Worried - can I even file a 13?

[pa333]

Hi all -

My husband's firm only gave him 1/4 bonus this year, and we're absolutely screwed. We were planning on stopping use of our credit cards and filing in a couple of months.

The facts are:
$175K in debt
DMI of about $400 (probably could get it down to $0 once I include all the details - glasses, clothes for the kids, etc)
Home value of about $450K. But we bought it last year and have basically only about $20K (from the down payment) paid off. (So is it worth $450 K or $20K?)

SO

I'm trying to figure out all the rules about median income, having to pay back the value of what would have been liquidated in a Ch 7, etc.

We are above the median income. The value of our house, which would have been liquidated in a Ch 7, is above. Will this work for us? Can we file for 13? We have two small children and are totally f***ed and I'm scared.

[lrprn]

My husband's firm only gave him 1/4 bonus this year, and we're absolutely screwed. We were planning on stopping use of our credit cards and filing in a couple of months.

What's stopping you from filing now?

Home value of about $450K. But we bought it last year and have basically only about $20K (from the down payment) paid off. (So is it worth $450 K or $20K?)

The home is worth whatever the going market price in your area is for homes like yours. You may have paid $450K for it last year, but in most areas of the country, the home is going to be worth less now. Start looking at the Sunday home ads to see what homes comparable to yours in your area are selling for currently.

We are above the median income. The value of our house, which would have been liquidated in a Ch 7, is above.

Income isn't the only thing that matters when filing bankruptcy - your overall debt load, whether the debts are secured or unsecured, and your family expenses matter too.

What did you mean when you said your house "would have been liquidated in a Ch 7"? Are you in arrears on your mortgage right now? Do you want to keep the house if you file Ch 13?

We have two small children and are totally f***ed and I'm scared.

You are at the worst point of this journey - realizing you are overextended and really have no way out other than to file. We've all been there at some point - it is scary. But don't let your fear immobilize you.

Set up appointments with 3-4 experienced bk lawyers in your area. Most still give free or low-cost initial visits. Find out what's going to be possible in your situation. There can be light at the end of the dark tunnel - hang in there and get the facts. Then make the decisions that will benefit your family most in the long run. We'll be here so keep asking questions - we'll help you sort things out as best we can.

[pa333]

Thanks so much for your response. Yes, I'm terrified right now. The whole idea of BK is so totally out of my reality thus far. But I can't figure out what else to do.

My concern about whether or not I can file for 13 crops up from a book I've been reading - the NOLO Chapter 13 Bankruptcy book. It says "your plan also has to allow for total payments to your unsecured creditors that are at least equal to the value of your nonexempt property - the property you would lose in a Chapter 7 bankruptcy." (page 5) So does this mean that our plan payments over 5 years would have to add up to the value of our house - probably somewhere around $400K right now? I mean, that means we would end up paying more than twice as much as our actual debt to unsecured creditors (right now abouth $175)... and if we can't afford to pay off $175K, how do they think we could pay off $400ish K. I really don't understand what this is all about.

My second question is about timing. After the new year, we typically get our bonus - about 1/3 of the salary. It's a big part of our income. In anticipation of the bonus, we had added roughly $40K to our debt through balance transfers and courtesy checks to pay off family members that had helped with the recent purchase of our house. Now, that is going to look TERRIBLE. We are absolutely not the type of people to commit fraud. My husband is a lawyer and would lose his job. I have been in CC since the age of 17, about 17 years... and have always paid the minimums like a good little American. Bankruptcy is just never something we ever contemplated until literally a couple of days ago, when the numbers started (not) adding up. But this is going to look really fishy, I think, even if we can stave off filing for a month or two and (of course) not use the cards starting now.

If you've read this far, many thanks. Any input is sincerely appreciated because I am totally on the verge of a panic attack.

[rrockinggramma]

The rule states that a creditor has to get in a chapter 13 what they would have gotten in a chapter 7. You need to first look at your state exemptions to see what is allowed for you to keep. Your house may be worth far less now than when you bought it. But lets say, for example, that you are allowed to keep 275,000 of the value of your house as exempt. Your home now appraises for 375,000 then your unsecured creditors and your pay back on your debts would be 100,000. However see note below. If you owe on your house what it appraises for, then only the amount over what you owe and appraises for has to be covered by exemptions.

So much in a chapter 13 depends on allowed exemptions, income, expenses. Every plan is individually tailored to the person filing it. You need to see a few good BK attorneys in your area and they can fill you in on what would be allowed and what wouldn't.

And if you owe on your house what it is worth, you have no need to worry about exemptions. It would only apply if your house appraised for way more than what you owed.
Definitely start living on a cash only basis.

[StartingOver08]

OP, to get the actual current value of your home - call a Realtor and have them do a CMA based on the past closed sales only for the last 90 days of comparable properties in your neighborhood. (A CMA is usually free - tell them you are looking for the 'quick sale price')

Do not use homes on the market - that number is a fantasy number.

Once you know the actual value of your home you will be able to determine if there is equity or not. Check www.legalconsumer.com for your states exemptions

You may be able to file a 7 or a 13 - don't assume the worst, get your figures first and speak to several attorneys for their free consultation.

