Need advice about a Chapter 13

[teacher0814]

I have been reading all the posts with great interest, and I am so happy I have found this resource.

Wondered if any of you would have specific advice on Chapter 13 while separated. My STBX and i have filed jointly. The majority of the debt is an almost 80,000 business loan. I think the rest of the debt I could probably handle on my own, as it is about 14,000. Mostly CCs we used for essentials when the business went south. I worked lots of overtime to try to compensate for his loss of income, so now when they calculate monthly payments, they base it on the last 6 month of income, which is never going to be that high again. In my state, all teachers are to be hit with reductions in take home pay (600 dollars per month is the estimate) In addition, I will no longer have the ability to have first crack at the extra work. In addition, my husband will be unemployed in about 3 weeks, The problem is the chapter 13 came up with a 1300 dollar per month payment. I know we will not be able to handle that because of the changes coming, but according to the lawyer, they base it on the last 6 month period. He is advising we wait till out incomes actually go down to file, but not sure if the creditors will wait. In addition, we are in 2 separate households, and I have 3 kids to support. Would I be better off getting through the divorce first? Can his business debt be transferred to me if he files Chapter 7 after we divorce? My attorney says yes, but that seems really unfair to me. But my state is community property state. I do not qualify for chapter 7 alone or with him currently because my income is 2000 over the cap. We have run the numbers and I just do not think there is any way to double expenses, even though that is out reality. I did read about the Lanning decision and intend to mention it to my lawyer.

Any advice or help would be appreciated!

[keepsmiling]

If you lawyer doesn't know about Lanning, you want to be speaking to another lawyer.
Always makes sense to discuss with a few anyway.
Are you in a hurry to file for any reason?

[justbroke]

This doesn't make sense at all. If your debts are primarily non-consumer debts (business or "non" consumer), then you qualify for a Non-Consumer Chapter 7 discharge (period). It doesn't matter if you're over the median or not. in fact, even in a "consumer" Chapter 7 case you can actually qualify for a discharge. Any attorney that "immediately" tells you that you make too much for a Chapter 7... should be told that you don't need their help and are looking for another attorney.

I'm only going to ask... why a Chapter 13? If you're not trying to save property, this is not making sense. Do you own a home or something?

[despritfreya]

Ok, let’s try this again. . .

I too am a bit confused.

If 51% or more of the total amount of your debt relates to a business you and your soon to be ex DO qualify for a 7. If less than 51% relates to a business and you do not qualify for a 7 you either wait until you do or you figure your Chapter 13 Plan payment on the here-and-now, not the past 6 months, unless those 6 months are representative of today’s income. You explain the discrepancy on Schedule I so that the Trustee knows why the numbers are not the same. This is the whole premise behind Lanning.

I think you need to consult with several other attnys before making a decision on which to hire or what Chapter to file.

Des.

[HHM]

First, it sounds like the OP has already filed and has a $1,300 per month payment, so my question is, how far along in the chapter 13 are you?

Let's not jump gun on the non-consumer chapter 7...the OP left out if there is a mortgage. That mortgage is consumer debt for the purposes of qualifying for non-consumer chapter 7.

Any attorney that "immediately" tells you that you make too much for a Chapter 7..

I take issue with that statement...in reality, it is very difficult to get an over median debtor a chapter 7. Is it possible, yes...given the right circumstances, but it is actually infrequent.

At the very least, a plan modification needs to takes place. But odds are, with separate households now, you can qualify to convert to chapter 7. To do so, some evidence of the impending salary decrease will be needed to over come a UST objection.

[justbroke]

I take issue with that statement...in reality, it is very difficult to get an over median debtor a chapter 7. Is it possible, yes...given the right circumstances, but it is actually infrequent.

I do too. But, only where the attorney consult only asks how much you make and then "immediately" claims that you make too much to qualify for a Chapter 7. It takes a little more legwork and calculations to make the initial determination. I don't know how many times, on this forum, members have come here saying that their attorney consult immediately told them they couldn't file Chapter 7 -- without even looking at the expenses. Some of those same members ended up being over-the-median and did obtain a Chapter 7 discharge.

For the non-consumer question, it was also the reason I asked if they owned a home or other property. Nothing was mentioned except for the business debt. It does make me wonder when or if they would split the case.

[teacher0814]

We have not filed yet.

