Need Advice; Disposable Income, Means Test, and Second Mortage Removal

[john_smith]

My question is: Do you include your second mortgage payment in the means test calculation, and on the disposable income calculation (Schedule J), if you are trying to remove it?
I have my first for 192K, my second for 47K, and 25K credit cards. My income is slightly above the average. I am trying to file chapter 13 and remove my second, since the value of my house is around 180K. I pay $515/month for my second mortgage, and around $500/month for credit cards. But all at the expense of feeding 5 people with $600/month.
According to the guidelines I am allowed $1632/month for food, clothes, etc. I would like to file chapter 13 only if my disposable income is no more than $300/month.
I am not sure that I understand completely the the means test, and the disposable income calculation and process.
Which one must use the last 6 months, and which one must use current numbers.
What should I do?

Please advice me.

[rrockinggramma]

I believe that many are trying to strip their second, not sure of anyone actually having done it. The rules are pretty rigid about what can be allowed and what can't. And the district you are filing in makes a difference as well. In my district, lein stripping just isn't done.

[TooMuchCredit]

Anyone have their 2nd stripped in Georgia without too much grief?

[justbroke]

Check my BLOG.

I have successfully stripped my 2nd as a pro se filer. It's pretty easy if it is accepted practice within your District.

This should work perfectly in Georgia because my sample document and lien stripping in Florida is based on an 11th Circuit Court of Appeals decision, of which GEORGIA is a part of!!!

The case is In Re. TannerHERE.
My Blog is HERE.

For the brave... some interesting excerpts from the decision in Tanner...

See also Supreme Court decision... Nobelman v. American Savings Bank, 508 U.S. 324, 113 S. Ct. 2106, 124 L. Ed. 2d 228 (1993).

[justbroke]

Do you include your second mortgage payment in the means test calculation, and on the disposable income calculation (Schedule J), if you are trying to remove it?

On Schedule J, yes, you still include it.

I am not sure that I understand completely the the means test, and the disposable income calculation and process. Which one must use the last 6 months, and which one must use current numbers.

What should I do?

The means test (Form B22C) uses an average of your last 6 months of income (from all income sources). Forms I and J use your "current" income.

Don't know what you're asking about what you should do.

[john_smith]

If I include my second mortgage on schedule J, then my disposable income will become negative, and I will not qualify for chapter 13. I am trying to come with disposable income that is less than my second mortgage payment, that I am trying to remove. If I do not include it then I may have about $300/month DI, but if I do then my DI from schedule J will be -$200/month, which mean that I am not able to pay my second mortgage.
In reality, I am paying it at the expense of spending only $600/month for food, clothes, etc. for 5 people, while the allowance is $1630/month. And since I am not able to live like that any longer, I am trying to live for the next 6 months somehow with $1630/month for food, etc., and have about $300/month DI on schedule J if I do not include my second mortgage. But if I include it my DI will be negative and this will disqualify me for chapter 13.
Also, since I do not have to put any of the unsecured debts on schedule J, why do I have to put my second mortgage on the schedule J, if I am trying to remove (strip) it, since it will become unsecured debt?

And with the question what should I do, I meant, the whole situation with me trying to make the ends meet barely, by living only with $600/month for food, which leaves me just enough to pay for my second and cred cards, but also means that I have enough disposable income to pay my second ($515/month), and cred cards ($500/month). I do not want to file bankruptcy if I have to live like tat for the next 5 years. I would like to file a bankruptcy, only if I can remove my second, and have a disposable income no more than $300/month. But for now it seems to me that if I remove my second, and it becomes an unsecured debt, then it appears that I have $1000/month DI, but all for the expense of living only with $600/month.
That's why i am trying to add at least $700 more to my food money, and leave only about $300/month for DI, which may mean that I have to live like that for 6 months?
But as I said then if I add my second to schedule J it will become negative, which may disqualify me for cg 13. But negative DI on schedule J if I include my second on it will mean that I am not able with my income and expenses to afford to pay my second in full, but only $300/month for it and all cred cards.
Please advice.

