Beginners question CH13 or CH 7

[tallberry]

Hi All,

I'm new here but am learning so much thanks to this forum. I just dropped off my questionaire and paperwork to attorney yesterday and my mind is racing. My question is this...here in Florida the Median Income for six months is $32,100, my husband and I go over the Median by about $3,000 but we have no assets to sell and we are in the negative on a monthly basis debt vs income. Do we still have to go CH 13 or would we possibly qualify for CH7? Oh yes, another thing, we have a house up in Indiana that won't sell and we wish to relinquish plus we are paying rent for a home here. I guess what I am saying is if we are not trying to save our house, is the median income amount cut in stone or is there some wiggle room? From what I am reading, a CH 7 seems so much better than a CH13 but I want to do what ever I have the best chance of getting approved by the trustee.

Thanks all...

[325Falcon]

You need to take the means test. If you "pass" then you should be able to do a 7.

[woeisme]

If you are above the median, you can still do a 7 if your expenses (legitimate expenses) are high enough that you won't be able to pay into a CH 13. They "presume abuse" if you are above the median, but as long as you have documentation to show your expenses, you can prove that your case isn't an abuse of the CH 7. Talk to lawyers until you find one that is willing to at least try for a 7 for you, don't let them tell you that you must do 13. Good luck

[tallberry]

Thanks for the replies...am I right in thinking that the CH7 is "better" than a CH 13. In that I mean it is over quicker and you can rebuild your credit and life quicker? The only thing that concerns me is the cost to "try" for a CH7, only to find that it is turned down and then having to pay for a CH 13. Any thoughts on that...

[woeisme]

If you try for a 7 and need to convert to a 13, you can have the lawyer's fees for the 13 included as priority debts in the 13, meaning they'd get paid first before any unsecured. So if the lawyer will include the 13 fees in the plan, you should be ok because unless a lot of your debt is to secured, it won't change the overall amount you pay, just the % that gets paid to the unsecured. (what I'm trying to say is that some of the money you would have paid in the 13 goes to the lawyer instead of your credit cards, for example.)

[tallberry]

Thank you, woeisme, that makes sense now. I guess I'll have to just wait and see how we come out on the means test. So going back to your first comment about our expenses. I actually think I went too low with some of the them and I forgot to include some things like my son's school books (he lives at home and goes to community college). We just paid over $500 for this semesters books. He is only a freshman, so we have 3-1/2 more years of them. Would that be considered a reasonable expense?

[coma]

In reference to college expenses, that is a tought one. There is no hard and fast rule about whether or not they are legitimate. Some trustees object to paying college expenses for kids, as it is not a requirement for you to live to pay for your son's books. Some may let you get by. I believe that one will come down to how things are done in your area and what your trustee does.

[tallberry]

I see what you are saying, coma, I didn't include them on my questionaire because it is not a revolving bill each month, I'm a pathetic rule follower. I just want this to go through the first time (maybe wishful thinking).

[Flamingo]

Thanks for the replies...am I right in thinking that the CH7 is "better" than a CH 13. In that I mean it is over quicker and you can rebuild your credit and life quicker? The only thing that concerns me is the cost to "try" for a CH7, only to find that it is turned down and then having to pay for a CH 13. Any thoughts on that...

Filing a Chapter 7, if you are able to do so, does not mean you can rebuild your credit and life quicker than if you filed for a Chapter 13. Chapter 7's remain on your credit report for 10 years compared to 7 years for a Chapter 13. You will have to learn to live on a cash only basis for a while after filing your Chapter 7; you may find it difficult to obtain any sort of credit or a car loan with a decent interest rate for a while after filing. That "while" can be years although some several months after discharge may be offerred a $300 credit card through Orchard Bank with high yearly and other fees or one of the higher risk lenders may send you an offer after a year or so. That is because they purchase lists of filers (BK is public information) and they know since you unloaded all your debt in a Chapter 7 you may have more cash available and you will jump at their offer(s). Be careful as many come with all sorts of fees and time limits because that is the way those lenders/creditors make their money. This economy right now is very bad and lenders/creditors are extremely picky as to who they extend credit. Even those with excellent credit are having difficulty getting loans and credit now as they are being scrutinized by the lenders/creditors.