All of us paniced a little (okay...maybe a lot! ) when we first discovered we could no longer make our payments. At least you know early enough to plan your BK so you do not get caught with insider payments or anything like that -

[pa333]

Wow, thanks everyone. I'm so totally panicked, but at least I don't feel so alone...

Our insurance company appraised the house in December for about $20K more than we paid for it. I assume they would be pretty strict about that, right, to protect their own interests? The area where I live (a city) is of course experiencing dropping home values, but nowhere near what other areas are feeling.

So let me see if I understand this - if the home is worth somewhere around what we owe... that is a good thing? Let's assume it is worth 400K... does that still mean we would need to pay creditors $400K over the next 5 years? I'm still really confused by this.

We really, really, really want to keep our house. It was a very good investment - we got it at a relatively low price for a high-demand area. We bought it because it is perfect for our family in terms of location (husband can walk to work, kids will be able to walk to 1 of only 2 good public schools in our area, centrally located in the city) and it will allow us to expand our family.

Any other thoughts on trying to hold out 2 or 3 months until filing? That would put our big money transfers 6 months behind us by the time (I think?) we are assessed by a judge. I was thinking that once we run out of credit to do the rob-from-Peter-to-pay-Paul thing, we could then call each company and ask for reduced payments to keep the credit lines going another month or two. Of course, charging nothing during that time period... good practice for a future with credit cards...

[bobm]

Although I am new on the forum, I can give you the answer to this question and relieve your fears.

The rules of Ch 13 are that you would pay back at least as much as the creditors would have gotten in a Ch 7 liquidation. Now that amount is based on the value of everything you own (including only the equity of your house $20K) minus the value of your exemptions. So you would not have to pay back more than $400K; instead, you would have to pay back some much smaller amount.

I will let the more experienced posters provide more guidance. Good luck.

[StartingOver08]

Our insurance company appraised the house in December for about $20K more than we paid for it. This is not the right kind of appraisal so it has no effect on your BK. You are looking for market value as a quick sale.

So let me see if I understand this - if the home is worth somewhere around what we owe... that is a good thing? Let's assume it is worth 400K... does that still mean we would need to pay creditors $400K over the next 5 years? I'm still really confused by this.No. The value of your house has nothing to do with how much you pay back creditors. The simple way to remember is that the creditors get at least as much as they would have under a Ch 7 liquidation. The attorney will evaluate your debt owed, if you liquidate all of your assets in a CH 7 (assuming you keep the house because you are current), how much money would you have to pay the unsecured creditors???? To determine the amount of repayment, the court needs all of your expenses and income.
....

Any other thoughts on trying to hold out 2 or 3 months until filing? another month or two. Of course, charging nothing during that time period... good practice for a future with credit cards...

You can stop making your payments to the unsecured creditors....for many months. This will allow you time to save for attorney fees and to put more time between the charges and balance transfers and the actual filing date. Once you retain an attorney, most of them will allow you to give the attorney name and number and have the collections calls go to him instead!
Thus you get more time to file - the longer you have between the last balance transfers and charges the better.

You probably want a good long time for your filing because you had family members pay for your house purchase down payment (if I remember correctly) and you repaid the family members already. That is called an insider transaction and the look back period is one year. So you want a year from the last payment made to an insider before you file.

[pa333]

You can stop making your payments to the unsecured creditors....for many months. This will allow you time to save for attorney fees and to put more time between the charges and balance transfers and the actual filing date....

You probably want a good long time for your filing because you had family members pay for your house purchase down payment (if I remember correctly) and you repaid the family members already. That is called an insider transaction and the look back period is one year. So you want a year from the last payment made to an insider before you file.

So, to drag out the time between this payment we made to our family (Jan '09) and filing... should we call all creditors and ask for reduced payments? I am sure we cannot get away with making no payments for 11 full months. But we REALLY can't afford to make the minimums. So maybe we could get them to accept lower monthly payments for a few months and then just stop paying altogether? Involving a good lawyer in the near future, of course? Or if we immediately ask for lower payments, does that make it look as if we made all those balance transfers in bad faith - knowing we would not be able to pay the minimums? (We didn't do it bad faith - we really did think we could juggle this as we have done for, oh, the past decade. But my husband's firm really pulled the rug out from under us)...

The house/equity thing is starting to make more sense to me, THANK YOU.

[StartingOver08]

There are others on this forum that have not paid in many, many months before filing (over a year in some cases) and there were no lawsuits.

You probably want to have at least two or three payments on the cards where you have done a balance transfer before you stop paying in order to show intent to repay. This is one of the questions you will need to clarify with your attorney. But recognize that any money paid to any unsecured creditor is a waste of money if you are going to file

The parts that you are trying to avoid is insider payments, balance transfers and charging up your cards and then filing - all of these can be considered abuse under the bankruptcy code. So it is a good idea to put lots of time between the repayment of your relatives and your filing - otherwise the Trustee will make the debt non-dischargable - and may in fact dismiss your case (the worst of all worlds). So you are in the right place to plan the right way for you to benefit the most.

[rrockinggramma]

The issue with your home is what do you OWE on it and what is its value. If you OWE 425,000 and it is worth 450,000 then you try to exempt the 25,000. If you can't then the difference is ALL that creditors are required to be paid in your chapter 13.