation is going to change - then waiting as long as possible to file could be best. I don't know if you're current on your mortgages now, but you could start researching the foreclosure process in your state. Depending on the process, it would take months and possibly years to go that far. Saving up money for deposits, etc. for moving could be good.

A ch. 13 can be modified or even converted to a 7 if your situation changes enough, so if you do have reasons to move forward sooner rather than later - there would be options for you.

Not to make my situation more complicated (but why not!?), there's the career thing. I'm wrapping up work on a master's degree to start a new career within the next year. I'm expecting a pay cut will come with that, that would put me under median income. So, on the one hand, I'm thinking that if I could wait it out until the new job starts + 6 months, I could just go Ch. 7. On the other hand, I don't know that I can hold out that long. And if I file Chapter 13 now, how would I be able to change jobs later? Ugh! I did not just accrue all this student loan debt only to be unable to change careers!

[lorelei]

I'm current on everything at this point but falling further and further in debt trying to stay that way. It's madness.

[SMinGA]

If you are certain you are going to file - then making any payments on unsecured is a waste of money. And paying the mortgage could be the same. If your state has a fairly quick foreclosure process though, you might want to consider paying the 1st a little longer and stopping the 2nd.

Other things to consider: if you currently do any banking where you have debts, open bank accounts elsewhere and move your $, change direct deposits, etc.

I'm current on everything at this point but falling further and further in debt trying to stay that way. It's madness.

[lorelei]

That's right up there on the to-do list. When I first got them, my checking account, home loan and credit cards were all at separate institutions. Banking consolidation and Bank of America's zeal to become No. 1 took care of that, and now they're all one and the same.