High Income Ch 7 or Ch13 - Advice?

[alo]

I am looking for advice. I recently took a 20% pay cut. I still make just over 100K but using the Ch 13 means test (and based on the allowable expenses) I have about $100 left monthly as disposable income. I believe I qualify for Ch 7.

We have no real assets. We have over 95K in cc debt which, with this pay cut, I am no longer able to make minimum payments as of this month (and it is freaking me out! I've never missed payments. Been drowning for a few years with the debt, unable to make head way and now this. I have not called the cc companies, yet. Not sure what to do/expect. Will post question about this in other section.)

My preference is to file Ch 7 (and be done with it) but does Ch 13 have advantages for me? In the consultation with an attorney he was pushing towards Ch 13. Is this the easier way out for him? for me?

Family of 3, sole bread winner, husband not filing. I guess I am in the pre-planning stage.

TIA

[keepmine]

Why did the lawyer suggest a 13?
You file the Chapter of bk that you qualify for? You won't be the first over median filer that was able to file a Chapter 7. Speak with a few more lawyers and see what they suggest. Don't be afraid to ask them to explain whjy they feel you won't be able to discharge a Chapter 7.

[LadyInTheRed]

Welcome to BKforum. We don't have enough information to say whethter you should file a Chap 13 or 7. You should ask the attorney why he thinks you should file a 13. Does he not think you will qualify for a 7? Maybe when he ran the numbers you don't pass the means test. The means test is not as simple as it may appear. Or, maybe he is worried about an objection based on totallity of circumstances (i.e., your schedules I and J would show you have disposible income to fund a Chap 13 plan even though you pass the means test). Or, maybe you have non exempt assets you want to keep or an underwater second or third mortgage that can be stripped in a 13. Maybe the lawyer just does't like to do over the median Chapter 7's in which case he may be the wrong lawyer for you.

After you understand why this attorney recommends a 13, consult with another attorney or 2. In your consultations, make sure you ask whatever questions are necessary to understand the reasoning for the advice you are given.

[SMinGA2]

There are advantages to filing a chapter 13, but not sure if any of them apply to your scenario. Examples:

1. If your 1st mortgage amount owed is more than what your home is worth, its possible to strip a 2nd mortgage. (Have it converted to unsecured and discharged.)
2. If you're behind on your home or vehicle, you can pay the arrears off in your plan.
3. If you have non-exempt assets, its easier to keep them in a ch. 13.

If your actual income less expenses is ~$100 per month then you should meet the guidelines for a ch. 7. In assessing your budget though - make sure you were not counting items that would not count in a ch. 7. Such as your minimum credit card payments. You said this was based on the means test expenses - what about actual? Such as if the means test allows $496 car payment but yours is only $350, your actual car payment would be used in determining DMI.

Feel free to share more of your situation - no personal details - and you'll probably get more feedback. Welcome!

[alo]

Thanks Keepmine and Ladyinthered. I am not sure why the attorney pushed Ch 13. He actually never saw my I and J schedule (I did them for my own knowledge) so it must have been how I presented my situation that led him to believe I would not qualify. Or, like you said, maybe he doesn't do over the median Ch 7s.

I vaguely recall that he said if I file Ch7 and it is dismissed, I will not be eligible to switch to a Ch 13. True??

I will consult another lawyer. In the meantime, is there a more thorough document that I can use to list all my expenses. If for no other reason to get my head around what we spend and what we need to budget for like pet care, gifts,...things I don't spend money on every month but should plan to spend sometime in the year.

[alo]

Thanks, SMinGA2.

I think you are right, I need to look at the actual expenses not just the allowable expenses based on the means test. Do you know of a "fill in the blank" type of list I can start with? I am probably over or right on target with most of the allowable expenses but our car payment is under.

[SMinGA2]

There is a sticky discussion on expenses in the Ch. 7 forum. In general though I'd say to break things down, and think thoroughly about them, in terms that make sense to you. Over analyze even, as your attorney (whoever you ultimately hire) will know how to group for the forms. Some things in my personal budget:

Mortgage (includes tax, insurance)
Home maintenance
Car payment
Car insurance
Car fuel
Car maintenance
Life insurance
Health insurance
Groceries - Food
Groceries - Household needs (includes cleaning supplies, paper products, etc.)
Groceries - Personal Care
Groceries - Pet food & supplies
Over the counter medicines, supplies
Copays
Gas utility
Electric utility
Water utility
Garbage utility
Cable/Internet
Cell phones (we have no home phone)
Entertainment
Clothing
School Supplies
Holidays/Birthdays

What you can do for things like entertainment and holidays/birthdays will not be a major amount - and will ultimately depend on your family size and district. A good local attorney will know what is acceptable for things like this.

