advice needed

[tota383]

hello. i started browsing this forum recently and have gained alot of useful information. today i had my first meeting with a bankruptcy attorney to discuss the possibility of filing and walked away feeling pretty floored.

i have about $60,000 in unsecured debt (not student loans) and assumed i would be eligible for a chapter 7 but apparently the combined incomes of my wife and i are too high (70,000 net) pushing us into a chapter 13.

ill spare you alot of the details but in short i just graduated medical school and started residency and have an income of 46,000. i've had no income for the past 4 years. my wifes income is 30,000, she recently became a US citizen and so she has also never had an income in the US. what kills me about this is we really dont own ANYTHING, if we had assets to protect i wouldn't feel so bad. 5 months ago we moved to phoenix to start my residency and still dont even own furniture. i ride the bus to work, and she drives a 1998 buick with 198,000 miles on it!

i have a couple questions for you guys and if anybody could give me some feedback it would be greatly appreciated.

1) if my wife quit her job our combined income would drop to 46,000. i believe my state median is 51,000. would this possibly be a loophole to chapter 7?

2) the attorney i met with today said i could expect to be making payments of approximately $1150 a month for the next 5 years. this is just way too high. after rent, electricity, cable and telephone this leaves very little money to survive on for the next five years. if/when my car breaks down i wouldn't even have enough to repair it. is there a way to increase your monthly expenses (ie budget for auto repairs, car insurance etc) in order to lower that monthly payment or is that payment sort of set in stone based on income/debt ratios?

thanks in advance for any advice some of you with more experience in this can give. i plan to meet with another attorney in the near future to discuss further options and if i get any info that may be useful to anyone else i'll be sure to share it here. thanks again.

[BigJohn]

I can't give advice but I can tell you a true story.

This one guy I knew, went overseas and fell in love with the land. The problem he had was he had a Federal job back in the USA that he had to return to. When he returned back to the USA, he was heart broken. He wanted to go back but couldn't because he had to work. So he would go to work and he did stupid things. One of the stupid things he would do is wet his pants. Mind you this man worked for the Federal government and one thing he had to do was carry a gun. Because of his pants wetting episodes, he got reassigned. This is not exactly what he wanted so he started taking his daily dump in his pants. The dumps in his pants was too much. They gave him early retirement and he was able to return to the land he loved.

I think you know what has to be done.

[Flamingo]

The new bankruptcy law that went into effect in October 2005 has pushed more people into filing Chapter 13 instead of Chapter 7 in an effort to make more people pay for part of their debt that are able. Right now you are able so you would have to file a Chapter 13. What you are stating in your posting, some refer to as "prebankruptcy planning" and others refer to as "fraud." You have to consider what you believe will work for you in the long run...If your wife quits her job, you will have to wait at least six months before you can file - can you survive on your $46,000 per year during that time? Your total income will be looked at for six months, maybe more, prior to your filing date and if your wife quits her job during that time, all that will be noticed and taken into account. You probably would have to explain why, etc., etc., and why she did not obtain another job. Be prepared to provide documentation as to why she quit and why she is not able to work after quitting - trustees are not stupid and can spot people doing this a mile away. Chapter 7, if you are able to file that Chapter, is on your credit report for 10 years from the date of filling. Chapter 13 is no walk in the park and the monthly payment you are stating is really not that high and depends upon many factors. Our total yearly income was less than yours and our initial monthly payment was $1700 for five years. It all depends on your situation. Chapter 13 stays on your credit report for 7 years from the date of filing.,

I would highly suggest talking to another lawyer and bringing up your points above so you would know what to expect in your state/district in the event your wife decides to quit her job. You have some things to consider...and a little bit of reality.

[PoorGrammyinBK7]

I had quit work about a year before we filed (Ch 7) - not even thinking about BK at that time, but because of a physical disability. The trustee did ask when I last worked, but nothing about why I quit.

You say you were not working and then moved 5 months ago - have you both been working for the entire 5 months? The look-back period is 6 months and then that is doubled for annual.

I do not understand how anyone quitting a job can be called fraud. No law says you have to work does it? People lose their jobs all the time and then file Ch 7 within a short time.

[tota383]

Our total yearly income was less than yours and our initial monthly payment was $1700 for five years. It all depends on your situation.

$1700!! they would have to call 911 if he told me that! thanks for your feedback. this definately is a reality check.

poor grammy you mentioned the whole timeline thing with our incomes. the attorney brought that up as well because if you add it up at this point we do fall below the median. he also added that the trustees usually dont fall for that trick though and they look forward to determine what you will be making.

another thing the attorney mentioned thats been on my mind is that we should try to get a new car a few months before filing. one because our car is "a piece of crap" (his words), and two because the car payment would fall into that $1150 monthly payment so at least we'd have something to show for all this mess. how is this legal? has anybody else heard anything similar?

thanks again for your advice.

