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Lost a high paying job due to illness... now confused big time

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  • Lost a high paying job due to illness... now confused big time

    I was fired from work due to substance abuse, and had to go get inpatient treatment for 2 months. Prior, I had made 22 years of payments on time , but have missed a month of payments on a mountain of debt at this time. My debt includes a large secured commercial loan which should default to legal action pretty quickly by the wording of the contract... so I need bankruptcy protection. I might be cleared to go back to work soon, but my future in my prior line of work is not clear today.

    At at the end of this month, with three months of no pay, I will be near but not under the median income for my state. With back taxes due, ongoing medical costs, and a high mortgage payment, I should pass the means test.

    I have significant equity in my home here in TX, and due to state exemptions, it is all protected in bankruptcy. There are no other assets that are non-exempt.

    My lawyer however, is very concerned about trustees recently going after debtors with high mortgage payments for dismissal of their chapter 7 under the subjective "totality of circumstances" provision in the law.

    So at this point, with no job and poor credit, it is impossible to get a second mortgage, or to even secure a new mortgage on a new home if I were to sell the current home and put the equity down towards a smaller home. If I just sold the home prior to filing, the equity would not be protected and would become the trustee's estate. So selling my home prior to filing is out. So what to do about the mortgage payment and the court's possible opinion of abuse?

    I could put the home on the market, and leave it there after filing, however if it sells I would have 6 months to reinvest the equity or lose it, and would therefore face a similar problem as I could not get a mortgage. The trustee would of course keep my case open, and a long protracted 7 is not good for me due to a potential return to work. The best option seems to be to file, and not make payments on the home while my case is open. The chapter 7 filing will grant a foreclosure stay, and my attorney thinks with equity in the home the court won't allow a lift of the stay while the case is open. A final decision on the home could take place after the case is closed.

    Anyone here have have experience with a similar problem with high mortgage and car payments regarding abuse and movement for dismissal?

    Thanks in advance!

  • #2
    I would not worry about a Trustee going after the payment. You have equity so it's not as though you're throwing money away. My PITI payment (and arrears) was over $5,000/month and no questions (in Florida). I think it becomes a question when you have no equity and are underwater where it becomes a question of a bad decision.

    This would be the United States Trustee (UST) making such a complaint. If the UST tried that with me, I would have fought it. (Yes, I was in a Chapter 13 but did convert to Chapter 7.)

    Your attorney's strategy seems reasonable. Since this type of case is so debtor and fact-specific there is absolutely no way to tell how it will go, if the UST will even bat an eye at this, or that any specific strategy works over another. I always believed that so long as your income level supports your home and it's not more than 33% (approximately) of your income (and you have a family or need for that 6-bedroom, 4,000 square foot home) then it should not be questioned.
    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 JustBroke. I really appreciate you taking time to answer.
      I think you nailed it with your assessment. I have 3 children and a wife. My home is excessively large. In my county in Texas the IRS allows a large 2555/ month for total housing, and I'm at 235% of that. However, it was a historically reasonable purchase given what has been a high salaried position. I have 44 months in the home.

      The possible return turn to a high salary is another factor in this case, although as of now, my return to work must be approved by a beauracracy of the state of Texas. I am able to work however... physically as an otherwise healthy male. The discharge possibly achieved with a chapter 7 at this point would be very valuable, as my unsecured debt as well as secured commercial loan total hundreds of thousands.

      In order to squash any potential UST totality of circumstances argument, I was thinking of getting a full time contracted job at Starbucks or the like. When the state clears me for my old line of work, great. But a contracted position would remove the obscurity perhaps of how much the UST/ court might project me to make in the next 5 years, right? A contracted job is a contracted job. I haven't run this past my attorney yet. This case has me on my third attorney, as none of them are seeing a clear path forward. I am resigned to simply moving forward however, and taking what comes. I need an attorney willing to fight due to the high $$$ amounts.

      Things I see in my favor:
      -22 years never missed a payment, until 2 months after job loss. This included 35k in payments to creditors those 2 months that I was in treatment. It became clear only then that my return to work would be further delayed, and bankruptcy was decided.
      - Was fired from job and removed from profession due to (mental health) illness. Concrete diagnoses
      - Received 60 days inpatient treatment and have ongoing treatment requirements that are imposing
      - Remain unemployed pending clearance to return to profession from the State
      - Future ability to work in this profession is probable but not guaranteed
      - No bad faith or fraud. Have had maxed cards for decade.