Rebuilding your life and credit after filing either Chapter takes time. While it is a godsend to be able to file, learn from the experience and be careful in the years to come. During the 10 years the 7 will be on your reports if you file Chapter 7, that will always work against you in some way as to many things until it is removed; obtaining a new job, obtaining loans/credit, etc. Unfortunately, that is the way it is.

[tallberry]

Thank you Flamingo, I understand it isn't going to be a "walk in the park". Sadly enough for us our BK was due to my husband's job transfer last spring and not just careless spending. We still to this day have credit scores in the 740-775 range (which will change when we file). Our home not selling after the job transfer was our whole problem in a nutshell. We put it on the market literally the month before the market took a dive in our area. We had enough in our savings to pay everything for about 3 months and we are now 9 months with the house on the market and couldn't give it away free! Before all of this, our credit was pristine...so this is a real bitter pill to swallow. We even went to our credit card people and asked if they would lower our monthly payments for 6 months or so, to let us catch our breath. They all said, "why would we do that if you are current and never paid late in 20 years?" So to tell you the truth I don't feel bad about sticking it to them, we tried to do the right thing and they kicked us in the chops...so I hope they enjoy that big fat 'zero" they will get! Sorrrrry...for that rant there, just frustrated. Thanks for allowing me to do so :o)

[Flamingo]

Thank you Flamingo, I understand it isn't going to be a "walk in the park". Sadly enough for us our BK was due to my husband's job transfer last spring and not just careless spending. We still to this day have credit scores in the 740-775 range (which will change when we file). Our home not selling after the job transfer was our whole problem in a nutshell. We put it on the market literally the month before the market took a dive in our area. We had enough in our savings to pay everything for about 3 months and we are now 9 months with the house on the market and couldn't give it away free! Before all of this, our credit was pristine...so this is a real bitter pill to swallow. We even went to our credit card people and asked if they would lower our monthly payments for 6 months or so, to let us catch our breath. They all said, "why would we do that if you are current and never paid late in 20 years?" So to tell you the truth I don't feel bad about sticking it to them, we tried to do the right thing and they kicked us in the chops...so I hope they enjoy that big fat 'zero" they will get! Sorrrrry...for that rant there, just frustrated. Thanks for allowing me to do so :o)

We too never had one late payment on anything prior to filing; ours was due to a major job loss and we were able to avoid filing for about one year, utilizing all our savings and, unfortunately, utilizing my husband's 401(k) to make up the difference in his salary loss. If we had known better and visited sites like this, we would have known the 401(k) could have been saved if we investigated filing earlier. Anyway, our credit scores dived from very high to the high 500's after filing. We filed Chapter 13 due to the equity in our home. We did not want to sell our home but if you can do so and do not want to keep your home, I highly recommend filing a Chapter 7. While it may take longer to come off your credit reports and may create problems for a while, you seem to be in the position to come out of it better in the long run. The new BK law effective 10/05 made it much more difficult for those to file a Chapter 7 as you have well found out.

The market is real bad now as to selling homes. We have friends that have had theirs on the market for almost 8 months and if they lower the price anymore, they should just give it away. However, if someone is in the position to purchase a home now and with the market expected to be better by early 2010, what a great position to be in as to obtaining a home at a lower price and a nice gain expected when the market is better.

It doesn't take much for a life event to happen to toss some of us in the BK arena. As many, like you, have found, you would never think you would have to file but something happens to put you knocking on the BK door. Hope things work out for you...

[tallberry]

Than you Flamingo. I really appreciate the words of encouragement. Especially the fact that your score was in the high 5's after BK, that was something I was wondering about. I can't believe I would even be saying that but atleast we could get it back into the 600's with a little tenaciousness. I still think the move here to Florida was the right one for us, just made the road much bumpier than we imagined. As this forum has taught me, this is a good financial business decision for us and we need to stop kicking ourselves for it. Right?