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It's Complicated...

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  • It's Complicated...

    Just joined this site this evening. I'm a single father of a teenage son with primary custody. We live in Phoenix. I'm almost a year into my Chapter 13 case and now dealing with a complex set of issues and have a number of questions.

    First, I'll tell you what led me to file BK in the first place.

    In June of 2016, I hired a "debt settlement company" to help me negotiate with my unsecured creditors. At the time I had something like 6 credit cards and a personal unsecured loan enrolled in the plan. One of the credit cards was settled for 50% of what was owed. After Thanksgiving, I hired a family law attorney to get custody of my son, which took about 4 months and cost me about $16K in fees (I used an IRA to pay the lawyer).

    The morning after Christmas (2016), I answered the door to a process server who handed me a lawsuit from Discover Card. I was surprised because the debt settlement firm worked out a settlement agreement, but unfortunately, it was after the lawsuit had already been filed. I was able to use that settlement agreement to obtain a stipulated judgment and I began making payments on that. In March of 2017, my house needed a new roof. That cost me $7K. By that point, my entire IRA account was wiped out, and I still owed a little over $3K to my family lawyer at the end of the case. But I did get what I wanted. My son will be with me until he turns 18.

    I retained a bankruptcy lawyer and filed chapter 13 on 4/27/17. I had wanted to file under chapter 7, but my $72K/year gross income was about $14K above the median, so I was entered into a 5-year repayment plan at $500 per month. My family lawyer wrote off the $3K balance I owed him since it was the same law firm. My chapter 13 plan was confirmed on 10/30/17.

    ...

    On November 1st, my employer changed my compensation from straight salary to a base-plus-commission structure, where I now make around $56K per year on average. Some months it's about $4400 (gross), other months around $4900. In exchange for my agreeing to this new compensation plan, my employer waived the $6K I owed them in "unpaid compensation" I earned over 2016-17. The median income in AZ for a family of 2 is about $58,400 as of April 1, 2017, but I'm aware that's increased to $60K as of October 1, 2017.

    Several months after having my roof replaced, I discovered mold growing in my drywall, ceilings, and attic. I obtained some estimates for mold remediation and restoration work. That's going to cost me around $4K. I spoke with my BK lawyer on the phone and told him I want a 4-month moratorium on plan payments so that I can afford to get the mold remediation project started.

    After all the work is done, I told my lawyer that I want to sell my house and move because we're enrolling my son in vocational school in Surprise starting in August, and don't want to get stuck commuting over a long distance for the next 2 years.

    ...

    Here are my questions:

    When converting from a chapter 13 to a chapter 7, does the means test apply in Arizona? If so, does the court use the means test in effect on my original filing date or the date of conversion?

    Does the court look at my income over the six months before the conversion date or the 6 months before the original filing date?

    Would I be better off voluntarily dismissing my chapter 13 and then filing a brand new chapter 7 case instead? I've heard of that strategy being taken.

    I'm going to be paying the contractor using cash from my income and savings account and have already stopped paying the Trustee because my attorney is going to be filing the motion for a moratorium. Do I need court permission to get the renovation work done? It's supposed to start next month. I am not using any form of credit, just cash.

    My goal is to convert to chapter 7, get my discharge, and then after the case is closed, put my house up for sale. My equity is less than the homestead exemption, so I can't see the new trustee taking my house. My lawyer told me that if I sell my house during the bankruptcy case, I would have to reinvest the proceeds in a new homestead within 18 months. I don't want to buy another house, which is why I want to sell it after my case is over.

    Thanks for your time.


  • #2
    If your goal is to get a Chap 7 discharge, why bother requesting a payment moratorium? It sounds like you need to sit down with your attorney and go over all of your options. It may be best to just let your Chap 13 be dismissed and file a new Chap 7. Your attorney is the best person to advise you on what is your best course of action.

    Based on my quick research, the only cases on whether the means test is required for conversion in the 9th circuit are district court decisions in Washington and Oregon, both ruling a means test is required. But, other courts do not have to follow those rulings. despritfreya might be able to give some insight on practices in AZ.
    LadyInTheRed is in the black!
    Filed Chap 13 April 2010. Discharged May 2015.
    $143,000 in debt discharged for $36,500, including attorneys fees. Money well spent!

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    • #3
      I take the position with my clients that if they did not "qualify" when the case was filed conversion is not the way to go. I am sure it can be done but I have never tried it as litigating the issue will be too costly. Typically, I suggest dismissing, waiting to make sure one "qualifies" and then file a new case. You then have to get the Automatic Stay extended beyond 30 days (if the new case is filed within one year of the dismissal). I have never had a problem with getting the Stay extended and have always told the Court exactly why the first case was dismissed and the new 7 was filed.

      Please note that there are issues with dismissing the 13. For example, if the 13 was paying a vehicle lender, upon dismissal that lender is going to repo the vehicle. Jay, you need to make sure you understand ALL of the ramifications of dismissing the 13. Sit down with the attorney and go over your options.

      Des.

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