      Challenges:
      - High income for years; UST will watch my post-filing income very closely. Makes a return to my profession logistically undesirable until my case closes. The value of my discharge in a 7 would far exceed the amount of salary earned by a prompt return to old profession. That feels slimy... Nobody is going to give me advice on how to proceed here, other than of course "find the best job you can". But I also heard, "if the UST sees a contract for work, he won't be able to argue with that"
      - 6 month old large commercial loan, secured by blanket UCC-1 filing covering all assets (but no non exempt property concerns). Only 4 payments were made on this 8 year loan. The loan was for business purposes, but not for any specific business purchases. No fraud on the application however. I stated I do not own and have no interest in a business. It was marketed as a personal loan, but the contract was for a secured business loan. This loan will quickly move to a lawsuit, its in the contract for 1st missed paymt.
      - Home has equity for 2 years+ of mortgage payments. Need to file to protect this equity. Filing will show excessive mortgage costs. Will not be able to return to a job while my case is open which can justify this mortgage, therefore will not reaffirm.

      How to proceed with the home, how the court will view it, how much money to make upon return to work after clearance. All questions I can't find answers for. Im belt tightening where I can and all credit purchases have obviously stopped. Will be illiquid in 30-60 days depending on whether I let the mortgage payments go.

      Oh the madness. I am glad to be well however; in the grand scope of things, that's really all that matters.

      Comment


      • #4
        Ok, I've used the search engine here and Google, and have three lingering means test questions;

        1. I was always paid the month following. For instance Jan work was paid entirely in February in one sum. No bonuses, no exceptions to this. For 6 years. So I stopped working in March, and will remain unemployed. When I calculate my CMI for the means test, the word DERIVED is confusing. If I file July 1st, my look back period is Jan-June. But in January I received pay for December's work, so it's essentially a 7-month look back on income earned from work, but a 6 month look back on income received. Is the CMI addressing what you received for work in the trailing 6 months, or what you received regardless of when the work was performed? Again, no bonuses or tax refunds or anything one-time.

        2. I have a high mortgage and 2 high car payments. I want to minimize the risk for a means test result challenge or a totality of circumstances dismissal to as low as possible (duh, I know). I appreciate JB's answer about dealing with the home post-filing, but for means test purposes: Should I use the IRS allowed amounts for housing and cars for my family size and wait for my CMI to fall below this threshold just to "be safe" from any UST scrutiny? I have other significant means test expenses to include (back taxes and medical expenses (not bills, but ongoing expenses) so using these allowable amounts wouldn't simply default me back to a median income cutoff...

        3. I have a commercial loan for 165k that is secured by a "blanket" UCC-1. It does NOT cover any non-exempt property, just personal property. My home has no lien on it from this (yet, but a judgement may come pre-filing- if it does, in Texas such a judgement/ lien would impair my homestead exemption and be cancelled entirely in a Ch 7). Therefore, should the monthly payment for this be included on the means test, since it is secured? I am expecting it to be discharged however, so is it treated like unsecured debt since the lien covers no real property post BK?

        Thanks you guys are awesome!
        Last edited by ChaptainHook; 06-11-2017, 08:53 PM.

        Comment


        • #5
          Originally posted by ChaptainHook View Post
          1. I was always paid the month following. For instance Jan work was paid entirely in February in one sum. No bonuses, no exceptions to this. For 6 years. So I stopped working in March, and will remain unemployed. When I calculate my CMI for the means test, the word DERIVED is confusing. If I file July 1st, my look back period is Jan-June. But in January I received pay for December's work, so it's essentially a 7-month look back on income earned from work, but a 6 month look back on income received. Is the CMI addressing what you received for work in the trailing 6 months, or what you received regardless of when the work was performed? Again, no bonuses or tax refunds or anything one-time.
          It's whatever income that you have looking back the 6 months prior to the month in which you file. Most individuals actually use do things based on cash accrual. You have to be careful because some pesky Chapter 7 trustees -- or should I say crafty -- consider accrual of things like vacation as an asset.

          Originally posted by ChaptainHook View Post
          2. I have a high mortgage and 2 high car payments. I want to minimize the risk for a means test result challenge or a totality of circumstances dismissal to as low as possible (duh, I know). I appreciate JB's answer about dealing with the home post-filing, but for means test purposes: Should I use the IRS allowed amounts for housing and cars for my family size and wait for my CMI to fall below this threshold just to "be safe" from any UST scrutiny? I have other significant means test expenses to include (back taxes and medical expenses (not bills, but ongoing expenses) so using these allowable amounts wouldn't simply default me back to a median income cutoff...
          What's a high car payment? Generally, the National ownership allowance is $970 for two cars. If you're paying more than that you may be questioned as it may be considered a "luxury" vehicle. Your CMI does not really gauge whether you'll be challenged. it's a combination of your CMI less expenses. Those expenses are what can be questioned if they are unreasonable (or higher than the allowances).

