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Chapter 7 help

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  • Chapter 7 help

    hi guys!! My wife and I have recently suffered a hard ship with having 3 kids within 4 years and her losing her job. She talked about going back to work but with us paying for child care for 3 children it didn't make any sense so she stayed home to take care of them. We accumulated around $80000 in credit card debt over the last few years. We were trying our best to make payments but they just stated catching up to us each month. We talked to an attorney and she told us we didn't qualify for a chapter 7 due to the fact that I had a few loans previously taken out of my 401k and that after I got one or two paid off to come back and file a chapter 13. We talked to a different attorney who originally told us that wouldn't matter since we were roughly 12,000 per year under the PA income median for my size family ( median is roughly 98,000 I made the last 2 years and on pace this year for roughly 85,000). We filled out our means test. We had our meeting with our trustee and our attorney contacted us and said that they recommended a chapter 13 due to myself having the 401k loans and that was contributing to my own 401k ( which he originally said wouldn't matter). He said that he would reccoemnd us paying back $200-300 a month for 3 years. My question is we have lost some faith in our attorney since he was very confident even after our meeting with the trustee saying if it was anything other than a chApter 7 he would have heard from it by now, but anyways does this seem right and would my 401k loan really affect this? And if so will it affect the chapter 13? And would my payments really be $200-300 more. We were also going to keep our car and house in our chapter 7 and they both came back with little equity in each. He also said he could go to court for a chapter 7 and fight but doesn't recommend it because if we file for a 13 after that might become a higher payment. Please any help would be great. I'm just confused why we are so far under the median test why it would need to be a 13 anyway. Sorry for the lengthy post also

  • #2
    Yes, 401(k) loans affect this. A 401(k) loan does not count as an expense in a Chapter 7. In some cases, the Trustee does not care because you otherwise qualify (the net result of the 401(k) loan(s) does not bring you to the point where you have over $200 in disposable monthly income - DMI). You had one attorney that was confident that the 401(k) loan(s) would be a problem and you had another that was confident that it should not be a problem. It happens.

    The formula in this case is simple. You take your DMI that you calculated (which included the 401(k) loans as an expense), and add the monthly 401(k) payment back. If that new number is greater than about $208/month... that's what the Trustee is seeing. While 401(k) payments are not deductible as an expense in a Chapter 7, they are in a Chapter 13. There are some arguments that you could take this to the judge and argue that they would be allowed in the Chapter 13 and you'd still have the same DMI -- but this argument seldom works.

    As many have posted here, being under-the-median, while allowing one to pass and avoid much of the means test, does not mean you qualify for a Chapter 7. When you're close to or over the median, you need to have corresponding allowable expenses that would reduce your DMI so that your case is not found to be an abuse of the Chapter 7 requirements.

    I can't tell you about the equity in your property because I don't know how much a "little" equity equates to and the exemptions available in your State. if it truly is "little" you will need to determine that issue. It would be an issue in a Chapter 7 anyhow. In a Chapter 13, equity is more manageable as it only determines the minimal you may have to pay back to unsecured creditors.
    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
      Ok thank you!! Would they include this 401k loan as an expense in a chapter 13? I'm just worried that we file a chapter 13 and they come back with a really high payment because we don't have an extra money right now.

      Comment


      • #4
        Originally posted by Shoe0402 View Post
        Ok thank you!! Would they include this 401k loan as an expense in a chapter 13? I'm just worried that we file a chapter 13 and they come back with a really high payment because we don't have an extra money right now.
        It can be included as an expense in a Chapter 13, but you would not be allowed (usually) to have any contributions at the same time. Additionally, if a loan was going to be paid off before the end of the Chapter 13 commitment period, you would typically be required to contribute that amount until the end of the plan (known as a step plan).

        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
          Ok I kinda figured that but wanted to make sure. Like i said we are just worried that the Judge will come back with a very high payment and we will be struggling to just keep food on the table. Our lawyer said we would pay $200-300 a month for 3 years but we just lost a lot of faith in him since he was so confident about it originally being a chapter 7.

          Comment


          • #6
            It's usually not the judge that comes back with a higher payment. It is the Trustee that petitions the court to confirm or not confirm a Chapter 13 Plan. The Trustee would be the person that fights with you over the payment. The Court typically leans in favor of the Trustee but people can and have had Chapter 13 plan (payments) approved over the objection of the Trustee (and creditors).
            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
              Ok thanks again I actually meant trustee I'm sorry just was thiking slower than I was typing I guess. We would be able to handle a $200-300 a payment for 3 years like i said we r just worried that our attorney is trying to feed us what we want to hear at this point.

              Comment


              • #8
                A Chapter 13 is entirely voluntary. If you don't like the payment, then you can let the case be dismissed. My judge liked to call this the "pay to play" benefit of Chapter 13. The amount you pay is calculated based on allowable expenses combined with, in some cases, the minimum that you "must" pay because of non-exempt equity based on the "best interest of creditors" or "chapter 7 liquidation" test(s). In some cases, people try to hang on to things that they simply can't afford. They learn, the hard way, during their Chapter 13 that the struggle is too much.

                If you have reasonable expenses for your level of income and you fit within the UST's allowable expense guidelines, have no "unprotected" equity and can budget, a Chapter 13 will always work. That is if you can't, won't or refuse to budget.
                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

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