A little bit of everything... (first post)

[NoTomatoCan]

First off, let me say this is my first post, but after using the site as a guest for the past two weeks I have learned SO MUCH! This is an incredible site with tons of valuable information.

I am preparing for a Chapter 13 (met with first of 3 attorneys today - good advice I got from this site) and I have a few questions that I wanted some opinions on. Some are straight forward (I think) and some seem to be "it depends" based on what I have read on this site and others.

My wife and I have a gross income of about $195k, but our take home pay (after taxes, health/life insurance, health savings account, dependant savings account, 401k loans, and 401k contributions) is only around $98k. We both max our 401k and have for at least 2 years. We are in the Eastern District of Michigan.

1. What is the liklihood that we will be able to continue contribute the max to our 401k accounts?

2. This past year I received a bonus in late July of $15k. With 6 months of look back, it would be in my average monthly income. The first atty said not to worry about it, but from what I have read here, if it was income in the past 6 months, it gets included in determining my monthly income. The wolves aren't yet at the door (everything is current) so I can wait a few months to file if needed. Suggestions?

3. Since the bonus is "optional" and there is no guarantee I will get it every year, atty also said that if it comes up again next year, just find legitimate living expenses to spend it on and not worry about it going to the trustee. While I like the aggressiveness, I was wondering what others have experienced.

4. My wife and I have total unsecured debt of about $250k (80k CC, 140k student loans, 30 casino marker). I got an appraisal for our home (once again, good advice from this forum) that puts our home value at $235k. 1st is at $242k, 2nd is at $150k. Good candidates for lien strip (big part of why we want to go 13) but then we get into the 336k unsecured debt limit. I know some have said the 2nd would start as secured when you file, but atty had some concerns that it might get challenged that way. The case law on this seems to be new, so just wanted to see if there were others who have done this.

My apologies for the novel, but aside from my wife, I haven't had anyone else to discuss this with. You all have already been more helpful than you know! Just to know that there are others out there in the same situation is a comfort.

[DeadManCrawling]

Welcome to the forum.

I would err on the side of caution and delay filing until the bonus drops off the 6 month lookback.

If it occurs again, next year, you may not have to report it. Generally, income changes of 10% or higher are supposed to be reported. With your income, this would not count.

I am/was also a higher income filer. I allowed my income to drop substantially, starting three years ago. It actually was medical-related to an injury and surgeries needed, but the effect was the same.

Best luck, and others will probably help on the other questions. Sounds like you did enough reading to know what to ask the attorneys and that is more than half the battle.

[lrprn]

1. What is the liklihood that we will be able to continue contribute the max to our 401k accounts?

There's solid case law that allows you to continue to contribute to your 401K during Ch 13, although some local courts may limit the % of gross income you are allowed to contribute while your plan is active (ours limits us to 5% each).

However, paying back the retirement loans as an accepted expense in your plan is a gray area. Some trustees allow it, some fight it. There is case law that supports being able to repay retirement loans after filing a 13. Ask the lawyers you are interviewing what to expect about this with your local Ch 13 trustee.

2. This past year I received a bonus in late July of $15k. With 6 months of look back, it would be in my average monthly income. The first atty said not to worry about it, but from what I have read here, if it was income in the past 6 months, it gets included in determining my monthly income. The wolves aren't yet at the door (everything is current) so I can wait a few months to file if needed. Suggestions?

That $15K bonus absolutely counts in your six-month lookback. Best thing is to wait to file until it drops off after February 1.

3. Since the bonus is "optional" and there is no guarantee I will get it every year, atty also said that if it comes up again next year, just find legitimate living expenses to spend it on and not worry about it going to the trustee. While I like the aggressiveness, I was wondering what others have experienced.

Whether you have to report a bonus received during Ch 13 is completely dependent on the instructions and customs of your local Ch 13 trustee. Add this question to your lawyer interview question list as well.

4. My wife and I have total unsecured debt of about $250k (80k CC, 140k student loans, 30 casino marker). I got an appraisal for our home (once again, good advice from this forum) that puts our home value at $235k. 1st is at $242k, 2nd is at $150k. Good candidates for lien strip (big part of why we want to go 13) but then we get into the 336k unsecured debt limit. I know some have said the 2nd would start as secured when you file, but atty had some concerns that it might get challenged that way. The case law on this seems to be new, so just wanted to see if there were others who have done this.

If you haven't already, take a good read through the lien-strip sticky in this forum. It will explain in detail how lien strips work when you file Ch 13.

Keep asking questions - we'll help you sort things out as best we can. Good luck!

[aa06a47]

401k loans are an expense that you can deduct. (That was one of the positive things that came out of the bk reform act). 401k contributions however are not addressed in the law, however some trustees allow them depending on the clients age ect.

The confusion with 401k loans appears to related to chapter 7 bankruptcy. A 401k loan cannot "qualify" a person for a chapter 7. In other words, a chapter 7 trustee does not have to allow the loan as a deduction from disposible income in the means test and therefore it can throw you into a Chapter 13.

If you have a Chapter 13 trustee tell you the 401k loan is not deductible, take it before a judge. The law is clearly black and white in a chapter 13.