          Put it this way... if you're over the median then the UST is going to look closely at your numbers.

          Originally posted by ChaptainHook View Post
          3. I have a commercial loan for 165k that is secured by a "blanket" UCC-1. It does NOT cover any non-exempt property, just personal property. My home has no lien on it from this (yet, but a judgement may come pre-filing- if it does, in Texas such a judgement/ lien would impair my homestead exemption and be cancelled entirely in a Ch 7). Therefore, should the monthly payment for this be included on the means test, since it is secured? I am expecting it to be discharged however, so is it treated like unsecured debt since the lien covers no real property post BK?
          This is a perfect reason to have an attorney. Someone will need to determine to which property it attached, which property is exempt (using allowable exemptions), and how to protect any property. I don't know what you mean by the monthly payment? I suppose you would want to discharge the debt and not deal with it post discharge. If you are discharging the debt, you don't include the payment. That doesn't make it unsecured debt. You may need to seek to explicitly have a determination made as to its secured status.
          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


          • #6
            Thank you sir. You are very appreciated!!!

            I have about a 3200/ month contractual repayment currently on the commercial loan. It is a fixed repayment schedule for the term of the contract. I realize the lien secured by the UCC-1 will survive the chapter 7, unless I can avoid the lien . My attorney will no doubt try and have this done since the lien attaches to only exempt assets. Despite being a secured loan currently, since the debt would not be present post-discharge it should not be a monthly expense considered on the means test you're saying. That makes sense.

            I am am going to use IRS allowances then for housing and cars when calculating my means test for projection purposes. My car payments are 1600/ month for two auto payments. Not interested in defending a story to a UST.

            Of course I will get an attorney, but wanted to get some idea of my means test numbers. I have a CMI calculated for the first day of each of the coming months until October 1, when I would be below the median income. I want to see if the means test can qualify me any earlier, and wanted to be as conservative as need be to avoid objections for luxury expenses. Of course my attorney will use my real expenses. I just want to get a sense for how the UST might want my means test to look, with reasonable expenses. And use that as a "when to file" marker.

            Thanks for the answers. I really appreciate it

            Comment


            • #7
              You're welcome. If you're over the median and have high income and high expenses (and a high mortgage), then they are going to go through your numbers. It is a good idea to be prepared.
              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


              • #8
                All right, I'm almost done with my "Means Test: UST friendly" calculations. Again, this is just meant to project my allowable expenses to give me a rough idea of a filing date. Nothing official. Lawyer will do that. A few more questions though, sorry...

                1. So I have 2016 Federal back taxes. I know this gets applied to the means test, but don't see exactly how. It's a lump sum. Don't have a payment plan yet. So to figure the "monthly amount" for the means test, do you just divide the lump sum by 60 for a presumed 5 year repayment? Or do you need a repayment plan with the IRS that assigns a monthly payment? If it's the latter, should I set up a 2 year repayment plan instead of 5 year for a higher monthly payment on the means test? My guess is the 60 month calculation is the answer but can't find a formula from the govt. It may well be the IRS will calculate my repayment plan monthly amount in a manner similar to this whole mess; if so I apologize for my ignorance.

                2. Also, looks like monthly federal and private Student Loan payments are not included on the means test... but there may be state by state exceptions? Is that the forum's experience?

                3. Finally... for my state license and hence a return to my job I will require the following. It will be written in a 5 year termed contract with a Texas beauracracy.

                Weekly therapy (cost $150/ week)
                Psychiatrist visits ($300/ quarter)
                Weekly drug testing (cost $75/ week)

                My health insurance plan does not cover mental health illness. It was grandfathered in pre-Obamacare since I never updated it and got a new plan. So those are not covered expenses. I think pretty clearly it fits on line 31: Other necessary expenses: health care. Not as sure about the drug testing though. By my filing date I will have two months of receipts documenting the costs of each, so these are actual, not projected costs.

                I am am going to turn this thread into my BK journal. JB I can't thank you enough for your help; it's really a phenomenal service you provide with your advice! I want to know my situation as well as I can before turning the keys over to a flat fee lawyer..
                Last edited by ChaptainHook; 06-12-2017, 03:50 PM.

