No Disposable for Budget

[jdenn47]

All,
I have a quick question. I searched the forum for an answer, but didn't really find one.

I am about to finish my divorce, and it looks like I will fail the "means test" and the presumption of abuse will arise. After the divorce, my expenses are going to rise (But since the Means test looks six months BACK, it won't help). My Monthly taxes are going to be quite a bit higher now that I am divorced (at least $250 more.) I was also paid a $5,000 bonus less than one month ago. That's going to change the "new" calculations too of course. On top of this, I am ordered to pay $200 a month in spousal support for one year.

If I factor in my "new" living situation, my disposable income is now -$350.

Since the means test looks at the prior six months, but the budget projects into the future, what happens? Since I can't even pay my secured debts, etc, how could I ever pay back any creditors? The new means test really isn't very useful.

[SinkingFast]

A lot will depend on what you're looking to accomplish.

You said "Secured Debts" but you didn't say if that's house, car, or both.

Are you current on your payments presently?? If so, you may have 6 months to a year to ride out the bonus and establish your new living expenses. Creditors generally don't jump to sue the minute you stop paying.

If you wanted to file ASAP, the QDRO, or Divorce Decree ordering the $200/mo Spousal Support will be considered in your expenses. It's a Priority Debt you cannot Discharge. The Court will get a copy of your Divorce Decree or QDRO along with all your other paperwork.

To help us help you better,............

What State?? Income level?? Household size?? If you have kids, who get's to claim them for tax purposes?? What Secured property and do you wanna try and keep those assets?? Some more basic general info will help us better help you sort this out.

[jdenn47]

A lot will depend on what you're looking to accomplish.

You said "Secured Debts" but you didn't say if that's house, car, or both.

Are you current on your payments presently?? If so, you may have 6 months to a year to ride out the bonus and establish your new living expenses. Creditors generally don't jump to sue the minute you stop paying.

If you wanted to file ASAP, the QDRO, or Divorce Decree ordering the $200/mo Spousal Support will be considered in your expenses. It's a Priority Debt you cannot Discharge. The Court will get a copy of your Divorce Decree or QDRO along with all your other paperwork.

To help us help you better,............

What State?? Income level?? Household size?? If you have kids, who get's to claim them for tax purposes?? What Secured property and do you wanna try and keep those assets?? Some more basic general info will help us better help you sort this out.

Sorry about the vagueness.

I am in Kentucky. Income level without the bonus is about 63k/year for a single male. It doesn't look like we will get a bonus this year.

I am in Kentucky.
I have a house payment of $1640 between an 80/20 loan. I have a car payment that I recently got (before the divorce stuff started) that's $530 a month. I have around 30k in Unsecured debt in addition to the above.

Taxes are around $1635 a month (Now That I am single, of course, but in the past they were $1250)
I have been and would like to continue a $130/month Tithe to my church.
$708 Food. Clothing,etc, allowance based on gross income.
Transportation Standard: $260.00
Vehicle Payment: $530.00
Utility standard: $293.00
Health Insurance: $150.00
Spousal support: $200.00
additional Health: $50.00

So, total income is close to $5250/month gross. When I figure my monthly CURRENT expenses, I calculate $5591 in expensed without the trustee fee! Throw that in, and it's $5747 with "today's" situation. This leaves me -$497 of disposable income.

If I run the means test using the past six months including bonus, I end up with:

Gross: $6,000
Taxes: $1655
Everything else is the same as above, except for the lack of spousal support.

I end up with total expenses including trustee of $5766.84. This leaves $236/month of supposed income.



I don't know what to do with the house. I owe more on it than it's worth. I also have been living in an apartment on a one year lease for $450/month (I couldn't stand living with my wife.) I don't really like the house. My Primary reason for BK is to keep the "20" of the 80/20 loan from coming after me for the 50k I will owe them after the "80" likely "wipes them out."

I am current on my payments, but I think this month may be the deal breaker. Interesting about the six months to a year thing. I didn't realize you had that long. I bet the phone calls are a blast!

I would like to do Chapter 7, but the calculations above seem to imply I have to wait. I know that the house can count on the means test even if you want to surrender it, but I would be worried about some sort of abuse dismissal due to my income; but perhaps I am wrong to worry? If I surrender the house, isn't that $1640 more a month in "Disposable" income (Minus the $684/month rent allowance of course)

All these things being the factor, Chapter 13 may be the best option. I don't know I guess. I have appointments with 3 BK attorneys next week, but the stress is killing me!


Thanks a bunch for the reply! Every little bit is helping! The more I read, the more I think the 2005 congress really messed things up!