[justbroke]

I don't really know what you're trying to do.

First, let's assume that you're trying to do a Chapter 13. Let's just say that Schedules I and J should be whatever they are (your current income and expenses) (period).

Second, the means test is on Form 22C (aka Form B22C). If you are below median income then you use what's on Schedule I/J as your income and expenses. if you are above median income, then you use the calculation on Form B22C. Understand that part?

So, you would recalculate your Disposable Monthly Income on Form B22C if you are above median income anyhow. Form J, while telling, isn't what you really have for disposable income, if you're subject to the calculations on Form B22C. Understand that part?

Third, a negative Disposable Monthly Income (DMI0 does not exclude you from a Chapter 13. It just indicates that you may not be able to afford a Chapter 13. There are many other variables which dictate how much of your income you need to commit to a Chapter 13 (including but not limited to what the equity in your non-exempt assets are). Understand that part?

As for putting your second mortgage on Schedule J... you don't know that you can Strip it. That is decided by a hearing, so it's really contingent debt. Right now... you owe it. You will determine the extent of the lien and the value later. So adding it to Schedule J is no problem. Understand that?

I understand now, exactly what you want. You want all your allowances! What I really need to know is if you're above or below median income for your State. That would go a long way to determining some things for you.

Are you trying to file pro se? If you are... I suggest you see a lawyer. Lien stripping is possible, but you have some serious budget issues with your Chapter 13. You need someone skilled to give you the right budget for a family your size.

There are so many more questions I would have too... like what are your non-exempt assets? Do you have equity in anything? How many cars? Is that the only property you own? Etc.

In general, however, I wouldn't worry about a negative amount on Schedule J. You can always describe that you intend to attempt to lien strip the 2nd. I did the same thing, and couldn't afford a Chatper 13 IF I had the second mortgage still attached as secured debt!

[floridian]

please splain something to me... i keep hearing that a person might be forced into a 13... then i hear they may not be able to fund a 13...

im confused, that sounds like "catch 22"".. you make too much for a 7, but cant afford a 13... so what are their options??

[justbroke]

please splain something to me... i keep hearing that a person might be forced into a 13... then i hear they may not be able to fund a 13...

im confused, that sounds like "catch 22"".. you make too much for a 7, but cant afford a 13... so what are their options??

Yes, there is a purgatory, sort of, where you are in the middle.

Remember, a Chapter 13 Plan is all about it being confirmable. To be confirmed, it must also be practical and manageable.

However, not being able to fund a Chapter 13, is usually because the person is refusing to give up real property (like a home).

For example: say you have a $500K home that has $200K in equity. Say your State only allows a $100K homestead exemption. Say you're above median income and median income is $65K in your State. Say that you're a family of 4. Say that you make $80K a year. Say that you're paying on the $300K on your home still at $2,500/month. Say that your calculated disposable monthly income on Form B22C is $187/month. Say you have $120K in unsecured creditors.

That means that you are only paying secured creditors some $11,220 over the 5 year plan. However, you would have to pay them $100K because of the equity. With that equity, you'd have to pay $1,667.00/month to your unsecured creditors (which is $100K total over 60 months).

If you can't commit $1,667+ a month to your unsecured creditors, you'd be unable to fund a Chapter 13. That is, unless you get rid of the house.

Based on my scenario, you'd only have $168 DMI (see below) based on a $100K/year salary ($8,333/month). That means you'd have to find at least $1,000/month from somewhere else. Even if you gave up vehicles, this wouldn't cover it. It would eat into your Chapter 13 budget, and it will be very readily discernible that you can't AFFORD the Chapter 13 plan.