                Comment


                • #9
                  Originally posted by ChaptainHook View Post
                  1. So I have 2016 Federal back taxes. I know this gets applied to the means test, but don't see exactly how. It's a lump sum. Don't have a payment plan yet. So to figure the "monthly amount" for the means test, do you just divide the lump sum by 60 for a presumed 5 year repayment? Or do you need a repayment plan with the IRS that assigns a monthly payment? If it's the latter, should I set up a 2 year repayment plan instead of 5 year for a higher monthly payment on the means test? My guess is the 60 month calculation is the answer but can't find a formula from the govt. It may well be the IRS will calculate my repayment plan monthly amount in a manner similar to this whole mess; if so I apologize for my ignorance.
                  The means test has a spot right on line 36. If you read the instructions, it says to divide the amount owed by 60 (it's 60 regardless of your applicable commitment period). You are not allowed to be in an IRA Repayment Plan (or Payment Agreement) during a Chapter 13. In fact, the IRS will cancel any existing payment agreement because that would be a violation of the automatic stay. The IRS is not allowed to collect interest in a Chapter 13 and certain penalties and interest on penalties could be discharged.

                  Originally posted by ChaptainHook View Post
                  2. Also, looks like monthly federal and private Student Loan payments are not included on the means test... but there may be state by state exceptions? Is that the forum's experience?
                  No, they are not included on the means test. Student loans are unsecured debt.

                  Originally posted by ChaptainHook View Post
                  3. Finally... for my state license and hence a return to my job I will require the following. It will be written in a 5 year termed contract with a Texas beauracracy.
                  You can add those as additional healthcare expenses and you will need to provide documentation when requested (because they won't like to see anything significant on that line 22). So multiply weekly by 52 then divide by 12. Multiply quarterly by 4 and divide by 12.
                  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


                  • #10
                    Thanks JB .

                    I was using this as a reference to the form, rather than looking at the actual form. Much appreciated.

                    https://www.justice.gov/sites/defaul...ne_by_line.pdf

                    Comment


                    • #11
                      That's a great document as a guideline on what the UST likes to dwell on! The form's directions are found at the U.S. Bankruptcy Court's Official Bankruptcy Forms website.

                      http://www.uscourts.gov/forms/bankruptcy-forms
                      http://www.uscourts.gov/file/19457/download -- Form B122C-2
                      http://www.uscourts.gov/file/18169/download -- Form B122C-2 Instructions
                      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


                      • #12
                        Thanks for those links JB, very convenient.

                        I am coming up on a late fee today for a first missed mortgage payment. My payment is a PITI payment. On October 1st I will be below the median income, so that's the latest filing date I am projecting.

                        That gives me June, July, August, September payments for the mortgage. I have the cash for only one payment. I have at least 20 payments worth of equity in the home today.

                        I have a mortgage product with BBVA/Compass. No second mortgages or other liens yet on the home. My 2016 federal taxes due could get an IRS lien by Oct, but I doubt it seriously. I just filed my 2016 taxes after getting an extension, and haven't even received a bill for the tax yet.

                        A few questions:

                        When is the best time to call about a moratorium on the mortgage payment? After you're late a month? I know they are a bit of a shot in the dark, and was hoping for a 6 month moratorium or decreased payment. With a PITI payment I imagine taxes and insurance need to get paid, or at least insurance. My credit score today is 677 but will plummet in the coming days as I'm at 30 days with a couple cards. Is having a better credit score a better time to call, before the crap hits the reports?

                        I should have an ability to pay the mortgage following my 341 meeting or discharge. At that time however, I might be 6 months behind. JB I read in a different thread you negotiated missed payments/ arrears onto the back end of your mortgage. Did you do that after your discharge from 7, or was that negotiated while you were in your brief 13?

                        Also, such a deal would certainly require a reaffirmation if done after filing... right? Therefore, is a prefiling negotiation preferable?

                        Thanks for any advice!
                        Last edited by ChaptainHook; 06-14-2017, 11:22 AM.

                        Comment


                        • #13
                          Originally posted by ChaptainHook View Post
                          When is the best time to call about a moratorium on the mortgage payment? After you're late a month? I know they are a bit of a shot in the dark, and was hoping for a 6 month moratorium or decreased payment. With a PITI payment I imagine taxes and insurance need to get paid, or at least insurance. My credit score today is 677 but will plummet in the coming days as I'm at 30 days with a couple cards. Is having a better credit score a better time to call, before the crap hits the reports?
                          You can ask for a "forbearance" and I may wait until 60 days. These are usually easier to get than a actual modification.

