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Questions on how to handle Ch13 (second income), being broke until 2022.

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  • Questions on how to handle Ch13 (second income), being broke until 2022.

    First off I want to thank everyone here for answering so many of my questions. I don't know how I would deal without the forum, even with an attorney it has given me a lot of insight and what to look out for.

    ---------------

    This is a stupid question, most likely crazy and a really bad idea. But earlier today it popped into my frantic, stressed out mind so I figured I might as well ask.

    Currently (as many know lol) I am attempting to get approved for chapter 7. My biggest hangup (which many know) is my homes equity, but that has already been covered. As of right now my wife carries half of our debt (25k in unsecured) and does not work. So we are filing jointly. She has secured a contracted job already for next spring. And pretty certain she will start a full time job about 1 1/2 years from now (sounds crazy to be certain, but a local university is having her set up a new program to teach).

    So anyways I had considered a "what if" situation. Such as that she files Ch7 solo and wipes out her 25k of debt (the house is only in my name). Which then I would go onto filing Ch13 to save the house and fall into a payment plan. Right now after filling out the pre-paper work (and being under medium) it looks like I will have little to no payment. As we still fall into the red a bit after expenses (mostly medical). Now I believe by talking to everyone and via research 100% of her pay will be taken until the plan ends. And the very thought of her working so hard until 2022 without take home pay is extremely depressing to me. So I had the crazy stupid idea that I could go into Ch13 to help us survive until her job starts. And then drop out of Ch13 and try to negotiate pay off amounts with my creditors.

    Many of the CC's are pretty low, there are just a lot of them (outside of two). I read that they can tack on a ton of interest and make the debt more massive than ever. But I also read that you can negotiate the debt down some, possibly covering the incurred interest. With her 25k gone we would be left with much less in the end to pay off, instead of dragging it out for years, we could possibly pay it off in one (since her 25k is gone).

    So I am trying to figure out if erasing 25k off of our total debt, if it would leave us a lower payoff in the end. Even though we would end up paying more of mine due to interest. Or if the amount increase would be over our original amount (50k). There is a chance also that if I drop out of Ch13 I could borrow money from my family to knock some off right away then pay them back to avoid law suits.

    I am just trying to figure out if I would save some money in the long run via my wife's debt cleared off. It would also allow us to "save" some money up for medical as we will be building that up and paying it out the entire 5 years. And considering the Gov't will be taking all her pay and we will be on a tight budget one giant surprise bill (my wife suffers from chronic illness, and my kids are special needs) will sink us. That is a HUGE worry..... and it that happens then her debt will still be there.

    Let me know your thoughts, I am sure it's stupid but I came up with it in the shower this morning (LOL).

  • #2
    Your question is the quintessential question; do I file now, or later? It's something that you'll need to review. For me, personally, filing for $25K or even $50K of credit card debt is not worth it (because my income is significant). However, if that amount was arrears on a mortgage and I wanted to save my property, I would file a Chapter 13.

    The "what if" scenarios are okay to think about and should be part of your planning. The real question is... is the house worth saving? Remove all the emotion, attachment, "my kids grew up in this house," "it's the only place we knew," or anything related to an emotional (not financial) attachment. It must be a business decision based on... math. Until you can come to a rational and well thought out reason to save the property, you can't answer any of the other questions.
    Chapter 7 (No Asset/Non-Consumer) Filed (Pro Se) 7/08 (converted from Chapter 13 - 2/10)
    Status: (Auto) Discharged and Closed! 5/10
    Visit My BKForum Blog: justbroke's Blog


    I am not an attorney. Any advice provided is not legal advice.

    Comment


    • #3
      Thank you as usual, lol. I feel like I am going to wear you down. =)

      (a little info)

      The house is a big issue for me, even with all the repairs it needs. Both of my children are special needs and we had to work really hard to get their schools to provide the services they need. And they have a really hard time adjusting to new environments, a routine change alone can cause chaos.

      If I could keep them in their respective schools I would consider letting the house go, I am not very attached to it (although my wife feels different). The problem is our mortgage payment is cheaper than any rentals around us. Even more crappier ones with only 3 bedrooms. We pay about 1,580 a month now and would have to go up to 1650 to 1700 to find something to stay in the same schools (and there isn't much available). And I am not even taking into account that many won't rent to people who filed bankruptcy.