Thanks,
John

[SinkingFast]

Thanks a bunch for the reply! Every little bit is helping! The more I read, the more I think the 2005 congress really messed things up!

Thanks,
John

Congress did what they were paid to do!!

Not literally, of course. But thru Lobbyists and campaign donations and such. The Creditors won. WoooHooo!!

Pretty much every attny we Consulted with said the New Law didn't really change a lot about how they do business. Most good attnys used a common sense approach to how they filed any one Debtor's BK. They knew going in who was 7 and who was 13.

A couple of things did change.

The amount of paperwork.

And filers in the grey areas.

Old Law, an attny might be inclined to push for a 7 for a particular filer. Flirting with the fringes of the Code is where law is made. But New Law made attnys less likely to do that. If they take in an "Abusive" filing now, the attny gets fined.

You have done some research. I see the income level for a household of 1 in KY is $33,701/year. You're way over that.

There are Decisions that uphold being allowed to deduct contractually liable payments even when the property is being surrendered. That is correct.

You do have one thing working for you. It's just gonna depend on the Court in your area. Totality of Circumstance. An event beyond your control. Divorce. That has contributed to your financial woes.

At your income level, you're gonna have to do something eventually. KY does allow for wage garnishment. 25% of disposable earnings. Generally that's the amount in excess of 40 x the minimum wage.

On the house,.............. KY is a Judicial Foreclosure State. So the process isn't going to happen over night. And, you are right. You can be held responsible for a deficiency balance. With restrictions.

http://stopforeclosure.com/Kentucky_Foreclosure_Law.htm

You're best off to schedule a few Consult appts and see what BK attnys in your area have to say.

[jdenn47]

I had my first meeting with the attorney today. He took one look at my W2 and said "You make more than the median, so you need to file Chapter 13." Then I pointed out my means test calculations and he said something along the lines of "Oh, you were the one who called about the means test."

Then he started to talk about Chapter 7 as an option. Most of my questions were answered, but he did bring up a couple of issues.

First, he said that the US Trustee has informed him that they may start to make objections to including a house payment in the Chapter 7 if it's going to be surrendered.

Second, he said that my Disposable income in Chapter 13 would include the money freed up by surrendering the house.

Are both of these points correct?

Finally, He did mention that you have to state your intentions on what you would like to do with your secured debt at your meeting of creditors. He said you have 45 days after that to actually accomplish what you say you will do. He wasn't aware of the penalty, etc, if you decide to change your mind. Does this make sense?


Overall, I didn't care for this guy. I look forward to my next appointment on Thursday.

Thanks,
John

Congress did what they were paid to do!!

Not literally, of course. But thru Lobbyists and campaign donations and such. The Creditors won. WoooHooo!!

Pretty much every attny we Consulted with said the New Law didn't really change a lot about how they do business. Most good attnys used a common sense approach to how they filed any one Debtor's BK. They knew going in who was 7 and who was 13.

A couple of things did change.

The amount of paperwork.

And filers in the grey areas.

Old Law, an attny might be inclined to push for a 7 for a particular filer. Flirting with the fringes of the Code is where law is made. But New Law made attnys less likely to do that. If they take in an "Abusive" filing now, the attny gets fined.

You have done some research. I see the income level for a household of 1 in KY is $33,701/year. You're way over that.

There are Decisions that uphold being allowed to deduct contractually liable payments even when the property is being surrendered. That is correct.

You do have one thing working for you. It's just gonna depend on the Court in your area. Totality of Circumstance. An event beyond your control. Divorce. That has contributed to your financial woes.

At your income level, you're gonna have to do something eventually. KY does allow for wage garnishment. 25% of disposable earnings. Generally that's the amount in excess of 40 x the minimum wage.

On the house,.............. KY is a Judicial Foreclosure State. So the process isn't going to happen over night. And, you are right. You can be held responsible for a deficiency balance. With restrictions.

http://stopforeclosure.com/Kentucky_Foreclosure_Law.htm

You're best off to schedule a few Consult appts and see what BK attnys in your area have to say.

[JRScott]

Not heard of this, but if they disallow the housing expense for your payment they'd have to allow a reasonable rental expense for your area as you'll have to live someplace.

I hope the next meeting gives you a bit better sense . That's why you gotta talk to a few.

[lrprn]

First, he said that the US Trustee has informed him that they may start to make objections to including a house payment in the Chapter 7 if it's going to be surrendered.
Second, he said that my Disposable income in Chapter 13 would include the money freed up by surrendering the house.
Are both of these points correct?

