Chapter 7 questions

[hrh25]

I have a few questions about filing for chapter 7. I have debt of about $128,000 that i can no longer pay. Between my wife and i we make about $125,000 a year, am the only filing as all the debts except the mortgage is just under my name. We have two children a 5 and a 3 year old. Now, after all the expenences, our mortgage payment along is $4400 a month, we have about negative -$400 left over, to make the other payments we would need little over $3000 a month to make ends meet. Our mortgage is alot more then what the house is worth now, i think i have negative -$85,000 equity but we want to keep the house as we have been living here for a while and put of work into it. I am getting nervious as my income is above the national avarage and our debt is huge. Do you think i could be forced into filing chapter 13 even though i do not have any money left over? I did the means test and passed it. I talked to a fews lawyers and they all said if i pass the means test then they can not force you to file chapter 13 since you don't have any money left over. I do have two cars under my name that are worth combined $20,000 but everything else falls under exempt items, i have nothing thats luxerious. Does anyone know if this would be a red flag case and i will chosen for audit etc. I don't mind the audit as i have nothing to hide am just worried about being pushed into chapter 13 when i can not afford it. Thanks again for your help and advice.

HRH

[kiddles]

I believe that the trustee can file a motion to try to force someone into a 13, but it's not automatic. You'd have a chance to fight it, if your trustee filed one.

Are you using an attorney? with that much on the line, might really be worth it for you.

[325Falcon]

Your high income is going to be an issue. What is your states income for a 4 person family?

[keepmine]

Our mortgage is alot more then what the house is worth now, i think i have negative -$85,000 equity but we want to keep the house as we have been living here for a while and put of work into it.

Part of life post bk is, to stop making bad financial decisions. I gotta say, hanging on to a house with a negative $85K worth of equity is not close to being rational. Ditch the house.

[hrh25]

Thanks

Thank you for your response, yeah am looking into getting a lawyer but its hard to find a good one. I am in Northern Virginia and i believe for a four person house its income is $79,000, so we are way above that, most of the lawyers don't seem to worried about the income and think i should be able to file Chapter 7. I am in the negative already without paying the credit cards by over -$400 a month, am afraid God forbid one little extra payment would make it impossible to make ends meet.

KEEPMINE, i understand what you are saying about the house but giving it up now would be foolish also, I would be paying about $2200 to $2500 a month on apartment or more for a house in this area and also the tax break would be gone. The values have gone down alot but they will come back up in this area and i will only lose $85000 if i sell it now or have it foreclosed on.

I am just wondering if anyone else with high income was able to file under chapter 7 and what problems they had. The lawyers i talked to didn't seem to think it was such an issue. Thanks again for all your help.

Regards

HRH

[keepmine]

KEEPMINE, i understand what you are saying about the house but giving it up now would be foolish also, I would be paying about $2200 to $2500 a month on apartment or more for a house in this area and also the tax break would be gone. The values have gone down alot but they will come back up in this area and i will only lose $85000 if i sell it now or have it foreclosed on.

If you have a foreclosure and reaffirm the mortgage, you're on the hook for any deficiency balance post bk.{assuming your state allows a lender to sue for a deficiency}
Your housing expense is over $50K a year. That's going to really hamper the fresh start that bk allows.
Are you factoring the debt you wish to discharge into your expense schedules to get the negative disposable income?

[SinkingFast]

Lenders may obtain deficiency judgments, without limits, in Virginia.

http://stopforeclosure.com/Virginia_Foreclosure_Law.htm

I would think it would be wise to possibly file an "Intent to Reaffirm" the mortgage if you need the payment to make a Ch 7. But don't sign and file the Reaffirmation Agreement. Then if you need to walk away from the house later, you could.

KEEPMINE, i understand what you are saying about the house but giving it up now would be foolish also, I would be paying about $2200 to $2500 a month on apartment or more for a house in this area and also the tax break would be gone. The values have gone down alot but they will come back up in this area and i will only lose $85000 if i sell it now or have it foreclosed on.

