Please critique my Schedule J and overall CH7 plan...(Three person household)

[DirkDiggler]

If you can still qualify for 7 using your actual tax liability, I would use that amount. You don't want to have anything that they can use to look into your filing any further and try and push you into a 13. Now I'm not too sure about if you actually have to change your withholding, or just use the smaller amount....I'm still learning all about this process too!

[Diesel73L]

I'm pretty sure that your dmi is based on your actual tax liability divided by 12 not your withholdings. Otherwise people would jack their withholdings to qualify.

On the Schedule J it simply asks for how much is withheld from your check-the NOLO book states just to give this information from the paystub along with Medicare/SS.

[daylate]

I'm pretty sure that your dmi is based on your actual tax liability divided by 12 not your withholdings. Otherwise people would jack their withholdings to qualify.

[Diesel73L]

From what I undertstand (and if I'm wrong, I hope someone smarter than me will chime in lol) but if you over withhold, they can use the amount that is overwithheld as DMI. For example if you have $1000 taken from your check monthly for taxes, but you actual tax liability is $600, then they will use that $400 difference as DMI...at least that is how I understand it....

Thanks for raising that-if anyone else has more expertise on the subject I'm all ears. So this really applies to the Schedule I and J then, correct? As an example, right now our DMI based on our projected expenses and salaries with current tax withholding works out to -$182. My federal withholding is about $400/mo and state is around $70/mo the rest is SS/Medicare. Let's say that my tax liability is only really $200, so if your understanding is correct, that would add $200 to the DMI, which would still work out to $18. By the time we file my wife's withholding won't be an issue because she'll be on unemployment. In fact, if she's on unemployment for a full tax year we'll be lucky if we don't owe since federal and state taxes are not withheld at all from unemployment. If someone could verify this it would be greatly appreciated.

BTW your situation is very similar to my wife and I's....best of luck to you

Thanks, and good luck to you as well.

[DirkDiggler]

We usually get a refund, but the child tax credit is going to bump it up obviously. We think we're going to file in October 2012, so the first return with the child tax credit (April/May-ish 2012) will likely go to paying the lawyer and taking care of necessary expenses, so it will be gone by the time we file. So you're saying that if we're set to get a big refund around April-May 2013 that could cause the trustee to put us in a 13?

From what I undertstand (and if I'm wrong, I hope someone smarter than me will chime in lol) but if you over withhold, they can use the amount that is overwithheld as DMI. For example if you have $1000 taken from your check monthly for taxes, but you actual tax liability is $600, then they will use that $400 difference as DMI...at least that is how I understand it....

BTW your situation is very similar to my wife and I's....best of luck to you

[Diesel73L]

I would really reconsider keeping the house. That is one huge monthly payment. If you insist on keeping the house, don't reaffirm it. This way when you realize that it really is too much money, you can walk away from it.

We've already become semi-resigned to that fact...

The food is what is allowable. That's what I put on my schedule, my attorney bumped it up a little. Clothing is low, I filed over a year ago in NJ, I have a household of 3 and listed $210 for clothing. You will probably run into problems with the cable, internet and cellphone considering that it is high.

I'm going to re-do the budget sans cable and the landline phone. We can get by on just internet, using an antenna for TV, and with the cellphones of course. That should come to about $175 altogether.

Oh, and since you are planning to file, you really should stop using your credit cards.

Right now we just use them when we really need them, like at the end of the month for gas or groceries-we're not trying to defraud anyone, just trying to keep our heads above water until we are able to file. I know that we can't use cards at all 6 months prior to filing.

Be sure to review your withholdings as well prior to doing anything; if you get a refund back every year, then change it now before you file so that you break even (take into account you'll be adding another member to the family as well). You dont want the trustee to come up with anything that can force you into a CH. 13. I wouldnt change your numbers to lower amounts - some of them were already too low - you need to raise them if you're able that way you have a larger -DMI.

We usually get a refund, but the child tax credit is going to bump it up obviously. We think we're going to file in October 2012, so the first return with the child tax credit (April/May-ish 2012) will likely go to paying the lawyer and taking care of necessary expenses, so it will be gone by the time we file. So you're saying that if we're set to get a big refund around April-May 2013 that could cause the trustee to put us in a 13?

[Pandora]

Yes, you are making sense. You are thinking about how you are going to make ends meet after discharge.

