Chaos confusion and worry about ch13 to ch7 conversion

[hopenpray]

I will try to be brief, but I really feel our case is unique and could use any help, as I feel like we could really get screwed here.

Wife and I separated, she moved away, i eventually followed and we got back together at her new rental home. Filed Ch13, they let us keep our house, and live in her rental. -? My understanding was that because we lived so far below our means (other than a mountain of unsecured debt) we could do this because of the allowances. We eradicated ALL unsecured debt under 13, still pay on house, but not living in it. Our ch 13 payment is about all we can afford once everything else is paid, so we are effectively giving up all of our disposable income to the plan, but it is only paying the trustee and attorney, no unsecureds.

Lots of people think we "got one over" on the system because we own one house and live in another. It may appear that way, but again, as I understand it, we were living so cheaply anyway, and our unsecured debts were 50% of monthly take-home pay to the point we had money for nothing as they continually raised rates and payments on us over the years. Our filing was 100% legit with a reputable attorney. He was just very good, and used the rules to provide us the very best scenario allowed under the law.

Our ch 13 plan was confirmed. After some soul searching, we would really like to just move away to another state near some family and start our lives over again after all of this mess. Since we have no money, it would be challenging, but with help from family we can do it, and job prospects are good. The plan would be to convert to chapter 7, liquidate everything and move.

Questions:

1) This worries me a lot. I am afraid that we may not qualify for 7. If so, how can we get out of our house without our plan payment being raised by the same amount? I understand if we sell it, even with approval, then the amount of the payment could be added to our plan since it would then be "disposable income -?".

2) I am also afraid that trying to file 7 may result in some sort of review of our case that would in effect get our case dismissed, then we would be at the mercy of the creditors for six months until we could file again.

In short, we got a good deal on a ch13, but we would rather just let everything go, house, property, etc. and start from square 1. Maybe I am just paranoid, but I feel that bankruptcy was actually too easy for us, but maybe that is just because nothing really changed for us. For several years we have lived check to check, and not had money to eat out, go on trips or anything anyway. We have lived on nothing due to extreme debt and some misfortune over the years, so now we still live on nothing although it seems that we do get something because we still have our house even though we do not live there.

I understand that people actually keep second homes in bk, which just sounds bizarre to me, but I guess that is the point of ch13 -to keep your stuff. In our case, we just pay our secure debts, and all unsecured was erased. I would have thought that they would sell the house and use the money to pay the unsecureds since we do not live there, but I guess that is ch7? It is very confusing to me. I was always against bk before my situation forced me into it, so I am just very apprehensive, and feel we will get screwed.

Any help? We are not looking to gain anything, just get rid of it all, and start over. I feel because we got to keep the house that we are now tied to it, and getting rid of it, either through 7 or 13, will change our situation such that we get dismissed, get our plan modified to higher payments, or who knows what.

It is just tough because people I talk to think I "got one over" on the system, and I didn't. Our situation and the numbers just worked this way, and its what we got. I am just fearful that they are somehow right, and trying to do anything will only make it worse. We never lived in excess, just had some hard times and got in over our head.

I appreciate any comments or questions.

[hopenpray]

Also, I originally wanted to go ch7, but combined income was too high over 6mo. Wife stopped working before we filed ch13, so 13 was based on new lower income. Now I guess I am wondering since it has been several months since she has worked, if we can now qualify for the ch7, or if they will go back and base it on the situation when we filed 13. My understanding is that this varies from state to state, district to district?

In short, when you convert from ch13 to ch7, is it based on finances now, or when you filed ch13?

[HHM]

Is the prior house rented?

[hopenpray]

Is the prior house rented?

no, the prior house has a mortgage, which under our ch13 plan, we still pay directly to the lender.

[hopenpray]

to clarify, we do not rent it out either, if that is what you meant. It just sits there empty.

[HHM]

That is somewhat odd, I am guessing your B-22(C) (the chapter 13 means test) shows no DMI that would go to unsecured creditors, so the payment on the house is a moot point.

I don't think you will have a problem with conversion unless there is equity in the prior house. If you have 0 going to unsecured now, you should be able to pass the chapter 7 means test unless your income is now higher.