You said earlier you pay $4400/mo in house payment. That doesn't include what you spend for repairs and upkeep.

Let's just figure a nice, tidy $5K/month the house is costing you.

$2500/mo for rent is still a $2500/month difference. $2500/mo goes a long way on 2 fronts. Toward meeting your other routine living expenses. Which as you said you are currently negative about $400/mo. And toward the dividend you won't receive come tax filing time.

You need to look at the tax tables. How much benefit are you really deriving from that mortgage payment?? For every $1 spent on the mortgage, how much are you getting back??

$4400 X 12 is $52,800/year.

$2500 X 12 is $30K/year.

Are you getting back $22,800+ in income tax refund??

In our case, renting vs paying our former mortgage, what we used to get back in refund vs what we will get back, plus the cost of upkeep and repairs when we owned,.......... We're about break even.

[rrockinggramma]

In addition to the house, I believe the OP said he has like 20,000 equity in his cars. IMO, you will end up in a chapter 13 unless Virginia exemptions allow that amount of equity in vehicles. The crux of chapter 13 vs chapter 7 is that you must pay in a chapter 13 what your creditors would have received in a chapter 7. The trustee could make you buy back your cars in a chapter 7 if you are about the exemptions for them. that alone would push you into a chapter 13. So find a good lawyer and lay it all out on the table.

[SinkingFast]

VA BK Exemptions allow for $2K equity in motor vehicles. AND, VA Exemptions allow for unused Homestead Exemption to be applied to any other property. The Homestead Exemption is $5K.

http://www.bankruptcyinformation.com/VA_exemp.htm

RrockingGma makes a good point. You may well be in a position where you'll have to buy back a car, be prepared to give up a car, or go Ch 13 regardless.

[hrh25]

Thank you again for all your replies. I talked to a couple of lawyers, and some mentioned i would be able to keep one car thats worth about $7500 and give up the other or buy it back from the trustee. I had one lawyer tell me that you get $5000 each for you and your spouse and $500 for the each child, plus $2000 per car adding to $15,000 and i could proberly buy the car back for $5,000. I am not sure if that is true am getting mixed answers from the lawyers. My wife is not filing only i am, both the cars are under my name so i have no choice but to give one up or buy it back. My unscured debt is $128,000, i would need to pay about 25% ($32,000) to be able to file chapter 13. I was told that the payments would be around $535 to $600 a month with the admin fees etc. There is no way i can pay that with the mortgage since am already -$400 in the hole.

I am told by the lawyers if i give up the house i would be paying whatever my disposable income is without the mortgage payment. I am not sure who to trust and thats the reason am here since most of you been thru this ordeal i can get some honest answers.

I was thinking that my rent would be at least $2500 a month. I would be paying $1500 to $2000 a month into the chapter 13 programe, since this would be what would be left over. I would reither keep the house and give up one car and get the tax break and move on. This is what am being told, since if i give up the house i would have alot of disposible income left and with the size of the loan i would need to pay back as much as i can.

I am not sure if my spouse is not filing if we still can claim the $5000 exemption, one lawyer is telling we can get $2000 per car plus $5000 each and $500 for the children making it $15000.

If someone thats been thru this or has some knowledge about how the exemptions are applied if only one spouse is filing i would greatfully appriciate it. Also, if anyone that was filed with high income and filed chapter 7 what kind of trouble did they run into?

Thanks again to everyone that replied, your answers are greatfully appriciated.

Regards

HRH

[SinkingFast]

Here's the Homestead Exemption copied directly from the Link that I gave above:

$5000 plus $500 per dependent; may also claim rents & profits; sale proceeds exempt to $5000 (husband and wife may double), Cheeseman v. Nachman, 656 F. 2d 60 (4th Cir. 1981); unused portion of homestead may be applied to any personal property

May include mobile home

Must file homestead declaration before filing for bankruptcy

Property held as tenancy by the entirety may be exempt against debts owed by only one spouse

So you were told correct. $5K plus $500/dependent.