      Anyhow, I realized today giving it more thought that if it was possible for my wife to file Ch7 and myself Ch13 I would only have 25k in the plan (I didn't look at it that way before). And I think you can pay it off early without any penalty from the creditors. Which means during my wife's first year of working we could make payments large enough to have it paid off in only one year. Which doesn't sound as bad and I can skip the idea of dropping out, of course if that is true?

      My attorney didn't mention that as a possibility of course we are trying for a chapter 7. Do you know if it's possible to file separate chapters?

      Comment


      • #4
        I hope that I'm helping you work through the thought and decision process! You have answered the math question; there is no real difference in cost between renting and owning in that area (although taxes/repairs could make this uneven). When it comes to anyone with a disability, stability is important and that's not an emotional decision; that would be a rational decision.

        You can payoff a Chapter 13 early if you pay 100% of the allowed unsecured claims.

        You may be even able to do a Chapter 7, discharge all the debt and the mortgage, and then enter into a mortgage modification with the lender. I did just that. I took about $50K in arrears (escrow shortage, missed payments, etc) and have them placed at the end of the loan. I had my modification completed in less than 6 weeks, and without any "trial payment" period attached. It was very interesting because the bank was willing to do this without a reaffirmation and without the trial payments. (The bank had insisted on trial payments prior to the bankruptcy for any modification, and that they may not even allow the modification.)

        So many strategies... so many things to think about. You have your head in the right place. Keep asking questions. If you wear me out, there are many of others that will take up my slack!
        Chapter 7 (No Asset/Non-Consumer) Filed (Pro Se) 7/08 (converted from Chapter 13 - 2/10)
        Status: (Auto) Discharged and Closed! 5/10
        Visit My BKForum Blog: justbroke's Blog


        I am not an attorney. Any advice provided is not legal advice.

        Comment


        • #5
          Last question, can my wife and I file separately in different chapters? That situation would make this way better for us as the Ch13 plan would only have 1/2 of our total debt in it. (the house is only in my name)

          Comment


          • #6
            If it is strategic, then filing separately (one filing Chapter 7 first and obtaining a discharge with the second filing a Chapter 13) may be an advantage. There are spouses that do this when it is optimal. I would certainly bring this up during my consultations. It is just usually not an option for most married couples as most accrue community debt. If you're in a community-property State, this could make it even muddier.
            Chapter 7 (No Asset/Non-Consumer) Filed (Pro Se) 7/08 (converted from Chapter 13 - 2/10)
            Status: (Auto) Discharged and Closed! 5/10
            Visit My BKForum Blog: justbroke's Blog


            I am not an attorney. Any advice provided is not legal advice.

            Comment


            • #7
              Do you need to wait for a discharge first? I did not come across that searching around. Some sites simply said that you can do whatever you want due to it being your own personal debt. (but that's why I asked here).

              Luckily my wife and I don't have any community debt. We have never taken out a loan together or signed jointly for anything. Mostly due to always using who's credit score was the highest (seemed like a good idea keeping thing separate thinking about it).

              OK so I looked it up (I live in Missouri) this is what I came up on community property states: https://www.thebalance.com/community...states-3193432

              So I am clear of that situation?

              Comment


              • #8
                Well, Missouri isn't a community-property State so at least that is out of the way. I do not have any information on the timing of married couples filing separate petitions.

                Maybe despritfreya has general experience in this area?
                Chapter 7 (No Asset/Non-Consumer) Filed (Pro Se) 7/08 (converted from Chapter 13 - 2/10)
                Status: (Auto) Discharged and Closed! 5/10
                Visit My BKForum Blog: justbroke's Blog


                I am not an attorney. Any advice provided is not legal advice.

                Comment


                • #9
                  Give me a bit. . . This is a lot to go through.

                  Des.

                  Comment


                  • #10
                    I wish to re-state your posts as follows (“”):

                    “I am attempting to get approved for chapter 7. My biggest hangup is my home’s equity (only in my name and my children are special needs). As of right now my wife carries half of our debt (25k in unsecured) and does not work. So we are filing jointly. She has secured a contracted job already for next spring. I am pretty certain she will start a full time job about 1 ½ years from now. What if she files Ch7 solo and wipes out her debt? Then I file a Ch13 to save the house and fall into a payment plan? I believe 100% of her pay will be taken until the plan ends.”

                    This is possible and you are correct relative to your wife’s income being included in your Schedule I.