If you decide to go with Scenario 2 and it doesn't work out, you can fall back on Scenario 1. Just don't reaffirm the mortgage. That way you can get the mortgage discharged and decide to walk away from the house later. Just because you say in your BK petition that you intend to stay in the house does not mean you can't change your mind after you are discharged. Also, you don't need to include the income you hope your wife will get from tutoring on your Schedule J because there is no guarantee she'll get tutoring jobs.

Agree with Lady - you're planning and looking to the future post discharge on how you will be able to live from there forward. Also agree with Vale - if you rent - get renters insurance, very important to have . Speaking of insurance, dont forget to get life insurance on you, wife, and on the little one prior to filing if you're able. It used to be you had to wait until they were a year old here in VA, however that changed about 12 years ago, not sure what it is in your area, but something to check into so you can add it to your schedules.

Be sure to review your withholdings as well prior to doing anything; if you get a refund back every year, then change it now before you file so that you break even (take into account you'll be adding another member to the family as well). You dont want the trustee to come up with anything that can force you into a CH. 13. I wouldnt change your numbers to lower amounts - some of them were already too low - you need to raise them if you're able that way you have a larger -DMI.

On another note - sending you prayers and positive thoughts on the birth and upcoming surgery for your baby. All will be well

[helpmeout]

I would really reconsider keeping the house. That is one huge monthly payment. If you insist on keeping the house, don't reaffirm it. This way when you realize that it really is too much money, you can walk away from it.

The food is what is allowable. That's what I put on my schedule, my attorney bumped it up a little. Clothing is low, I filed over a year ago in NJ, I have a household of 3 and listed $210 for clothing. You will probably run into problems with the cable, internet and cellphone considering that it is high.

Oh, and since you are planning to file, you really should stop using your credit cards.

[ValleYum]

In thinking about this a little more, I ran some numbers with regard to our hypothetical expenses vs. our hypothetical income...

Scenario 1

As part of the BK we surrender the house and rent a two bedroom apartment-$1200 a month in this locale. We would end up saving just over $1400 since not only would our housing expenses drop by $1000, we likely wouldn't have to pay for heat (no more high oil bills), electricity would be cheaper for a smaller place that's easier to cool, no maintenance cost since we don't own it, and no homeowner's insurance premium. Take that number and add it to our current net monthly income (-$187 + $1415) and you get $1228. I would think that a net monthly income of $1228 post CH7 would raise a few eyebrows would it not? I once read on this board that passing the means test is only the entrance exam-passing the Schedule J is the final.

If you take the above scenario and rent, I have two very important words for you: Renter's Insurance.

In a crisis, it is the difference in staying on the gymnasium floor care of the Red Cross or staying at the Hampton Inn care of your insurance company. Renters insurance premiums start at about $15 per month.

There was a big apartment complex fire here a few months back, thankfully no one was killed but out of 24 families only 4 had renter's insurance. Only those 4 families have their lives back to some semblance of normalcy. Food for thought.

Off the soapbox now. LOL

[Diesel73L]

Remember that your income does not have to be below median in order to qualify for a 7. You can be above median and still easily pass the means test. There is no reason to rush if there is nothing pushing you to file like creditors moving to collect on judgements. But, I wanted to make sure you understand this.

Thank you-I did know that. We're going to cut up the cards six months from filing, use that money to pay the attorney, and pull the trigger. Basically I was lucky enough to be able to see this financial disaster coming as well as find this site, so rather than going through the wringer of judgements, etc...hopefully we'll only have to field some nasty calls for four or five months. Prior to studying up here I had a much different view of bankruptcy-thank God for this forum!

[LadyInTheRed]

Thanks-I feel a little better now. So all of that said, should we go into our CH7 filing with the Schedule J (negative net income and all) as I first presented it? Or will the trustee object on the basis that he or she thinks that we'll simply end up broke again based on the negative net income? Could they dismiss the case or force us to give up the house as a result?

I don't think the trustee can object because they don't think you can make it after discharge. It's not the trustee's job to protect you in the future. It's his job to make sure your creditors get all they are entitled to. The information you presented seems reasonable to me, but I am not a Chap 7 expert. It is your attorney who can best advise you on what the trustee may object to. No matter what you come up with for a budget, your attorney will probably suggest tweaks. I suggest you take what you've done to your attorney after you retain one and go from there.

