CH 13 - Negative Disposible Income

[ort21452]

What happens if you have negative disposable income? Using the 1st draft of the CH 13 petition our lawyer provided me, after updating our actual medical expenses and the actual expenses of a few other expense items on the petition, we have a negative disposable income. If anyone has had a situation like this I'd like to know how it was handled. Thanks in-advance four your feedback.

[lrprn]

If an experienced Ch 13 lawyer completes your Means Test and Schedules and they show you have negative disposable income, then it's not possible to file a Ch 13 because you have no money left over to pay creditors. However, for filers that are desperate to keep assets (a house, for example) bk lawyers will try to shift expense figures around cutting what's actually being paid out here and there if filing Ch 13 rather than Ch 7 is very important to you.

Frankly most of our Ch 13 filers who had no disposable income but tried to file Ch 13 anyway to save a secured asset often end up unable to maintain payments for more than a year or two. The forced decreases to their actual expenses to create artificial disposable income that isn't really there eventually catches up with them and they aren't able to make their monthly payments any longer.

Think long and hard about trying to file Ch 13 if you truly have no disposable income to support one for three to five long years. A lot of things that cost extra that you have no cash to throw at can happen over that time.

[momofthree]

If you have no disposable income and want to file ch.13 over a 7, then you just have to make room in your budget to fund the plan. Discontinue any "luxury" expenses: things like cable tv, cell phones, eating out, packaged meals, recreational activities, etc). Learn how to coupon hard-core to save money at the grocery store. Maybe trade in your gas guzzler for a fuel efficient car, etc. Necessity is the mother of invention...get creative.

But, like lrprn said, think long and hard about whether it's worth the sacrifice. If you want a true fresh start, giving up your home, or cars, or whatever may very well be worth it. You can always buy new assets later on down the road when you're in a better financial situation.

Sometimes it helps to write it all down on paper and look at the numbers. When you see it all there in black and white, it's easier to make a business decision, especially if your 13 is about saving an underwater home....

[MSbklawyer]

It is quite possible to come up with a negative disposable income on the means test but still have excess income on the I minus J (Acutal Income minus Actual Expenses). For instance, if you have social security income, that doesn't count on your means test but does count on your schedule I. So negative DMI on the means test doesn't necessarily doom a Chapter 13. I've seen $10 per month plans confirmed.

[mike57]

Your credit card debt isn't used to figure your disposable income, is it?

[lrprn]

Your credit card debt isn't used to figure your disposable income, is it?

No, your credit card debt is non-secured and can't be used to figure your income for the Means Test and Schedules.

[HHM]

As was pointed out, you can have a negative B-22C (means test for chapter 13) and still show positive DMI on schedules I&J. Frankly, if you really are negative on the means test, that begs the question as to whether you should file a chapter 13. Odds are, whatever you are trying to achieve in the chapter 13, is probably not realistic. Negative means test chapter 13 are very high risk and have a very low success rate.

But, to have a feasible chapter 13, you must show some positive DMI, somewhere.

[ColoradoBell]

I have a negative DMI but was willing to take money out of my retirement funds and/or rent out rooms in my house to afford monthly payments.
This works for me because my house expense is much less than rent , plus the house has possibility of equity down the road.

I agree that you have to really look hard to see if a Chapter 13 is really worth it for you....but a lot depends on what it is you are trying to protect.

[ort21452]

I was under the understanding that if your income exceeded the limit for a CH 7 you had to do a CH 13. Can I assume that even though a person's income exceeds that for a CH 7, if you have documented negative disposable income you can in fact file a CH 7 - is that correct?

[HHM]

I was under the understanding that if your income exceeded the limit for a CH 7 you had to do a CH 13. Can I assume that even though a person's income exceeds that for a CH 7, if you have documented negative disposable income you can in fact file a CH 7 - is that correct?

Yes, that is correct within certain limits. It depends on the specific circumstances of each case and whether the expenses are reasonable and necessary.

[researchnerd]

I was under the understanding that if your income exceeded the limit for a CH 7 you had to do a CH 13. Can I assume that even though a person's income exceeds that for a CH 7, if you have documented negative disposable income you can in fact file a CH 7 - is that correct?

This is exactly what we're trying to do right now - convert from a Ch13 to a Ch7. We had a bit of disposable income when we filed in May, but then DH's unemployment ran out and now we can't fund our (unconfirmed) Ch13 plan. My income alone is well over the median for our family size, but we have large priority obligations we can't get rid of in BK (student loans and DH's alimony total >$1500/month) so we're left with negative disposable income. We don't have property to protect, we're surrendering our home, so Ch7 makes the most sense. I have my fingers and toes crossed that we can successfully convert, because otherwise our options are not good.