                    "I have an idea that I could go into Ch13 to help us survive until her job starts. And then drop out of Ch13 and try to negotiate pay off amounts with my creditors. With her 25k gone we would be left with much less in the end to pay off. So I am trying to figure out if erasing 25k of my wife’s debt thus leaving only mine to deal with would leave us a lower payoff in the end.”

                    In theory you are correct. If your wife files a Chapter 7 (assuming she qualifies because your income will be included in the means test at least to the extent it supports the household), she could wipe out her sole and separate debt. This might make it easier for the two of you to negotiate with your creditors as you will have more available income and only your debt to deal with. The problem is getting ALL creditors to work with you. If you have ten creditors, maybe six will work with you but the other four are the ones that are going to make your life miserable and you will end up in a bk anyway.

                    “If I could keep my children in their respective schools I would consider letting the house go. On the other hand, our mortgage payment is cheaper than any rentals around us.”

                    I assume that the equity in the home is above your allowed exemption therefore filing a 7 will run the risk that the Trustee will take the home. If you don’t want to run that risk because you do not want to uproot your children then filing a 7 is probably not in the cards. I also assume that your Chapter 13 will pay the unsecured creditors the value of the non exempt equity. How much is the non-exempt equity?????

                    “I realized today that if it was possible for my wife to file Ch7 and myself Ch13 I would only have 25k in the plan. I think you can pay it off early. Which means during my wife's first year of working we could make payments large enough to have it paid off in only one year. Which doesn't sound as bad and I can skip the idea of dropping out.”

                    If you are below median income then your “commitment period” is 36 months. Creditors, in a Chapter 13, are given a window in which to file claims. If they miss the deadline then they cannot participate in the distribution. If you are able to pay all “allowed” claims in full in less than your “commitment period” then your Plan will end and a discharge will be entered.

                    “Last question, can my wife and I file separately in different chapters?”

                    Absolutely. Whether or not such is “advisable” depends upon all of the circumstances. Remember, 2 bks =’s 2 attny fees.

                    Let me know if this information is what you were looking for.

                    Des.


                    Comment


                    • #11
                      Despritfraya, thank you so much for the detailed response!

                      > The problem is getting ALL creditors to work with you. If you have ten creditors, maybe six will work with you but the other four are the ones that are going to make your life miserable and you will end up in a bk anyway.

                      That is a very good point that I didn't give any thought on. I suppose it would be in my best interest to stick with it for protection. Things might be easier to deal with if my wife is approved to go Ch7 anyhow.

                      > I assume that the equity in the home is above your allowed exemption therefore filing a 7 will run the risk that the Trustee will take the home. If you don’t want to run that risk because you do not want to uproot your children then filing a 7 is probably not in the cards. I also assume that your Chapter 13 will pay the unsecured creditors the value of the non exempt equity. How much is the non-exempt equity?????

                      I am a bit confused on this? I am a bit under the median income and I may be in position (until my wife works) of paying almost nothing. Having a household of 5 seems to have helped the living allowance amounts (on paper anyhow). I was under the assumption that to keep the house I could file Ch13 regardless of the amount of equity. So I am a bit confused on the minimum payback on what the home's equity amounts.

                      And I am not sure yet how much my home is going to go down for over the allowance. My state has a 15k amount. Right now looking through online valuation sites I got a huge range of numbers. If I take my tax valuation only vs my loan amount I would be over by about 20k. However, as I went back and forth with some on here I do not think it will appraise for that much as it needs a lot of work (and my pool situation). But knocking it down 20k is prob impossible, although my attorney mentioned you can get away with going a bit over due to all the costs they have to pay out (realtor, fixing it up etc).


                      > If you are below median income then your “commitment period” is 36 months

                      So far it looks like we will be. We only have one source of income right now so it wasn't very complicated. However I assume when my wife works they will adjust it to 5, which is OK really. I mean to save the 25k or so and have that discharged would be great. But we could have the plan paid off prior to 5 years.

                      >Absolutely. Whether or not such is “advisable” depends upon all of the circumstances. Remember, 2 bks =’s 2 attny fees.

                      Ya that would be rough at the moment, we have just enough to pay one fee now. Due to a pile of new medical bills we have stopped trying to pay our CC's. But I have heard once your preparing to file you should stop anyhow, especially if you only pay a few and not the others (does that sound right). I also don't have much choice as medical is killing us right now due to my wife being diagnosed with several pretty serious disorders and having two special needs children, one who goes to therapy several times a month (all co-pay's are 60).