Values I used in this scenario:

$2,000.00 Payroll Taxes
  $232.00 Medical Allowance
$2,500.00 Mortgage
$1,370.00 Food Living
  $289.00 Car Allowance 1
  $289.00 Car Allowance 2
  $500.00 Medical
  $402.00 Transportation Expense
  $583.33 Property Taxes ($7K annual)

$8,165.33 Total Allowable Expenses

[floridian]

thanks, that sheds a little light on it, as its very complicated...

i think ill just surrender at the debtors prison, maybe i can credit for time served..

[john_smith]

Wow. Thank you. I was really mixed up. Now it is little bit more clear. But I still have some questions.

Here is my situation:
I owe 192K on my first, 47K on my second, and 25K on credit cards. My house is worth about 180K. I make about $78,300/yr, and my wife makes $3,600/yr, and we have 3 children - 5, 11, and 14. I live in Missouri, and the median income for 5 member family is $74,661. So we are above the median. We have 2 paid off cars with the value of about 3,000, and 5,000. No money in the bank, or any other assets. But I am expecting some bonus coming at the end of January (about 4,500, already included in the numbers above), and big tax return (last year was about $6,500).

Here is what I would like to do:
I would like to keep my house, if I can strip the second mortgage. That's why I am aiming at chapter 13. But I would like to have just a rough idea of how much my repayment plan will be. If it is too much, then maybe keeping the house is not good idea.

Here is what I did:
After I've read your reply, I filled in the B22C form, and I have -$20 MDI. My schedule J MNI is negative -$417, if I include my second mortgage. If I exclude it is $98.
It is negative now, because my employer cut the bonuses in half, and froze the salaries for the next year. Also I am trying to put some more money in the food section, since feeding 5 people with $600/month is becoming impossible.

So, here are some of my questions:
In my case what form shows how much I can afford to pay in my plan, and what is the number?
In my case what expense numbers must be last 6 months average?
And since now I am living with only about $600/month for food expenses, do I have to wait and try to live for 6 months with different budget in order to be able to use the expense numbers in Form J, or any other form?
What about bonuses? My bonus is not guarantee in the future. Should I include it in Form J?
My oldest son is in christian academy, and my other kids are home schooled. Can I use the expenses in Forms B22C, and Schedule J?
What if the Judge decide not to strip the second mortgage? Can I go back? Can I decide to surrender the house then? Wouldn't I be sued for the deficiency?

Thanks.

[john_smith]

Nobody answers.... Nobody likes me....

[rrockinggramma]

well probably because nobody really knows the answer.

Do you have an attorney or are you trying to do this pro se? I don't recommend this in your situation as you have way to many questions. I think you need to see an attorney and hand him all your "stuff" and let him know what you would like to do etc and then work with him to get you into an affordable plan.

In addition, your attorney would know if lien stripping is happening in your district and exactly the procedures.

In addition, it sounds like you have 2 older vehicles. Could they survive a 5 year plan of repairs and breakdowns?

To me, with your family, I would want my house and my cars. And then the unsecured would get the peanuts left. If you walk away from your house, then the deficiency balance would be tossed into your unsecured creditor pot. But can you rent something for your family for less in your area?

It doesn't sound like you are "behind" in your payments to your house, just underwater like so many now.

I would try the lien strip but let a good attorney do the work for you.

Many attorney's put their fee into your plan so you have low up front cost.

[justbroke]

Nobody answers.... Nobody likes me....

It's not that... it's that I answer so many questions in one day, and I tend to be verbose. That prevents me from answering many questions. Besides, we just all volunteer our time here.

In my case what form shows how much I can afford to pay in my plan, and what is the number?

It's not that "magic" where you just look at form B22C and say take the number from line 59 and that's what you pay. It's a little more complex.

The reason is, that you must pay your projected disposable income over 60 months... not just 60 times your disposable monthly income (DMI). This can take a litttle finesse.

In my case what expense numbers must be last 6 months average?

Only your income is required to be averaged, not your expenses. However, I'd be careful with utility expenses as they due tend to fluctuate. You don't want to mess up your plan and not have enough to pay, electricity, for example, during the months that you expend the most. I'd probably average utilities over 12 months!!!