I meant to comment on the following earlier:

October 2012 - File for CH7. At this point we'll have dropped just below the median for our region, so the first of the month will be the earliest we could possibly file.

Remember that your income does not have to be below median in order to qualify for a 7. You can be above median and still easily pass the means test. There is no reason to rush if there is nothing pushing you to file like creditors moving to collect on judgements. But, I wanted to make sure you understand this.

[Diesel73L]

Yes, you are making sense. You are thinking about how you are going to make ends meet after discharge.

If you decide to go with Scenario 2 and it doesn't work out, you can fall back on Scenario 1. Just don't reaffirm the mortgage. That way you can get the mortgage discharged and decide to walk away from the house later. Just because you say in your BK petition that you intend to stay in the house does not mean you can't change your mind after you are discharged. Also, you don't need to include the income you hope your wife will get from tutoring on your Schedule J because there is no guarantee she'll get tutoring jobs.

Thanks-I feel a little better now. So all of that said, should we go into our CH7 filing with the Schedule J (negative net income and all) as I first presented it? Or will the trustee object on the basis that he or she thinks that we'll simply end up broke again based on the negative net income? Could they dismiss the case or force us to give up the house as a result?

[LadyInTheRed]

Yes, you are making sense. You are thinking about how you are going to make ends meet after discharge.

If you decide to go with Scenario 2 and it doesn't work out, you can fall back on Scenario 1. Just don't reaffirm the mortgage. That way you can get the mortgage discharged and decide to walk away from the house later. Just because you say in your BK petition that you intend to stay in the house does not mean you can't change your mind after you are discharged. Also, you don't need to include the income you hope your wife will get from tutoring on your Schedule J because there is no guarantee she'll get tutoring jobs.

[Diesel73L]

In thinking about this a little more, I ran some numbers with regard to our hypothetical expenses vs. our hypothetical income...

Scenario 1

As part of the BK we surrender the house and rent a two bedroom apartment-$1200 a month in this locale. We would end up saving just over $1400 since not only would our housing expenses drop by $1000, we likely wouldn't have to pay for heat (no more high oil bills), electricity would be cheaper for a smaller place that's easier to cool, no maintenance cost since we don't own it, and no homeowner's insurance premium. Take that number and add it to our current net monthly income (-$187 + $1415) and you get $1228. I would think that a net monthly income of $1228 post CH7 would raise a few eyebrows would it not? I once read on this board that passing the means test is only the entrance exam-passing the Schedule J is the final.

Scenario 2

We keep the house but my wife actively pursues tutoring (she can do it and take care of the baby-her mother, who is retired, has also offered to watch her three days a week) while on unemployment and I take a second job. Between us we bring in about $1000 extra every month. Add that to our current net monthly income (-$187 + $1000) and you still come up with a surplus of $813. I've read on here that if the trustee sees a surplus of more than $100 or so they'll either dismiss the case or force a CH13 which we can't afford anyway.

Am I making any sense here?

[Diesel73L]

Food seems low - we are a family of 3 and budgeted $600, sometimes we make it..other times..we go over and have to cut from other areas. In this area you need to include pet food, diapers, wipes, health & beauty items, razors, etc.

Since the standard is $639 will I have to show grocery bills? That shouldn't be hard since we're planning so far out, I can make sure that we save six months worth and then average them.

Medical: Seems very low - while the IRS standard is $60 per person, you need to factor in co-pays, deductibles (if any), all OTC meds, all RX meds, etc.

Also shouldn't be difficult to prove since we can save all receipts for that in the months leading up to filing.

Transporation: You own your vehicles so where is the $684 coming into play? You cant take the vehicle allowance if you have no car payment if thats where thats coming from. Remember to factor in vehicle inspections, tags, maintenance (oil changes, tire rotations, etc), gas, etc.

The $684 ($342 per vehicle-one vehicle per person) is operating expenses (inspections, tags, maintenance, fuel) as per the UST website: If a taxpayer has a car, but no car payment, only the operating costs portion of the transportation standard is used to figure the allowable transportation expense. In both of these cases, the taxpayer is allowed the amount actually spent, or the standard, whichever is less. The rub here is the last sentence: "the amount actually spent, or the standard, whichever is less." So apparently I have to prove that we spend at least $684 per month on maintenance? I'm actually guessing we spend more with my commute, the price of gas, etc...hell I think I paid almost $700 for tires for my truck two years ago!

