Just Signed Up For This Forum - Need Quick Advice

[DJC]

I am in desperate need of some quick advice, or at least some links to the advice already existing in the forum. We filed for chapter 7 in September of 2014 and had it rejected. We now have permission to convert over to a chapter 13, but we are starting from scratch with our attorney on structuring a budget. We have a meeting tomorrow to talk about this. I don't understand how to maximize our budget so that we have money for unexpected costs. We have close to $200,000 in unsecured debt and an income that would put us around $1,000 dollars a month in repayment. That would be after a third mortgage on the house is payed in about a year. Until then, our first 10 months, payment would be around $500 per month. We have an option that would allow us to refinance the house without changing equity, about $40,000. That would put our budget into shape, but it looks like we would be directing this money towards our trustee. So how do we structure a budget that allows us to put a roof on the house next fall, rent a cap and gown for our senior next year.....

The other option we have, is to negotiate the debt with the creditors. I am 60 years old and still working, I could tap my retirement and hopefully pay anywhere from 50 cents to 20 cents on the dollar. Pay off one car payment and refinance the house. This would save us from going the bankruptcy route. I just don't know what to do. I understand that debt settlement will equal additional income for tax purposes, but I think we can handle that come April 2016. Any help would be appreciated. Thank you.

[LadyInTheRed]

Based on what you post, you could pay $60,000 over 5 years in a Chap 13 and discharge $200,000 in debt (actually in MI, the 60 months starts from confirmation, so you will pay a little more than that). I highly doubt you will do better than that trying to settle outside of BK. Using your retirement funds, which are exempt assets in BK, to pay off unsecured debt is a terrible idea for anybody, but especially for somebody so close to retirement age.

Your attorney will help you come up with an acceptable budget. That is a big part of what you pay your attorney for in a Chap 13. Your job is pretty simple. Make a list of all of your expenses over the last year and divide each expense by 12. Also make a list of expenses not included in the last year that you expect to have in the next 5 years. If you need a new roof, it may be helpful to get a couple of estimates. Take that list of expenses as well as your last 6 month's in pay stubs to your meeting with your attorney. The easier you make the information to review, the better. You could add up all the income and deductions on those pay stubs and divide them by six, so the six month average is easy for your attorney to see. I created a spreadsheet with my average monthly income from the last 5 months at the top, then subtracted each averaged withholding item to show my net wages. I then subtracted each average monthly expense from the last 12 months and my current monthly secured debt payments to come up with my disposable income. This made consultations with attorneys very productive.

Keep in mind that things like a new roof are not "unexpected costs". Home repair and maintenance are normal expenses that should be budgeted and put away every month. A Chap 13 budget doesn't allow for an emergency fund. The key is to maximize your monthly expenses to something the trustee will accept and then cut back wherever you can and spend as little as you can every month to build that emergency fund. Your attorney should know what your local trustees will see as reasonable.

You very well have to cut some of your spending. You may have to cut other expenses in months where you have expenses like cap and gown rental. A BK trustee is very unlikely to see that as a necessary expense, but perhaps it could be included in educational expenses. Or, your senior could get a job to pay for such things. A Chapter 13 isn't supposed to be easy. But, it should be liveable.

[DJC]

Thank you. Our attorney seems to continually state, "there are no acceptable budget guidelines". In other words, the budget is whatever we come up with as our expenses over the last year. The attorney has also stated, we may have to have documentation to back these budget dollars. We did not plan to file for BR until last summer, additionally, we were not great at keeping any of this possible documentation. We were in financial crisis doing what many probably do, borrowing from Peter to pay Paul. According to our attorney, the trustee will have some subjective decision making and that is what makes a hard fast allowable budget. This is what strikes fear in us. Any thoughts?

[LadyInTheRed]

There is nothing to be afraid of. You, with the help of your attorney, will present a budget that you believe is reasonable. If your trustee does not believe an expense is reasonable, he will say so. Yes, it's subjective. But the trustee has seen a lot of budgets and knows what things cost in your area. If a trustee objects to an expense, you can show whatever documentation you can to show the expenses is reasonable. This may be evidence of what you have paid in the past or something else that shows what is normal in your circumstance. If you don't have documentation and you and the trustee do not agree on what is reasonable, then the trustee will object to your plan, your attorney and the trustee will argue at the confirmation hearing and the judge will make the decision. Think of your budget as an opening bid. It may be approved as is, or your payment may end up higher than you originally propose.

The budget you show your attorney should be what you believe you can live off of. If you have been cutting your expenses to pay your credit cards, then a reasonable budget may be more than you have actually been spending. Don't be shy about what you present to your attorney. This is no time to be conservative. If you include any expenses that are higher than you can document, let your attorney know. He should make whatever adjustments he thinks are necessary. Your budget may be high in one area and low in another, in which case your attorney may suggest making adjustments between the two areas to make the budget acceptable to the trustee. It's hard for attorney to give you specific advice until you put a budget in front of him.

When my attorney showed me the first draft of my plan, I told him that the medical expenses were too low based on what they had been in the past few years. He increased them, but told me I should be ready to document them. My plan was accepted as filed without any need for documentation or negotiation.

Is there something in particular you are worried about documenting?

[LadyInTheRed]

I just moved the thread to the Chap 13 forum.

If you want, you can post your monthly budget and family size and get input from other forum members on what seems high or low in our subjective opinions.

[DJC]

Thank you, I read your response to my wife as she diligently writes out our budget.

[frogger]

Lady gave you some excellent advice. One point that needs to be emphasized:

DO NOT TOUCH YOUR RETIREMENT FOR ANY REASON

[sleepless2]

(We filed for chapter 7 in September of 2014 and had it rejected.) If you dont mind why was it rejected?

[DJC]

It was a long shot that my attorney thought was worth a try. All it did was flag attention. We had 3 mortgages, donations, medical expenses.... The attorney managed to get it so the means test was only about $100 below the accepted dollar amount. After the meeting of the creditors, it was not long before we started getting letters that were using the terminology "abuse". It was abuse this and abuse that. We probably should not have even tried a chapter 7, it only gave us false hope, plus the attorney never really had to put a lot of work into the final numbers, namely an accurate budget. Now we are working 10 hours a day getting our budget correct and making sure the numbers are correct. Additionally, I had two DC loans agains my 401K, the trustee was quick to point out we were willing to borrow money to pay ourselves but not our consumer debt. Being new to this, we were quite upset about the accusations. It probably was just standard legal speak. My wife also has a Mercedes 350CK that is quite old, but the name Mercedes was clearly pointed out at our hearing. I really thought the meeting of the creditors was quite cruel.

[sleepless2]

Thank you for taking the time to reply back. Just remember, in time this to shall pass. I am worried about ending up in a similar situation. My attorney said something very similar to me. Best wishes, amd good luck!