Forum Rules (Everyone Must Read!!!) (updated: 04/28/2015)

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Income or Equity to determine Ch13 payments?

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  • Income or Equity to determine Ch13 payments?

    New here and about to file chapter 13. I've spoken with two lawyers over the past couple of weeks and I'm a little confused/worried about what they are telling me. Everything I have read states the last six months worth of income will determine your DMI, and in the last six months, I have done buckets of overtime in a futile attempt to stay afloat. However, I have been told by both lawyers that it is not really my income that is primarily going to determine payments, but rather the equity in my home (which is approximately 60k after the Utah 30,000 homestead exemption). I have roughly $130,000 in debt that will go in to the bankruptcy (keeping house if possible) and I am more than a little worried about what the payments will be.

    The overtime I have been doing for quite some time now is no longer an option--as of November 5, my employer has shifted my work hours from 7pm-7am to 6pm-6am 3 days per week. Not much of a shift, granted, but it greatly affects my ability to find trustworthy babysitters for my 11 year old son (essentially eliminated my sister and my 18 year old son from being able to watch my 11 year old on 4 days per week and I already work the other 3). As a result, I can no longer pick up the overtime and I am deeply concerned that these two lawyers might be incorrect--that the trustee will look at the last 6 months with no regard to the current and apparently permanent situation and demand payments considerably higher than the two different lawyers are estimating, which will unquestionably & very quickly result in an epic chapter 13 failure.

    Has anyone ever heard of trustees accepting a lower future monthly income (based on schedule, of course, as above) rather than just saying, "Tough, we are going with the past 6 months"? I would love to wait six months in order to file after the income has had that time to show the drop, but I have just had a judgment entered against me by one of my creditors, whose lawyer is apparently well known for aggressively forcing sales of houses, nabbing bank accounts, and garnishing wages (this per two other debt defense lawyers I spoke to in an attempt to stop the mess). I feel like I do not have much in the way of choices--either toss over house to the creditors (which will cause major problems for my 3 boys--two of which have already become notably depressed in the past 6 months due to the financial stress and me working all the time--as well as my sister whose job provides erratic and inadequate pay and is living in my basement), or, well, find some magic that actually does make the payments something I can do.

    Advice? Commentary? Questions?

  • #2
    Most debtor's can be confused that the calculation of DMI is the only calculation that matters in a Chapter 13; they would be wrong. There is another test known as the "Chapter 7 liquidation test" (also known as the "best interest of creditors test"). The second test is important because it does look at the non-exempt value of property. The bottom line is that you must pay to the unsecured creditors, at least as much as they would have received if you had liquidated under a Chapter 7 proceeding. If your DMI is enough to pay that amount, then you just pay DMI. If your DMI is insufficient to guarantee that minimum, then you pay what is necessary to guarantee the necessary.

    Most Chapter 13 debtors never run into this problem. I wouldn't say it's "rare" but it is certainly uncommon.

    A Chapter 13 payment should always be calculated looking forward under the Lanning test (Lanning is the pivotal case that went to the Supreme Court and says that you can look forward). Think of the Means Test as the "starting point" of the inquiry into how much you "could" need to pay in a Chapter 13. You then have to factor reality (loss of job/income, chapter 7 liquidation value, etc).

    Your attorney is usually spot on with the calculation of the payment because they use a software program (one of them is called BestCase, another is Bankrupter). The difference is usually not orders of magnitude.
    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.


    • #3
      It sounds like you are in a situation where your DMI using your last 6 month income would be higher than needed to satisfy that Chap 7 liquidation test. So, you should definitely make sure that your attorney relies on the Lanning case to calculate your DMI based on your new income.
      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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