The attorney ran the numbers including 2 household expenses and is saying they still can't get it to work out as a 7. Our combined income over the last 6 months was about 135K, but it is now in the low 90s. The business loan was taken out as part of an s-corp. It was written with the house as collateral. Our mortgage is upside down even without this additional loan tacked on. I doubt either of us would be able to keep the home, and we are now living in separate residences. My STBX actually lives in the home, but he has indicated that he would not try to keep it. He likely could not if he wanted too because he is about to loose his job. He has not paid the mortgage since I moved out September 1st.

I am also trying to figure out if it would make more sense for me to file now with him, or after the divorce if it is even necessary.

The divorce and two separate households is what got us thinking we could not afford things, but we do have a creditor coming after us with a hearing next week.

What would happen if we waited until after the inevitable home foreclosure? Wouldn't that mean that it was in fact a chapter 7 case, since it would be 80,000 business loan and 14,000 CC?

Thanks for any clarification. I really am trying to understand all my options. It is very confusing with the divorce to know the right thing to do. Filing jointly may be a mistake anyway, because I am not sure I can depend on him to work with me and make regular payments on a chapter 13.

[HHM]

With $135K in combined income, there was no way you were going to be chapter 7 without special circumstances. As for "non-consumer BK", the issue then becomes the amount of the deficiency assuming your state allows it. Also, can you really hold out until the bank gets around to foreclosing.

In general, it is usually better to do a joint BK prior to a divorce if the marital estate is primarily debt laden. (if asset laden, then you do BK after divorce).

You will need to establish some history of the reduced income. It sounds like your attorney is actually on top of the situation. Yes, you may want to seek other advice, but based on the additional facts you have provided, sounds like the advice you have so far is correct.

To JB, the analysis is really not all that difficult...we need to be careful in this forum about what expectation we set. There are only really 4 classes of expenses that will be allowed to push an otherwise above median chapter 13 into 7, high secured debt (that is reasonable, high mortgage), business expenses, high medical, or separate households with good explanation. That is pretty much it. To set the expectation that if a person simply has "higher" than average expenses will allow them to file chapter 7 is simply misleading.

[teacher0814]

That is the thing, we are separate households, since we are currently separated. Don't know how any of this would be split in the divorce, but I am so warry of a Joint Chapter 13, because I keep reading posts regarding the careful budgeting etc. . .I know I could do that on my own, but how can I count on him to do so also? What if he doesn't pay his portion and I can't come up with then rest. Then it will all be done for nothing.

So confused. I do think I need to meet with a few other lawyers.

[justbroke]

A Chapter 13 isn't as bad as the constant negative thoughts attempt to convey. It is all about budgeting. However, there is no better way to get rid of debt if you can't file a Chapter 7 (or another chapter of bankruptcy). A joint Chapter 13 could be problematic after the divorce -- just on the fact that one spouse may not pay and have the case in jeopardy of dismissal for the other party.

High income can always be a problem without the right allowed expenses. I guess I'm just to passionate about quickly dismissing a high-income case simply because it is high income. Otherwise, I would not have converted my case (albeit I ended up going non-consumer... but still qualified otherwise as consumer). My expectation is that the consultations will at least look beyond mere income, especially with high income earners.

A typical high income earner also has a substantial mortgage or mortgages. All things being equal, I'd still make sure that I'd consult more than one attorney when you are a high income earner and have substantial (and allowable) secured expenses.

[kornellred]

teacher0814 - perhaps the best thing for you and your ex to do is finalize a divorce immediately, before filing for bankruptcy. Perhaps you can defend against creditor lawsuits, at least temporarily, until it is decided how the debts of the marital estate are to be divided. Then, after the marital matters are a foregone conclusion once and for all, you can get on with the business of bankruptcy. Separately.

[mountanddo]

I'd be leary about going into a Chapter 13 with someone I was divorcing and you must be too or you wouldn't have voiced your concerns. That's an awful long time to be saddled with someone you don't want to be married to any longer. I agree that you should meet with a few more attorney's before you make a decision.

[teacher0814]

Yes I am starting to think that the Divorce needs to happen first. Also, am I understanding this right? If the house goes, and the business debt is over 25% of the total, then it would be a chapter 7 at that point?

[HHM]

Business debt has to be over 50% of "total" debt to be non-consumer chapter 7.

[teacher0814]

Oops, I meant to say 75% Once the house is gone, the business debt is 80,000 and the CC is 14000. But could they come after me if he files Chapter 7 after the divorce?