[PoorGrammyinBK7]

$1700!! they would have to call 911 if he told me that! thanks for your feedback. this definately is a reality check.

poor grammy you mentioned the whole timeline thing with our incomes. the attorney brought that up as well because if you add it up at this point we do fall below the median. he also added that the trustees usually dont fall for that trick though and they look forward to determine what you will be making.

another thing the attorney mentioned thats been on my mind is that we should try to get a new car a few months before filing. one because our car is "a piece of crap" (his words), and two because the car payment would fall into that $1150 monthly payment so at least we'd have something to show for all this mess. how is this legal? has anybody else heard anything similar?

thanks again for your advice.

What "trick"? If you are being honest, its just the facts - not a "trick". There may be other reasons you need to wait, but if you are below median now, why not go ahead and do a Ch7 while you can, before you start making more money?

If there are just 2 of you, I think your median is now $53,153 (went up Oct 1st). But check it out to make sure.

[PoorGrammyinBK7]

The reason he said you should buy a car is because a Ch13 is 5 years and you need a reliable car to get through that. Many here have done that.

I would check with other attorneys and read more on this site (do some searches). There is a lot of good info here. There are several who are over median who have done a Ch 7. It also matters what your disposable income is (current income less allowed expenses).

You can also go to legalconsumer.com and do the means test yourself, if you haven't already. And there is the NOLO book - somebody else can help with that link. I did not read it but heard it is VERY helpful.

[Flamingo]

I do not understand how anyone quitting a job can be called fraud. No law says you have to work does it? People lose their jobs all the time and then file Ch 7 within a short time.

It's the timing of it all; quitting a job in planning to file BK so one can file a Chapter 7 in many books would be called fraud; some folks don't want to look at it that way (if that was the case, there would be no Chapter 13s cause everyone could get away with it)...no one is immune from being looked at for maybe up to a year prior to their filing...some trustees investigate everything as many posters on here can tell you. Some may slide by - it's the risk one takes. Another risk is giving up a job in the hopes you can get one back in several months and then one cannot get a job, which is quite common in this economy.

[Tbornetun]

Here is the thing.

Wife makes $30,000 per year.
Debt $60,000 total.

If wife quit her job you would be living on only your income. If wife kept her job and paid all of her wages to the debt for 2 years, you would be living on only your income and the debt would be gone without bankruptcy. Look at it that way.
Or, pay the debt over 3 years with your wife's income and live off of your income plus $10,000 per year.

If I were in your shoes, I wouldn't file if the option were to have the wife quit her job just to qualify for chapter 7.

[tota383]

thank you for the link. i checked it out and we're definately over. whether to quit one job for ch 7 (very risky proposition in this economy) or pay 1150 a month for the next 5 years is a tough decision. yeah according to the attorney, the trustees are definately not stupid thats why it doesn't seem reasonable to me that i could get a new car then declare ch 13 a couple months later.

does anybody know if there are limits on the value of the vehicle? i was browsing through the ch 13 threads and couldn't find any.

i'm going to meet with another attorney later this week. i'll post whatever info i get here, may be helpful to anybody else going through this in arizona.

[PoorGrammyinBK7]

It's the timing of it all; quitting a job in planning to file BK so one can file a Chapter 7 in many books would be called fraud; some folks don't want to look at it that way (if that was the case, there would be no Chapter 13s cause everyone could get away with it)...no one is immune from being looked at for maybe up to a year prior to their filing...some trustees investigate everything as many posters on here can tell you. Some may slide by - it's the risk one takes. Another risk is giving up a job in the hopes you can get one back in several months and then one cannot get a job, which is quite common in this economy.

I wasn't necessarily suggesting for her to quit her job. I sure know how hard it is to get one! I just did not understand why it would be considered fraud. A couple of women I know have quit their jobs simply because the cost of driving to work, lunches, clothing, and taxes take up more than half their paychecks and they decided its not even worth it! I can't remember if the OP said whether the income figures he gave were net or gross - that should be considered too.

Anyway - I probably shouldn't have said anything. I just wanted him not to be pushed into a 13 without giving a Ch 7 a chance.

I thought the purpose of filing Ch 13 was primarily to protect assets - cars or homes - and he says he doesn't own anything.

