Does this make sense to you?!?!

[Licoriceky2]

Ok help, we are mid way through a 13 and fine. I have learned a LOT from the threads and people on here...however my good friend is gettting ready to file, using my attorney and her issues are VERY similiar to mine. She met with our attorney yesterday and she came over and saw me last night. We spoke for hours and I am SHOCKED at what our attorney told them.....she reports that:

1. Our attorney told them that the $8k they received in a tax refund this year would have to be "paid back" through the plan.

I was shocked. I am not sure if she just does not understand, but how is it that your tax refund would have to be paid back??? They are withholding wayyy to much (still) and this was money that they earned and actually applied toward debt in March in an attempt to prevent where they are now.



2. They have several secured issues...a camper, two vehicles they are paying on, and a boat. Our attorney told her (if she understood right) that IF they let these things "go" the trustee was going to make them pay the same amount (on top of whatever their disposible income was) towards the plan as they had "demnstated the ability to pay for these items"...so he (the attorney) told them they should just try and hang onto them because they are going to pay that amount to the trustee or for the items.



3. Also, they just adopted a child with needs. They receive a monthly payment of around $600 from the state...does this count as income? Our attorney did not know the answer to this.




WTH??? Her situtation is this....their "disposible" income is ONLY around $700 after you take into account their reasonable budget, which of course does not include any debt. There situtation is like this:

Net Monthly Income monthly: $4800
Unsecrured Debt: $40K
Camper: $27K
Vehicles: $33K
Boat: $4k
Arrearage on house: $3k
Atty fees through plan : $2,500

I do not understand why the attorney would tell them to try and hang on to the camper/boat and both vehicles with debt?!?!? They will not be able to demonstrate the ability to do this right? Can anyone look at this and tell me what you think??Thank you so much!!

[Pandora]

The attorney is correct regarding the tax refund. Also, any future tax refunds may have to be handed over to the trustee unless they can exempt them, but again, its the trustee's call. It is considered "disposable income" that could be given to creditors. Your friend should ask the attorney if they can change their exemptions to make their refund as little as possible if they want to keep it in the future. However, in doing so, it may also create more disposable income. Alot of things depend on what their Schedules show; do they have every single bill accounted for, IRS standards exceeded, etc.

As to the recreational vehicles - attorney is correct there as well. These are luxury items in the trustees eyes - and if they keep them, then they must pay for them. If they turn them in, the payment is now considered disposable income and will go towards unsecured creditors. Question is, will the trustee want more $ and tell them the RV and boat need to go as they make the plan "unfeasible". Some people have been able to keep their recreational vehicles while others have not.

The money they receive for the child is considered income and will be counted.

[LadyInTheRed]

Pandora, I think you misread what was said about the RVs and boat.

Our attorney told her (if she understood right) that IF they let these things "go" the trustee was going to make them pay the same amount (on top of whatever their disposible income was) towards the plan as they had "demnstated the ability to pay for these items"

1. Our attorney told them that the $8k they received in a tax refund this year would have to be "paid back" through the plan.

The refund she already received and spent does not have to be paid back. But, divide that by 12 and that is $666.66 a month in disposible income. Assuming her income and tax liability remain about the same, that disposible income will have to be paid to the trustee, either as part of the monthly plan payment or by turning over the refund at the end of the year. If it is included in the plan payment (which the trustee may insist upon), your friend will need to adjust her withholding.

2. They have several secured issues...a camper, two vehicles they are paying on, and a boat. Our attorney told her (if she understood right) that IF they let these things "go" the trustee was going to make them pay the same amount (on top of whatever their disposible income was) towards the plan as they had "demnstated the ability to pay for these items"...so he (the attorney) told them they should just try and hang onto them because they are going to pay that amount to the trustee or for the items.

Either the attorney is crazy or she is misunderstanding. If she lets these items go, the creditors can repossess them and file unsecured claims for the difference between their value and the balance of the loans. If the attorney really said she'd have to pay for these items even if she surrenders them, she should ask him to explain why.

3. Also, they just adopted a child with needs. They receive a monthly payment of around $600 from the state...does this count as income? Our attorney did not know the answer to this.

The attorney will probably need to do a little research about that. If it is included as income, presumably the expenses it is meant to cover will offset the income.

WTH??? Her situtation is this....their "disposible" income is ONLY around $700 after you take into account their reasonable budget, which of course does not include any debt. There situtation is like this:

Did she include the over withheld tax? If not, her disposible income is really more like $1366.

Net Monthly Income monthly: $4800
Unsecrured Debt: $40K
Camper: $27K
Vehicles: $33K
Boat: $4k
Arrearage on house: $3k
Atty fees through plan : $2,500

Based on this, assuming she gives up the vehicles, camper and boat and keeps the house and she has no non-exempt assets, her plan payment will be equal to her monthly payment. If she wants to keep a vehicle and she doesn't have equity in it that she can't exempt, as long as her disposible income (without reduction for the car car payment) covers the payment on the vehicle, the arrears on the house and the attorney fees, her plan payment will be equal to her disposible income. For example, if she owes $10K on the vehicle she keeps, she needs to be able to make a plan payment of $258.33 [($10K + $3K + $2500)/60]. Sounds like she has plenty of disposible income to do that and that the unsecured creditors will get paid something. I'm assuming she will make the house payments outside of the plan and that the $700 you mention is after deducting the house payment.

I do not understand why the attorney would tell them to try and hang on to the camper/boat and both vehicles with debt?!?!? They will not be able to demonstrate the ability to do this right? Can anyone look at this and tell me what you think??Thank you so much!!

I suggest your friend come post here to make sure we get accurate details of her situation. From her understanding of what the attorney said to your understanding of what she said, a lot can get mixed up. She should also consult with another attorney or 2. The right attorney for you may not be the right attorney for her.

[LadyInTheRed]

Our attorney told her (if she understood right) that IF they let these things "go" the trustee was going to make them pay the same amount (on top of whatever their disposible income was) towards the plan as they had "demnstated the ability to pay for these items"

I just read this again. Could it be that what the attorney was saying is that she has so much disposible income, that she might as well keep the assets because what gets paid on those debts would simply reduce what goes to unsecured creditors? That is the only reason I can think of he would advise her to keep them. In fact, it makes sense. The total secured debt, arrears and attorney fees you list is $69,500.00. Divided that by 60 plan payments and you get $1158.33. If her disposible income, after deducting the monthly mortgage payment, is $1366, then there is enough to pay the secured debt and trustee fees, leaving very little to unsecured creditors. In that case, it makes sense to try to keep the secured assets. The trustee may object to keeping "luxury items" at the expenses of the unsecured creditors, but it's worth a try. Again, I'm assuming she has no non-exempt assets. If she does have non-exempt assets, there must be enough left for unsecured creditors to pay them at least the value of the non-exempt assets.

ETA: I don't think the fact that she has demonstrated the ability to pay for those items is at all relevant. What she can afford to pay in a Chap 13 is based on her income less her reasonable and necessary expenses, not what she managed to pay before she filed. By that logic, a trustee can argue that a debtor who stayed current on their unsecured debt until they filed, has to continue to make a plan payment equal to at least the credit card payments. That arguement would be a loser!

[chicagoed195]

I think all the attorney was attempting to say, was that to the extent the disposable income was not being used to pay the secured debt it would increase the amount of disposable income available to pay unsecured debt. Essentially, if you are surrendering secured assets in your plan, you will not be allowed to deduct payments that you are no longer making on the secured assets in determining your projected disposable income.