And since now I am living with only about $600/month for food expenses, do I have to wait and try to live for 6 months with different budget in order to be able to use the expense numbers in Form J, or any other form?

Don't know what you're trying to do. You don't have to live like that. You use the IRS numbers.

What about bonuses? My bonus is not guarantee in the future. Should I include it in Form J?

Right, that's why the average over six months it utilized... to try to even it out. The more distance you have (6 months) from a bonus the better. However, it may get factored in. And this is where I say you need finesse. What you pay in plan -- to unsecured creditors -- isn't always what's on line 59 (form B22C).

My oldest son is in christian academy, and my other kids are home schooled. Can I use the expenses in Forms B22C, and Schedule J?

You can use reasonable education costs for private school. This differs by District and I can't tell you what your Trustee will balk at. You can pretty much be sure that anything approaching $1K a month is going to be scrutinized.

What if the Judge decide not to strip the second mortgage? Can I go back? Can I decide to surrender the house then? Wouldn't I be sued for the deficiency?

If you can't strip it, you pay it as a secured creditor. I don't know what you mean "can I go back", but you can surrender the house, at that time.

You can't be sued for any deficiency because you are in bankruptcy. What they will be allowed, whether you have a successful lien strip or not, is file an unsecured claim for the difference (the entire lien if it's a lien strip, or the deficiency if you surrender it).

[john_smith]

Guys, you are great!
Thank you so much!

In the last month I talked to two lawyers. The first one didn't charge me, and talked to me for almost two hours, but he was very generic, and half of the time he spend talking about his life. But overall I got the impression that he cares about me and that he is knowledgeable in his area. I didn't get if he had enough experience with lien stripping, because at that time I wasn't interested in that. The second lawyer wasn't very talkative. He charged me $160 for the 45 minutes. He was little rude and I got the impression that he doesn't care about the client, but only about his time and money. I didn't get any details from him. I gave him my budget and numbers, and after 10 day I received a letter that I qualify for chapter 7 and chapter 13.

But now I think I understand a little bit more about the process.
I would like to keep the house only if I can do a lien strip, and if my chapter 13 payment plan would be less than what I pay now for my second.
I was confused, because the second lawyer asked me for my expenses in the last 6 months. And since my budget now is very unbalanced (in order to be able to pay all my bills), I was afraid that I have to wait 6 more months and try to live with different expense numbers to be able to use them on my schedule J. My concern was that the trustee will say that since I was able to pay my second and cred cards (both total at $1000/month), then I technically have $1000/month MDI, that I have to put in the repayment plan.
But I would like get all of my allowances/deductions.
Yous said to use the IRS numbers in schedule J. I thought that you have to use the IRS numbers only on the 22C, but for schedule J you have to use the actual numbers. Do you have to be able show receipts for all the expenses listed on the schedule J? Because I intend to list $1630/month (IRS allowance) on my schedule J for food, clothes, etc., while I am actually using only half of it now. But if I do that then they will ask me how am I still current on all my bills, since my schedule J will be very negative; and would I still qualify for chapter 13? My schedule J is slightly positive only if I exclude my second.

You can't be sued for any deficiency because you are in bankruptcy. What they will be allowed, whether you have a successful lien strip or not, is file an unsecured claim for the difference (the entire lien if it's a lien strip, or the deficiency if you surrender it).

OK. I am trying to understand the above. If the lien strip doesn't work, then I really don't want to go in chapter 13. I would like to go in chapter 7. How do I do that?
And what happens if my second mortgage file an unsecured claim for the difference? Is this mean that they can still legally come after me, get a judgment, and start garnishing my wages, etc? I thought that if the judge allow lien strip, then the second mortgage becomes unsecured debt, and then is repayed (only small part of it) in chapter 13. And then nobody can come later and come after you for the difference? But can they come later and sue you on the note? Then what are the benefits at all of doing chapter 13 lien strip?
I am still confused. All I want is to make sure that nobody can come later after me for the difference.