A Chapter 13 or 7? Don't know what to do

[DRP]

We have had one meeting with our lawyer who suggested we file for a Chapter 13. We are not late on any of our payments, loans, mortgage, etc. My husband and I went through all of expenses, $4237 a month and our income right now is $4001 a month. We are 65 and 69 years old. My husband is a realtor so income from that depends on sales. Now that question is this, after our case is looked over, even a low, $100 to $200 payment back on our credit cards will be a stretch., will Chapter 13 be the answer? Now we are really confused. Can someone give us some guidance on what to do?

[leonel9]

I probably ask too many questions in my replies. With that in mind, it would help to have additional information to provide good advice. For example:

- Why did the attorney recommend a CH13 vs. a 7?
- What state are you in?
- How much equity do you have in your home, if any?
- What is your total debt, and how is it broken down?
- You listed your expenses. What do they include? (e.g. items that would be discharged?)

In my opinion, if you qualify for a CH7 bankruptcy, there would need to be a compelling reason to file a CH13 over a CH7, such as having non-exempt assets you would otherwise lose in a CH7, but be able to retain in a CH13. Keep in mind, there may be other options besides bankruptcy, such as a mortgage modification, refinance or even a reverse mortgage that may be an alternative to bankruptcy.

Finally, are you planning on meeting with other attorneys? (It's suggested you meet with 2-3. As much as I don't like the quality of reviews from Avvo, I found a good list of questions to ask an attorney during a bankruptcy consultation:

[DRP]

Thank you for your reply.

1. I guess it was because we could keep our house, not really sure about that.
2. We live in Maryland
3. "as is" $50,000 after selling costs
4. $35,000 in credit cars
5. The only things that would be discharged is the credit cards

Can't do a reverse mortgage, owe to much on the house. I feel more confused now since we started this last week.

[leonel9]

It appears that Maryland's homestead exemption is $26,000 and cannot be doubled for married couples. If you have $50k+ in equity, you would typically have to offer the difference ($50k equity - $26k exemption = $24k) in order to prevent a sale in a chapter 7. Of course, this is subject to some negotiation with the trustee and doesn't factor any wildcard exemptions.

In a chapter 13 plan, you pay non-exempt equity to your unsecured creditors over 3-5 years. I can see how a chapter 7 was ruled out by your attorney. Keep in mind, I am using your $50k estimate, which already factors selling costs. The actual amount could be much higher.

I'm wondering though, have you explored a cash out refinance to pay off the credit cards and potentially lower your overall monthly payments? Or a modification? Or downsizing to a less expensive home?

It's unclear to me if your $4237 monthly expenses include credit card payments. If they do, another option to consider is contacting the issuers or use a credit counseling agency to reduce monthly payments.

Chapter 13 isn't the worst idea, but it pains me to see a CH13 plan that only discharges $11k in debt after the plan is over. If that solves your needs, then so be it. Are the CH13 payments affordable?