Considering 13

[Sand3799]

Hello, all! I'm considering Chapter 13 and looking for guidance. My spouse and I were doing really well in 2020. New house, 3 new cars, credit stable, income stable. We burned through our savings outfitting our home, but that wasn't a big issue, income was enough to start saving again. Then in 2021 and early this year, we had a combination of life events that have just sunk us. We've had thousands of dollars that have gone to funerals, attorney fees for a custody case, college expenses for our son, medical bills, etc. I make $107k annually from employment, and we have another $93k in non-taxable income annually (VA disability, SSDI, and Veterans Caregiver benefits). We have a $378k mortgage that we were granted a Covid forbearance on just last week, otherwise would be 2 months late. We have about $150k in auto/motorcycle loans, 2 are current, 2 are 1 month late. I have $148k in student loans. Then, we have credit cards and super high interest personal loans. All combined, about $750k in debt. We have let some payments go late by 60 days in some cases, though many are still current. Our credit has already tanked. We're to the point that after all payments are made, we only have about $1,000 left for food, gas and personal hygiene monthly for a family of 4. Trying to figure out if it's better to let the high interest loans and cards go and maintain payments on the others, or seriously look at filing 13. Letting the high interest accounts go would free up about $1850 a month, but they would eventually go to collections or a judgement, I'm assuming. Our home has about $200k in equity according to some online figures I've seen, but we have no way to access the equity without selling, which we are not interested in. Appreciate any advice.

Sand3799

[flashoflight]

I'll take a stab at this. I'll assume you are filing joint using Alabama bankruptcy exemptions, which are exceptionally stingy. Using back of the napkin math, it appears you are going to be repaying at least $170k of the unsecured amount at the absolute minimum due to the non-exempt equity in the home which I assume you want to keep instead of your house being liquidated in a hypothetical chapter 7 with a $30k check back to you because you are not eligible for CH7 for right now due to the means test. Your non-exempt equity in the vehicles in the two vehicles you are allowed to keep will add to that. To keep the two remaining vehicles, you will have to pay all of the unsecured debt at 100% over five years unless you co-signed the loan and the true borrower has been paying 100% of the payment from his own income, which will need to be proven. If you are not paying your unsecured debts 100%, you are likely have to give up two of the four vehicles and the trustee will probably object to you paying any your son's college expenses instead of the credit cards because you aren't paying credit cards at 100% payback. 100% payback plus legal and trustee fees over 60 months even with 0% interest is going to be a very high payment. The COVID forbearance might be a monkey wrench to all of this if you are not 100% payback because it will increase the dividend to unsecured creditors. With $107k taxable and $93k non-taxable income and a lot of non-exempt assets, it appears you are repaying most of your unsecured debt. Your mix of taxable and non-taxable income is equivalent to the net paycheck of a person making a lot more than $200k/year.

A bankruptcy lawyer with the fancy bankruptcy software will be much better at estimating what you are paying back. This is just a guess and I could be way off. Remember at some point in the near future you have to resume making your student loan payments and the mortgage payment. My advice right now is to talk to a lawyer. But so far, it seems very likely you will have a high plan payment and will be paying back most of your unsecured debt.

[Sand3799]

Thanks for the info. I actually spoke with a couple of attorneys today. Going to sit down with one on Friday.

I'm ok with paying everything at 100%. I just need to stop the bleeding on high payments/high interest.

[Carmella]

I am glad you are talking to a lawyer. If your gut tells you the lawyer is a dud run and find someone else! Or consult with a few lawyers. The first one we saw gave us very bad vibes.

My situation is similar, but different than yours. Similar in the sense that we had our house a short time then the bottom fell out. But we tried on our on to fix it and would almost get out of debt then something else would go wrong and we were back in debt.

We had a steep 100% payment plan in Chapter 13 like it sounds you may have, but it outweighed the growing debt with interest and/or fees accruing since we had no money left. At one point I was using one credit card paying it monthly and charging it right back up because we would run out of money. Other cards were maxed out and we could not use them.

I am not in your state, but we were allowed to keep 3 cars since my daughter who graduated college the day before our 341 meeting was using that car. My daughter and my name were on the title, and it was worked into our Chapter 13. I was glad my daughter was not dragged into or having to pay as she had no real income at that point and had to do low paid internships before landing a 'real' decent paying job. We paid for that car"outside" the payment plan, but it was still required along with the mortgage and HELOC. We did have a junker car that had no payment, but they still allowed 3 cars. Only 1 of the 3 survived the BK. We are still dealing with that mess. Still only have 1 car in the household between hubby and I.

I also felt like our credit was bad so what the heck if we have BK on our credit report. We basically had what we needed to live and no plans to immediately buy a house.

Update us on what you find out from the lawyer regarding your options for BK.

I will never say outright BK 13 is a good thing. It really stinks and BK 13 is not for sissies. But it was what we needed an in the long term a life saver for us. I am assuming you are younger and that's even better to get it out of the way now and learn from your mistakes/don't let debt get control again. I just turned 58 and my husband is going to turn 65. Our BK is in the final stages--our payments have stopped. Some creditors did not file so we ended about 10 months earlier than expected!

[Sand3799]

We're 50 and 51. I feel like you do - credit is trashed by the late payments already. I think the initial hit from the 13 will hurt less overall than continuing to rack up late payments. The lawyer we spoke with today said we shouldn't have any trouble with the vehicles because we have 3 kids in the home that are driving and they all have to get to school and jobs. We have two in high school and one in college. Attorney also said that my hubs being a disabled combat veteran works to our favor, something about a new law and how it affects disposable income in our case. Anyway.... hoping for good news on Friday. Will definitely keep you posted.

Sand3799