                      I am hoping in a chapter 13 re-payment plan those costs can be factored in. =/

                      Anyways, my accounts are all only 30 days past due, some less. So I have not letting them go on for long. No collections yet. Guess that's irrelevant to your response though (just worried).


                      So we do not have to wait until my wife gets discharged in a Ch7 before I can file a 13? Making another three to four months might be doable without paying anyone still, and I suppose the collection agencies harass you nearly that long until they file law suits are. BUT I would much rather have us both filed in the next 30 days or so.

                      Again, I REALLY appreciate you taking the time to answer so many questions. I don't know what I would do without the forum. It has helped to prepare me even more for the process, and I have a better idea on what to expect.

                      Comment


                      • #12
                        I also assume that your Chapter 13 will pay the unsecured creditors the value of the non exempt equity. How much is the non-exempt equity????? "I am a bit confused on this?"

                        Nothing confusing. Keeping non-exempt property is a completely separate issue from means testing. If you do not want to lose an asset that has non-exempt value you must agree to pay your creditors what they would have gotten if you had filed a Chapter 7. In a 7 the Trustee would have sold the home, given you the allowed exemption and given your unsecured creditors whatever was left over. In a Chapter 13 you get to keep the asset so long as your Plan pays that same amount to the unsecured creditor. This is referred to as “Chapter 7 reconciliation”.

                        "So far it looks like we will be. We only have one source of income right now so it wasn't very complicated. However I assume when my wife works they will adjust it to 5, which is OK"

                        Not correct. Your commitment period is solidified on your filing date. If you were under median, it is 36 months. If you were over median it is 60 months. If your commitment period is 36 months but you cannot afford to pay what must be paid (Chapter 7 reconciliation for example) in 36 months you can elect a longer Plan up to 60 months. Conversely, if your commitment period is 36 months and you elected a longer Plan duration, as your income goes up you can reduce the duration but the duration cannot be less than 36 months unless you pay all allowed claims in full.

                        "So we do not have to wait until my wife gets discharged in a Ch7 before I can file a 13?"

                        No, you do not have to wait. You can file at any time if you elect to do separate cases.

                        Des.

                        Comment


                        • #13
                          > Your commitment period is solidified on your filing date. If you were under median, it is 36 months.

                          So if we have an income increase and go over the median after filing and already have a 3 year commitment it doesn't change. I pretty much just repeated what you said, but wanted to make sure I understood. Now obviously we will have our payments increased over that time, do they take 100% of the extra income? Or can you keep some of it (even a tiny amount) to help cover things like major medical payments that made it hard to get by?

                          Thanks again Des!

                          Comment


                          • #14
                            The commitment period is set at the time of filing. If your spouse does not file with you in the Chapter 13, then only the amounts, to the extent that they help you pay your bills, are used in the calculation of your disposable monthly income (DMI). If your spouse doesn't contribute to household bills, then their money is not used in the calculation.

                            Example: your current DMI is $100. Your "non-debtor" (non-filing) spouse gets a job earning $1,000/month. The non-filing spouse pays half of your $1,000/month rent. You now have an additional $500/month freed up as DMI. You payment to the Trustee would increase by the $500. If the non-filing spouse has their own bills to pay and do not contribute anything to that same rent, then you have no increase in DMI and therefore no increase in payment.
                            Chapter 7 (No Asset/Non-Consumer) Filed (Pro Se) 7/08 (converted from Chapter 13 - 2/10)
                            Status: (Auto) Discharged and Closed! 5/10
                            Visit My BKForum Blog: justbroke's Blog


                            I am not an attorney. Any advice provided is not legal advice.

                            Comment


                            • #15
                              Justbroke,

                              Wow I did not know that. How do they know if someone is contributing or not? Or if so how much?

                              So anyhow, she will have pretty large student loans to pay back, the payments will be high. Plus we have (as mentioned) a lot of medical bills almost all of them in her name. My biggest worry was not having enough left over to pay her side of things, so that is a pretty big relief.

                              In the end why would a spouse in this situation ever want to contribute to house hold income? Considering that it actually doesn't help their family live due to it just being given to the creditors?

                              Don't the courts usually check your "household" income each year and make adjustments to your payments?

                              Comment

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