Ch 7 or 13 Bankruptcy Questions

[michellem0311]

What is the name of your state (only U.S. law)? Kansas

Hi. My husband and I have an initial meeting with a bankruptcy lawyer next week, but I am trying to gather as much information and get as many answers as I can prior to that. I am hoping these are simple questions. My husband makes a pretty good income, which is probably well above the qualifications level for a Chapter 7, but I am hoping not, so here are the details. My husband plans to file individually, as I have a previous bankruptcy on my record and have no income other than anticipated SSDI (waiting approval). So the numbers are his and including only the debts that are in his name alone. His income is approximately 75,000 per year before taxes. This would be well over the median for a household of one or two. Can he claim a household size of 3 based on my daughter (his step daughter) of whom I share 50% custody with her father? She is home with us only half the time, and her father has the right to claim her on taxes. His address is also her official address for school, doctors, etc. My husband does support her the 50% of time that she is home and carries insurance on her (secondary to her father's insurance). I say we are a household of 3, which means the median income standard would be slightly higher.

My husband's debt has all been incurred within the past 2 years and is primarily credit cards. Two of these cards are secured: a jewelry store card (current balance is $3300) and a furniture store card (current balance of $5500). My wedding rings are financed on the jewelry store card, and our household furniture is on the furniture store card. Given the household goods exemptions, and the wedding ring exemptions, does that mean I can keep my rings and furniture or will they be subject to repossession since they are "secured" credit?

The rest of the debt includes a mortgage (current balance $120,000) on a house that he rents out. Does the rent paid to him have to be counted as income considering that it goes directly to pay the mortgage with nothing left over? Will he be able to keep this house during bankruptcy even though it is not our primary residence (we rent an apartment in another county since I am subject to a custody order to keep my daughter within the school district)?

There are also unsecured credit cards: Citibank (balance of $16,514.00 which has been closed due to nonpayment for over 90 days but had a limit of $19,000.00) Discover Card (balance of $14,528.00 and a credit limit of $14,100.00 so over limit fees and interest are accruing quickly) a Visa card (current balance of $5100 and a credit limit of $4600 so same situation as Discover) and a Capitol One card that is never used but has a yearly fee of $36.00 which has not been paid and is now past due, and a credit limit of $500.00).

In addition to these debts we have rent of $1100/month, car insurance of $300.00/month (both vehicles are paid off) cell phone bill of $338.00/month (currently past due by one month) cable/internet at $250.00/month, electricity around $200.00/month and gas (heating and cooking) of around $100/month, gasoline for our vehicles fluctuates but runs close to $350/month (he drives a large truck).

I had a good income but have recently become disabled and can no longer work, so even the minimum payments in addition to my medical expenses have become overwhelming and bankruptcy is now our only option. I'm sorry this is so long, but I am hoping by providing enough detail maybe someone can tell me what to expect. I believe he might be forced into a Chapter 13 based on what research I have done, but I have no idea how that works. My own bankruptcy was in 2002 before the means testing and was a simple Chapter 7, no asset case. Any advice at all would be greatly appreciated.

 

[despritfreya]

In response to some of your inquiries (others will stop by to add their thoughts). . .

My wedding rings are financed on the jewelry store card, and our household furniture is on the furniture store card. Given the household goods exemptions, and the wedding ring exemptions, does that mean I can keep my rings and furniture or will they be subject to repossession since they are "secured" credit?

Exemptions do not protect you from the purchase money lien holder. Assuming the creditor asserts a security interest (some do, some don’t) your choices are:

In a Chapter 7:

1. Redeem the merchandise for its fair market value;
2. Reaffirm the entire obligation and make the normal monthly payments;
3. Surrender the items and owe nothing;
4. Work something else out with the lender.

In a Chapter 13:

1. Pay the value of the item through the Plan with appropriate interest;
2. Surrender the items;
3. Treat the creditor as unsecured and wait to see if it files a secured claim or an objection to the Plan, then back to 1 or 2.

The rest of the debt includes a mortgage. . . on a house that he rents out. Does the rent paid to him have to be counted as income. . .? Will he be able to keep this house during bankruptcy. . .?

Yes, the rents are income for means testing purposes. However, the secured debt can be expensed out as an offset.

If your husband ends up in a Chapter 7 he CANNOT keep the rents he collects from the moment he files to the moment the Trustee abandons the non-exempt rental property unless he has the express (written) permission from the Trustee. The rents are property of the estate and belong to the Trustee (not even the mortgage holder unless the lender has a valid “assignment of rents” that is properly invoked). As to keeping the property, that also depends upon what the Trustee does with it.

If he files a Chapter 13 the rents will be included on Schedule I and help fund the Plan. The mortgage payment, property taxes and insurance will be expensed on Schedule J. Please note, however, that if the rental property is not at least a break-even proposition, the Chapter 13 Trustee and/or the judge will probably require its surrender to the lien holder. If it is costing money to keep the court will be reluctant to allow your husband to divert money to pay for something that “is not necessary for an effective reorganization”.

I hope this gives you some of the answers you are looking for.

Des.

 

[bigun]

If, some of the debt is in your name, you would be eligible to file a Chapter 7 since, it's been over 8 years since you filed your bk.