I just find that so many LAWYERS tend to push for that 13 if they think you have any potential for paying it - and why not? They make MUCH MORE MONEY on a 13! And their money is made on the front end, so if you fail, it doesn't hurt their pocketbook! At least that is what happened to us when we were trying to get legal advice. We really had to educate ourselves and personally push for the Ch 7. And we were well below median, plus it was about 75% business debt, so we didn't have to do the means test! I would just much prefer to have it over within 3-6 months than having to be in the state of BK for 5 years, if at all possible. There are several posters here who were above median income, but got through a Ch 7 - so it is possible, depending on the circumstances.

Just my opinion - I am not a lawyer.

[Tbornetun]

In our firm, we push for a chapter 7 first. We never consider a 13 until all attempts at persuing a Ch. 7 are exhausted. Assets can still be protected in a Ch. 7. It is rare that we are unable to exempt most everything people own. There isn't any equity in 99% of the houses in our state. Most people have already accepted the fact that they are losing their home prior to even coming to the office. They realize that making a $3000 house payment on $2500 income, doesn't work.

[PoorGrammyinBK7]

In our firm, we push for a chapter 7 first. We never consider a 13 until all attempts at persuing a Ch. 7 are exhausted. Assets can still be protected in a Ch. 7. It is rare that we are unable to exempt most everything people own. There isn't any equity in 99% of the houses in our state. Most people have already accepted the fact that they are losing their home prior to even coming to the office. They realize that making a $3000 house payment on $2500 income, doesn't work.

Good for you - glad to see there are some attorneys who actually look out for the best interests of their clients. I guess I just ran in to a bunch that did not seem to do so.

[Flamingo]

I wasn't necessarily suggesting for her to quit her job. I sure know how hard it is to get one! I just did not understand why it would be considered fraud. A couple of women I know have quit their jobs simply because the cost of driving to work, lunches, clothing, and taxes take up more than half their paychecks and they decided its not even worth it! I can't remember if the OP said whether the income figures he gave were net or gross - that should be considered too.

Anyway - I probably shouldn't have said anything. I just wanted him not to be pushed into a 13 without giving a Ch 7 a chance.

I thought the purpose of filing Ch 13 was primarily to protect assets - cars or homes - and he says he doesn't own anything.

I just find that so many LAWYERS tend to push for that 13 if they think you have any potential for paying it - and why not? They make MUCH MORE MONEY on a 13! And their money is made on the front end, so if you fail, it doesn't hurt their pocketbook! At least that is what happened to us when we were trying to get legal advice. We really had to educate ourselves and personally push for the Ch 7. And we were well below median, plus it was about 75% business debt, so we didn't have to do the means test! I would just much prefer to have it over within 3-6 months than having to be in the state of BK for 5 years, if at all possible. There are several posters here who were above median income, but got through a Ch 7 - so it is possible, depending on the circumstances.

Just my opinion - I am not a lawyer.

Quitting a job due to the expenses of childcare and other added expenses not making sense if those costs exceed ones salary is not the same as having a job, preplanning filing bankruptcy with your spouse and quitting the job to qualify for Chapter 7. Sure, many people quit their jobs but they are able to survive on the other spouse's salary - in this situation, they are insolvent and preplanning to file bankruptcy. If she quits her job, it raises a red flag especially the timing of it all. Remember, the trustee usually always asks to see the prior year's tax returns and may want to know why the income stopped, especially if there is nothing to support it such as medical bills from a condition where one had to quit work, getting fired and unable to find another job, etc. As I and some others stated on here - trustees are not stupid. You can bet it is probably a risky move for them and I wouldn't sugar coat it in any way trying to get around it.

Also, it's not the lawyers that push toward a 13, the new law effective in 10/05 automatically made it harder to file a Chapter 7. Those that have the ability to pay back in a 13 do just that. Sure there are bad attorneys out there who would do anything for the extra work and there are those that do the best they can for you and make sure you fall within the guidelines where you won't get into trouble as to either Chapter. But you are dealing with BK law when it comes as to who files what Chapter and a good attorney will ensure that if you have to file a Chapter 13 that you complete it successfully.

[tota383]

i should clarify a couple things.
1) my wife was planning to quit that job anyway to return to school in january.
2) i screwed up on the income, we gross 70,000$, net around 50,000$

also, i spoke with another attorney and he said he could get us a chapter 7 based on our 6 month average being way below state median. it turns out the first attorney i met with was actually arrested the day after i met with him for 2nd degree murder! apparently he got in a bar fight and stabbed somebody. crazy! i'm glad i didn't give him any money.

i'm scheduled to meet with the lawyer (the new one) tomorrow to iron out the details. i'll share the info here. my biggest question at this point is are these guys just telling me what they think i want to hear to get my money? can the court push this into a chapter 13 anyway? thanks for all the responses and advice.