                          Originally posted by ChaptainHook View Post
                          I should have an ability to pay the mortgage following my 341 meeting or discharge. At that time however, I might be 6 months behind. JB I read in a different thread you negotiated missed payments/ arrears onto the back end of your mortgage. Did you do that after your discharge from 7, or was that negotiated while you were in your brief 13?
                          When I entered my Chapter 13 I was behind in payments on my investment properties. I decided to keep one (actually changed my mind on which one) and moved into one of them. I then was in arrears which left arrears in the Chapter 13 (of over $30K). When I converted to Chapter 7 I knew that I didn't want to face a foreclosure right after discharge, so I negotiated an instant modification where they tacked the arrears to the end of the loan. They did not re-ammortize the payments or change the loan term. Maybe I was just lucky but I told them that I needed it done before the discharge and it was all done within 6 weeks of filing!

                          Originally posted by ChaptainHook View Post
                          Also, such a deal would certainly require a reaffirmation if done after filing... right? Therefore, is a prefiling negotiation preferable?
                          Never ever reaffirm a mortgage (and I'm sticking to that). My modification specifically stated that it was not a reaffirmation. The debt was discharged. I'm still in the home!
                          Last edited by justbroke; 06-14-2017, 02:18 PM.
                          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


                          • #14
                            Wow, that's amazing. I had no idea you could negotiate but not reaffirm. What you accomplished would be ideal, so yeah, we will see. Thanks.

                            So here's a summary of my thoughts for planning for this chapter 7.

                            High income to zero income. So I'm a big UST target. Can't work yet, will certainly return, but when and to what degree not predictable due to illness. I realize these are "special circumstances" perhaps, but I refuse to file with that as my hope. Seems fanciful.

                            So to qualify for chapter 7 we can:

                            1. Wait for CMI to go below median for family of 5 in Texas. With our expenses there is no chance for a DMI in this setting.
                            2. Qualify for chapter 7 by using our actual expenses on the means test. File for 7 when our actual expenses exceed our CMI and therefore leave no DMI to consider.
                            3. Qualify for chapter 7 with actual expenses. But calculate a second means test using IRS allowable amounts for every category. Add to these allowable amounts significant federal back taxes and documented actual ongoing medical expenses. Private health care insurance. $50/ kid for educational costs....Nothing a UST could reasonably object to. File when our CMI is less than the total of these allowable expenses.

                            So with 1, and 3 above, I can't see a totality of circumstances b(3) objection. I will have no report at a 341 meeting of a change in my financial condition. I have learned from these boards that that is the last time you're asked typically.

                            I will ill return to work before filing, but it will not be contracted work. I have an opportunity to fill in a few days here and there with kind of a "fill in our holes" agreement with a company. Between now and Oct 1, I can make $19000 and my income will remain below the median for that lookback period. I will not exceed $7100/ month, which is the median income / 12 for a family of five in Texas. Probably around $6333/ month. This will keep essential bills paid until then.

                            Belt tightening in all areas to prepare for post-discharge life.

                            Will continue payments on cars, float mortgage and try and get a forebearance.

                            Return to full-time work will be the challenge, but should take place in November or December.

                            Sound like a reasonable plan?

                            Ive seen student loan hardship cases dismissed for "not using your degree to " maximize your income. Ever seen this objection by a UST in a bankruptcy case? I.e. 707b(3) because : "obviously this guy is qualified to make more"?

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                            • #15
                              Originally posted by ChaptainHook View Post
                              1. Wait for CMI to go below median for family of 5 in Texas. With our expenses there is no chance for a DMI in this setting.
                              2. Qualify for chapter 7 by using our actual expenses on the means test. File for 7 when our actual expenses exceed our CMI and therefore leave no DMI to consider.
                              3. Qualify for chapter 7 with actual expenses. But calculate a second means test using IRS allowable amounts for every category. Add to these allowable amounts significant federal back taxes and documented actual ongoing medical expenses. Private health care insurance. $50/ kid for educational costs....Nothing a UST could reasonably object to. File when our CMI is less than the total of these allowable expenses.
                              The UST doesn't object as often as it may seem. The question is always whether the expenses are reasonable and necessary for the health and welfare of you and your dependents.

                              Originally posted by ChaptainHook View Post
                              Ive seen student loan hardship cases dismissed for "not using your degree to " maximize your income. Ever seen this objection by a UST in a bankruptcy case? I.e. 707b(3) because : "obviously this guy is qualified to make more"?
                              Having a student loan dismissed in a bankruptcy is a very high bar. It is not easy when you are able-bodied and have the earning capacity. At least that's the Brunner test standard.
                              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.

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