If you're at negative equity on the house, you should be able to Exempt one car if the value really is $7500.

You said "Between my wife and i we make about $125,000 a year" but how much of the $125K do you make?? Your disposable income is what the Ch 13 payment will be based on.

Going thru the BK paperwork filing alone is kinda like filing taxes alone. Both incomes are shown at the start, but then the non filing spouse's income is removed from the calculations. The rest of the way, it'll be your income vs your share of the Household Expenses. Your share of the mortgage, insurance, taxes, utilities, food, dry cleaning and laundry expenses, day care costs, etc.

So it's not simply take your income, subtract out half the mortgage payment and Voila! That's your Ch 13 Plan Payment.

This is where finding a really, really good BK attny comes in. An advocate to work for you. Not someone who simply wants to grease the palm of the Trustee.

[hrh25]

Thank you Sinkingfast, i am still confused though, it says husband and wife may double the $5000, but is that if both are filing or it does not matter then it list dependents? Also, he said you can have $2000 of equity in a car, meaning per car but not more then two, so this means i can add the $2000 to each car?

Also, as far is the salary goes, mine is $86,000 a year, but when i
filled in the means test i counted all of my wifes salary except for $450 (which she needs to pay her loans, taxes etc). If i use half her salary then i would be over a -$1000 in the hole.

I have filled in this form and actually put in less then i spend, so i know i am not over-stating something. I feel comfortable with the means test etc, am just not sure and very nervious about being pushed into Chapter 13 because of my income and the size of the debt .

I looked at the trustee's website for Virginia and the eastern disctrict has only five trustees for chapter 7, am wondering if emailing a couple of them would get some answers?

Thanks again for you help.

Regards

HRH

[SinkingFast]

You've got to tread carefully when contacting Trustees.

If you chat with 6 of the 7, that means the 7th one you did not speak to would have to be your Trustee. Because you "Consulted" with the others, they could not, in good faith, sit on your case. It could constitute a conflict of interest. They have "inside" knowledge of your case and your circumstances.

You don't want to taint your Trustee Pool. If you do, the Court would be forced to pull in a Trustee from another Court. Not a person who's familiar with how things are typically done in your Court. It could cause a big mess.

We only have 2 Trustees here and that's what we were told. If we Consulted with the 1, the other would have to be our Trustee. If we had stumbled around and Consulted with both, then the Court would have to pull a Trustee from another Court in our District.

I'd suggest you Consult around with attnys. Pick up as much information as you can from them. Attnys will tell you how they'll handle your case. But they'll also give you little glimpses of their perspective of the Court, the Trustees, etc. You might be able to piece together enough info to know who's the best Trustee to speak with to potentially represent you.

The $2K motor vehicle exemption is $2K total. Not $2K/car. If both you and your wife were filing, you'd get $2K each, for a total of $4K for cars.

Keep in mind too,........... The Means Test is a bit complicated. Much more so than the answer you'd get in a free 30 minute to 1 hour Consult,........ Off the top of an attny's head,......... Just looking at your income information. It might serve you well, at some point, to pay an attny to actually run the Means Test for you. Tell you where you really are, numbers wise, in their professional opinion.

[hrh25]

Thanks again Sinkingfast, I think am just going to hire an atorney and pray he has my best interst at heart. Most of them are charging over $2000 for a chapter 7 in this area not including the court fees. As for the exemptions for the car i understood the part about the $2000 you said but i can not find anything on doubling the $5000 homestead exemption if only one spouse is filing, any ideas?

Thanks again for your help

Regards

HRH

[kiddles]

I don't think you'd get to count your spouses's homestead exemption if they are not filing.

Generally speaking, if you are not filing BK, you have no BK exemptions.