For areas where you're higher than standard (means test) figures - document. SUch as if you have a higher than average grocery bill because of food allergies.

[keepsmiling]

Hi alo and Welcome!
Do you own your home? Equity situation?
This is primary.
Hard to tell you any more without that info

[alo]

Thanks for the list, SMinGA2. I am in the planning stages and will start writing down where I spend money...regardless of Ch 13 or 7...I need to be able to budget moving forward.

And, Keepsmiling, I meant to add more details:

Income $110K
2 cars - 1 new with payment, 1 ten years old with no payment
health insurance, life insurance, car insurance
home mortgage, no equity (underwater)
childcare
no ira or 401 K
no savings right now
tax return - expecting 10K back before end of year
95K in cc dept
stopped paying this month

pre-planning stage of BK, I think I am about 4 months off just to get paperwork in order and let salary reduction show for six months, hoping for a chance to do Ch7, concerned that they will not allow a conversion to Ch 13 if trustee doesn't approve (How does that work?)

Trying to get over fear of not paying cc bills. Not sure what they will do or when.

Thanks!

[SMinGA2]

Childcare - I didn't mention that one because we don't have that expense.

The fear is natural/normal. Other than phone calls & letters - not much is likely to happen for months. And in the event a creditor does move to start legal proceedings, you would still have weeks (maybe even months) to actually file before they could garnish or take anything from a bank account.

Additional thoughts: think about the tax return. You will probably want to get that completed and use the $ for necessary items UNLESS you can exempt it. You may also want to make changes to withholding levels to lessen a refund for next year, though it may be a little late in the year for that. (Something good to discuss when you do attorney consults.) If you anticipate getting a refund when you file 2012 taxes as well, it might be in your best interest to delay filing until after you can file 2012 taxes and use that refund as well.


There are some free budgeting resources out there - I think mint.com is one. Personally I like to use an Excel spread sheet.

[mslaw]

Just be very careful. When we filed it showed we made over 100K combined (then I lost my job) but we are a family of 7 and the United states trustee is dismissing our case for presumption of abuse. He states we have $37 left over after expenses and we should be able to pay our debts or do a Ch13. It's not cut and dry. Get a good lawyer. Wish we had.

[alo]

Thanks, mslaw. I'm interviewing attorneys now.

[keepsmiling]

Just be very careful. When we filed it showed we made over 100K combined (then I lost my job) but we are a family of 7 and the United states trustee is dismissing our case for presumption of abuse. He states we have $37 left over after expenses and we should be able to pay our debts or do a Ch13. It's not cut and dry. Get a good lawyer. Wish we had.

$37??? really?
is that a typo? or what exactly does he want you to with that?

[momofthree]

With a family size of 3 and an income of $110k, I think you're probably going to have a hard time qualifying for a ch.7 unless you have an outrageously large house payment. Here is a link to the tt website that shows allowable monthly expenses for a family your size: http://www.justice.gov/ust/eo/bapcpa...anstesting.htm

For example, food, clothing, household supplies, personal care items, and misc expense allows $1171/mo total.

Also, you may have trouble claiming the childcare expense with your husband not working, unless he has some sort of medical impairment that makes it impossible for him to care for your child.

[alo]

Thanks for the feedback. I guess we'll see what happens. My husband just started a business and he is not able to take a salary, yet. Hopefully soon. I wish now.

You know, we probably don't spend much more than $1500 on food, clothing, household supplies, personal care items,...but things like our health insurance, infant childcare , slightly higher mortgage (over the IRS estimate) plus car payment, life insurance...seem to be pushing us over on the means test.

Anyway, I know that is not the only deciding factor and we won't do anything without professional counsel. For now, I am learning from this forum; educating myself so that I can have meaningful discussions with an attorney. And, I can ask the right questions as I interview them.