[hopenpray]

odd indeed

I don't think you will have a problem with conversion unless there is equity in the prior house. If you 0 going to unsecured now, you should be able to pass the chapter 7 means test unless your income is now higher.

Ouch. Yes, there is equity in the house, but that is very subjective. As of two years ago, about 70k equity. The market has changed though, and parts of the house are torn apart because we were in the middle of a remodel when things came apart with us. Additionally, the well pump is currently out, it needs a new roof, etc. etc. etc. Because of the current condition, we valued it lower, and I understand that in this state there is like a 35k exemption, maybe 70k if married, for equity but I do not know how any equity would affect this.

Again, the amount of equity is very subjective, and depending on the approach, I would say realistically you could determine that it has between $0 and maybe $20k equity. This is something else that is troubling, because of the subjectivity. Based on an appraisal for a refinance 1.5 years ago, it had equity according to fair market value/tax value. However, we purchased the house 2.5 years ago for much less than tax value because it was a bank-owned forclosure. The actual amount of equity that we have "paid into" the house vs. our purchase price is nill, probably a couple thousand dollars due to amortization.

I will look at the B-22C also. I believe it is as you said, with 0 DMI going to unsecured creditors.

Thank you very much. We plan to make a specific appointment with our atty to discuss this, but I wanted to get an idea of what we are walking in with first. We have a great atty, but as anyone knows, that is only half the battle, and they are only as good as the information they are given sometimes.

[HHM]

Here is the problem, if you don't live in the house, I doubt you get to take the homestead exemption, so NO equity would be exempt.

Also, if there has been a decrease in value, then you probably need to dismiss your 13 and refile as a 7. If you convert, the value of assets is established at the time (or relate back to) the chapter 13 petition is filed.

Basically, if there is any equity, it is at risk in a chapter 7, doesn't matter if it is 10K or 60K.

[hopenpray]

Honestly, we could care less about the equity as far as getting anything. If we could go ch7, let the house go and walk away with nothing we would be happy at this point.

Alternatively, if we could not qualify for ch7 and stayed in ch13, could we sell the house without our plan payments going up? This is where I get stuck, because it seems if we keep the asset and continue to pay for it thats fine, but if we let the asset go, we do not get to keep the money we were paying for it each month because it would be added to DMI, and therefore committed to the plan. Am I understanding this correctly? It also seems that decisions like this are at the whim of the trustee, and your mileage may vary significantly based on your trustee.

I have done my own taxes for years with no problems, used to do the accounting for a business I had years ago and have a good understanding of how all of that works, but bk is the most enigmatic and complex thing I have ever seen and it just doesn't seem to follow much logic to me. We wanted a ch7 to begin with and could not get it. We wanted to let everything go but were told that we were just a little too high on income at the time and would have to go 13. Well, we go for best case ch13 and get to keep everything even though we do not exactly want to keep it.

Dismissing scares me because that removes the stay on creditors. It seems to me that dismissing is a "bad" thing, but yet seems necessary in some cases to go forward. After getting our 13 plan confirmed, it would almost seem insane based on how much everyone worries about getting confirmed. I know I sweated bullets while waiting for our confirmation. Would we not have to wait 6 months to file ch7 if we dismissed our 13, all the while being subject to collections and judgments?

Oh, to make matters worse, I am up for a promotion that would hike my income. It sucks, and seems that there is no getting ahead while you are in bk, only afterwards. Since we want to move, I have considered not taking the promotion, but we cannot really move without converting to 7 or selling the house with no increase in the 13 plan first. If we cannot convert or modify, I would like to take the promotion since we cannot move under those circumstances. Timing is critical, and I am afraid I will have to decide on the promotion before we can get answers on the proposed bk changes, so I fear I could end up with no ch7, stuck with the house on 13, and unable to move for lack of money to do so as a result.

Sorry if I sound down trodden, but I have always tried to do the right things, and it seems like you have to be willing to "fail" to be successful in bk, which is difficult for me to do because I do not give up easily, and do not like to fail. Like I said before, I would have never filed in the first place except that my situation forced me to.

Thanks again.