This lawyer is correct only if the US Trustee is going to ignore June 2006 Georgia case law where bankruptcy judge Homer Drake specifically ruled against what the US trustee wants to do - see http://www.thebklawyer.com/thebkblog...he-collateral/

I'd definitely meet with several more bk laywers, John.

[jdenn47]

Sorry to post again, but I am still looking for an answer to my original question. I asked the Attorney this same question and he said "That Never Happens"

Since the means test looks back six months, and the Schedule I and J look at your current income, I have the following discrepancies.

Gross income is over reported by $5,000 from a bonus two months ago. It's an annual bonus, and it's unlikely we will see one next year.

Due to a divorce, my Monthly income taxes are increasing $400/month

Also due to the divorce, there will be a $200/month spousal support payment.

When these are factored in, along with the standards for food, etc, I end up being about -$400/month.

What happens if I file a chapter 13 and it's found I don't have any disposable income even though I failed the means test? Does it convert to a chapter 7?

Thanks,
John

*EDIT*

I just had a thought. If I can get the judge to make some of the Alimony a type of "Lump Sum" that I could pay in advance, wouldn't that be divided by six and included in the means test? If this is the case, My Schedule I and J would show no disposable income due to the lower income and higher taxes above even without the monthly spousal support.

[JRScott]

Sorry to post again, but I am still looking for an answer to my original question. I asked the Attorney this same question and he said "That Never Happens"

Since the means test looks back six months, and the Schedule I and J look at your current income, I have the following discrepancies.

Gross income is over reported by $5,000 from a bonus two months ago. It's an annual bonus, and it's unlikely we will see one next year.

Due to a divorce, my Monthly income taxes are increasing $400/month

Also due to the divorce, there will be a $200/month spousal support payment.

When these are factored in, along with the standards for food, etc, I end up being about -$400/month.

What happens if I file a chapter 13 and it's found I don't have any disposable income even though I failed the means test? Does it convert to a chapter 7?

Thanks,
John

*EDIT*

I just had a thought. If I can get the judge to make some of the Alimony a type of "Lump Sum" that I could pay in advance, wouldn't that be divided by six and included in the means test? If this is the case, My Schedule I and J would show no disposable income due to the lower income and higher taxes above even without the monthly spousal support.

Post as often as you think is necessary.

To address the income situation I would wait at least 5 more months before filing if you are concerned about that extra income. That way the bonus will fall off the 6 month look back period and will no longer affect your schedules or the means test.

There's not much you can do about the alimony payments, they cannot be discharged in a bankruptcy. However you would include that payment in your means test and on schedule J as an expense. You would have to go back to the original judge and have him amend the divorce decree to a lump sum payment if you wanted to go the route you suggest.

My suggestion is to talk to four or five more lawyers. Just because your income is beyond that of the state's median does not preclude a chapter 13 filing. You just have to complete the rest of the means test and if it still shows that you do not have any disposable income then you can still file for a Chapter 7. There are some lawyers that will try to force people into Chapter 13s because they make more off a Chapter 13 than a Chapter 7 even if they know later on they'll have to convert to a Chapter 7 (because again that's more money). Go talk to some more lawyers and see what some more say.

[treehugger1]

Welcome! You certainly want to meet with several attorneys. You do have more time than you think. If you intend to give up the house then you don't need to be overly concerned about a creditor getting a judgment followed by a lien on the house.

Some things for you to think about if you are looking to forestall:

1) Do you have any local creditors who can file a claim in small claims court? If so, they can act rather quickly and may get a wage garnishment within a month or two. Here is a link to Kentucky wage garnishment and exemptions.

http://www.bcsalliance.com/debt1_kentucky.html

2) Learn about some tools available to you under the Fair debt Collection Practices Act (FDCPA). There is some good information under the collections sub-forum on this site. You can use several tools (debt validation, cease-and-desist all communication other than mail letters, etc) to slow down the collection process. Be aware that the FDCPA only refers to debt collectors and not original creditors. Some states have additional protection from original creditors attempting to collect debt. I'm not sure what additional laws Kentucky has.

3) Keep up with any payments on secured debt for items you want to keep (auto.)

4) Stop using credit cards and other lines of credit. This wasn't a problem for me as I maxed out all my cards.

5) If you have student loans, you want to be careful and learn how these are handled in your local bankruptcy district.

I first considered filing 13 months ago, but backed off. I've had one small claim that resulted in judgment I paid off. I have several smaller debts now in collections. I'm working with other national creditors on reduced payment plans. I guess wht I'm saying is that there are many options prior to filing 13. Once you file, the wheels are in motion.

Study the threads on this forum. You will learn that the BK laws and their interpretations are all over the place; by state and even within some states.

[spell]

Have you discussed the prospect of a Short Sale with either of your banks?