Insurance: If you are in a credit profiling state, be prepared for your insurance to go up all the way around. All of ours went up - including Homeowners - all due to filing BK.

Not sure about NJ-I know there was talk of legislation banning it in the past, not sure if it ever passed.

Dont forget to factor in personal property taxes (if you have them), pet expenses (vets are expensive), and any other area you may have overlooked (newspaper subscriptions, trash service.). Look into getting on a budget billing plan for your oil / electricity - that way you will always know what the bill is every month.

All good points-no personal property taxes here-they just kill you on the property taxes on your house ;) I didn't factor in pet expenses (we have one dog) because I figured the trustee would look at them as a "luxury." No need for newspaper/magazine subscriptions-we read them at work/the library, get news online, and listen to NPR (it's the best source of news anyway)-trash bill is included in water and sewer as its all administered by the town. We are going to do the budget plan for oil and electric-$330 is what it will come to.

As to the IRS standards - if you're over median many of the areas are set at the standard, however other areas are allowed to go outside of the number listed. The bigger issue I see is that your house is taking up about 50% of your income - and given you stated even after the BK is done you will have issues paying the bills - it may be time to rethink keeping your current house vs. finding another one that is less a month.

The house is at least $20K underwater right now and with the stock market tanking the way it is I don't see housing making any kind of comeback soon. My hope is that we can get through CH7 without reaffirming and just "staying and paying." That way if worse came to worse we could always walk away.

Having your wife return to work will result in needing childcare - so you need to factor that in somewhere down the line post discharge as well.

She is entitled to 99 weeks of unemployment, we'll figure that out when we need to. Post discharge if she can get another job as a teacher later down the road and get her salary back up to what it was we could easily afford childcare since our disposable income won't be eaten up by credit card minimums.

As to your vehicles - you need to be able to exempt both of them to keep them given they are paid for.

The federal exemptions for vehicles plus the unused homestead exemption (no equity) will take care of this.

Along those lines, they are older vehicles - what happens when one breaks down and you need another one? How will you afford that?

Not sure.

Some things to think about...especially given you have a child who will need continual care due to issues.

God willing (and according to the docs at Children's Hospital in Philadelphia) she won't need continual care. She will need surgery at 5 weeks of age to correct a lung defect, then follow-up visits and care until she is a year old, then the only lasting reminder of this will be a scar on her chest.

also wanted to add that you're factoring in your wife's UI to pay bills - while that works now... how will you make up the difference once UI goes away?

Hopefully 99 weeks will be a long enough time to figure things out. I understand what you're saying about planning post BK, but right now the debt is crushing us anyway. Let's say my wife loses her job, I keep mine, and we don't declare BK. We will end up defaulting on the cards anyway because we'll end up diverting money to keep the house and survive-it's not like there's a third option for us. If we find we can't keep the house at least we'll be in a position to walk away from it (as long as we're not forced to reaffirm). Finally, with my wife home with the baby I'd be free to get a second job-the only reason I haven't done that yet is because it makes no sense to work a second job to pay credit card minimums. Post BK a second job would allow us to put money away. Also, as a former high school English teacher with a Masters in Writing my wife could tutor in our home and at the local library. Basically the point is, BK would allow us to at least get to a point where we could feasibly dig ourselves out. Right now we're in a hole and shoveling, but the credit card companies are throwing the dirt back down on top of us. I should also add that I am a hunter and have friends who are hunters who know what we're going through. In a state like NJ there is no shortage of does to shoot and we've gotten meat from friends already-a big help since meat is a big cost driver of groceries anyway. Dropping cable and the home phone would save us about $125 a month. We also have a wood stove and could likely cut the yearly oil bill in half-we could also do a lot more to save electricity-that could net us as much as $100 a month. Since my wife won't be driving much of anywhere, being unemployed, the $342 operating costs will be much lower. Not to mention the fact that her Toyota will likely last forever if its rarely driven and the gas savings-I'd say that's a $200 savings right there. So realistically our budget could look like this:

Food - $500 (Help from our church, mom and dad, and my hunting buddies)
Clothing - $50 (If that-we have a good thrift shop nearby, and there's always yard sales)
Internet only (No TV but we'll keep the cell phones) - $50
Burn lots of wood (easy to find free if you know where to look) and save electricity - $230
Wife's car rarely drives - $142

Total - $1012

Previous Total - $1670

Difference - $658

I hope?