Essentially, you find a buyer for what the house is worth. Present the offer to your bank along with your financial situation and give them the opportunity to accept the offer and call it a day.

Your other option is selling the car. $590 is a crazy car payment. You can buy a junker car each and every month and treat them as disposable for that amount. Your house payment is OK in relation to your income. This car is whacked.

[jdenn47]

Have you discussed the prospect of a Short Sale with either of your banks?

Essentially, you find a buyer for what the house is worth. Present the offer to your bank along with your financial situation and give them the opportunity to accept the offer and call it a day.

Your other option is selling the car. $590 is a crazy car payment. You can buy a junker car each and every month and treat them as disposable for that amount. Your house payment is OK in relation to your income. This car is whacked.

Yes, I have discussed a short sale. The banks would do it. IF I could find someone. I have called every short buyer in the City and NONE of them are buying houses. The way things are right now, nothing is moving. Nothing!

I have also discussed Deed in Lieu. The Senior lienholder is fine with it, but the junior has stated that they would go after me for any deficiency. This could end up being around $50,000. If I lose the house before I file, I fail the means test. If I file first, Chapter 7 is an option.

Also, the car payment is actually $525. That may sound whacked, but I use the car for work. I am reimbursed per diem for the mileage I drive, and I sometimes have to transport customers in my vehicle.

Since the car is only 2 months old, selling it would also likely not be an option.

If I can just either get rid of the house or the unsecured debt, I would probably be okay.

Thanks,
John

[jdenn47]

Post as often as you think is necessary.

To address the income situation I would wait at least 5 more months before filing if you are concerned about that extra income. That way the bonus will fall off the 6 month look back period and will no longer affect your schedules or the means test.

There's not much you can do about the alimony payments, they cannot be discharged in a bankruptcy. However you would include that payment in your means test and on schedule J as an expense. You would have to go back to the original judge and have him amend the divorce decree to a lump sum payment if you wanted to go the route you suggest.

My suggestion is to talk to four or five more lawyers. Just because your income is beyond that of the state's median does not preclude a chapter 13 filing. You just have to complete the rest of the means test and if it still shows that you do not have any disposable income then you can still file for a Chapter 7. There are some lawyers that will try to force people into Chapter 13s because they make more off a Chapter 13 than a Chapter 7 even if they know later on they'll have to convert to a Chapter 7 (because again that's more money). Go talk to some more lawyers and see what some more say.

Thanks for the reply! The divorce isn't actually Final yet, so changing it to a lump sum should be pretty easy. That might solve all of my problems right there and allow me to move on!

Thanks,
John

[jdenn47]

Treehugger1,

Thanks a bunch for the welcome! Indeed this forum has been IMMENSLEY helpful! I have learned so much! The first lawyer I met with seemed somewhat surprised at the questions I had (I learned about them from this forum). I also learned about the bestcase software Demo that let me print out my best guess B22A, Schedule J, and I. (THough it does say "DEMO" in big writing all over it.)

I think everything is going to end up okay. I have some decisions to make on keeping the house, etc, but I think all will be well.


Thanks,
John

Welcome! You certainly want to meet with several attorneys. You do have more time than you think. If you intend to give up the house then you don't need to be overly concerned about a creditor getting a judgment followed by a lien on the house.

Some things for you to think about if you are looking to forestall:

1) Do you have any local creditors who can file a claim in small claims court? If so, they can act rather quickly and may get a wage garnishment within a month or two. Here is a link to Kentucky wage garnishment and exemptions.

http://www.bcsalliance.com/debt1_kentucky.html

2) Learn about some tools available to you under the Fair debt Collection Practices Act (FDCPA). There is some good information under the collections sub-forum on this site. You can use several tools (debt validation, cease-and-desist all communication other than mail letters, etc) to slow down the collection process. Be aware that the FDCPA only refers to debt collectors and not original creditors. Some states have additional protection from original creditors attempting to collect debt. I'm not sure what additional laws Kentucky has.

3) Keep up with any payments on secured debt for items you want to keep (auto.)

4) Stop using credit cards and other lines of credit. This wasn't a problem for me as I maxed out all my cards.

5) If you have student loans, you want to be careful and learn how these are handled in your local bankruptcy district.

I first considered filing 13 months ago, but backed off. I've had one small claim that resulted in judgment I paid off. I have several smaller debts now in collections. I'm working with other national creditors on reduced payment plans. I guess wht I'm saying is that there are many options prior to filing 13. Once you file, the wheels are in motion.

Study the threads on this forum. You will learn that the BK laws and their interpretations are all over the place; by state and even within some states.