 

[michellem0311]

I hope this gives you some of the answers you are looking for.

Des.

Thank you. It really does. It's all just so overwhelming and confusing. I never thought we would find ourselves in this situation so quickly.

If, some of the debt is in your name, you would be eligible to file a Chapter 7 since, it's been over 8 years since you filed your bk.

We have considered this and maybe you can help tell me if we are thinking right on this one, but none of the debt except the apartment lease and basic utilities have my name attached. I am not even listed as "authorized user" on any of the credit cards. My own credit is bad, but I have been trying to improve it; after the bankruptcy I was sued (and garnished) by two credit cards and have had two tax liens garnished from my income. One is still on going (underpayment of state taxes 2010) with a remaining balance of over $1000, but I guess it is on hold or whatever since I no longer have income.

So our thinking on this is that bankruptcy is going to ruin his credit, which was excellent 2 years ago, and we are going to need some credit moving forward. We plan to move to our hometown as soon as my daughter is out of school and I am freed from the custody orders' limits on where I can live. She will graduate this school year, so we are only talking about a few months. This will save us a lot in rent (moving from the city to a rural town) but we will still need to buy a house or rent something. We are hoping I can keep improving my credit and then we can do anything requiring credit checks in my name, so that the bankruptcy won't just devastate us for the next few years. Since the bankruptcy has fallen off my credit reports, it seems like a bad idea to have a new one back on there. Wouldn't it be better, even without an income of my own or a total SSDI income to put everything in my name for the next little while, even if it is using his income to finance it?

I am also keeping notes of all these questions and I will probably have a list a mile long to ask the lawyer next week- I hope he is patient with me because this is all scaring the heck out of me. I hate the uncertainty and not knowing what is going to happen next. Thank you all for your kind and patient answers, I really do appreciate it.

 

[davew128]

Have you considered cutting your spending?
$300/month on 2 cars? What are you driving, Lindsay Lohan's leftovers?
$338 for a cell phone plan? I pay $100 for a family plan with unlimited everything.
Cable/internet of $250/month? Umm, cut the cord. Go internet only and live with rabbit ears, or go basic cable.

 

[michellem0311]

Have you considered cutting your spending?
$300/month on 2 cars? What are you driving, Lindsay Lohan's leftovers?
$338 for a cell phone plan? I pay $100 for a family plan with unlimited everything.
Cable/internet of $250/month? Umm, cut the cord. Go internet only and live with rabbit ears, or go basic cable.

I understand what you are saying, but you made me laugh in your wording. Yes, we are working on cutting spending as well of course. The $300/month is the insurance payment on my car (liability only as it's paid off) and I know that is high, but some of it comes from adding my daughter as a driver of my car, she is 16 and created an insurance claim the first day she was added (backed into someone in a paring lot) which raised my rates astronomically. I intend to have her pay $100/month of that as soon as she begins working (supposed to start this week). I'm honestly not sure what the payment on my husband's truck insurance is, but I know it is less than $100/month and is also just liability insurance on which my daughter is not included as a driver.

The cell phone plan, I should have been more clear...that is solely in my husband's name but includes 5 phones with data plans which have not been upgraded. Our 3 and my grown son's and his girlfriend's. They live on their own in another state, but the phones were purchased as Christmas presents a year ago and we added them to our plan because it was cheaper in the long run than them having a separate plan. My son is supposed to be paying their share of the total, but has his own money problems and has not been able to pay for several months, which is why the account is now behind (we do mostly pay every month but only the $338 monthly amount, so there is always another $338 left unpaid and considered past due from missing one payment months ago). This does lead to another question however...would the contract be canceled or service cut off when bankruptcy is filed? It's an AT&T plan if that makes a difference; and since we do not have home phones the cell phones are essential for communication.

The cable/internet bill is at a bundled rate...I'm not sure how much difference it would be to cancel one or the other service, but I will look into this. My husband does enjoy the range of channels (no premium channels, but on-demand service which we do make use of as an alternative to going out) the DVR and other features. As I am now disabled and primarily house bound, it will be a difficult sacrifice to make. The cable is also in my name alone, so would not necessarily need to be included in a bankruptcy that is individual for him, would it?

Thank you for giving me more to think about. I will call Time Warner on Monday and see if we can't get that bill down by canceling or changing some services around. I'm not sure if I can lower any of the others, the cell phones are on contract and the insurance is what it is...we already only carry the minimum required by law, but perhaps shopping around some could find a better deal for us.

 

[bigun]

This does lead to another question however...would the contract be canceled or service cut off when bankruptcy is filed? It's an AT&T plan if that makes a difference; and since we do not have home phones the cell phones are essential for communication.


If you want to keep that plan, you need to get current and stay current before you file.
Once you list them as a creditor, they'll cut you off.
I'd suggest that you stop paying all debt that you wish to discharge and use that money for legal fees and hh expenses.It's also time to tell your son and his GF they're on their own and need to find their own plans.

 

[despritfreya]

The cell phone plan, I should have been more clear...that is solely in my husband's name but includes 5 phones with data plans which have not been upgraded. Our 3 and my grown son's and his girlfriend's. They live on their own in another state, but the phones were purchased as Christmas presents a year ago and we added them to our plan because it was cheaper in the long run

Explain why this is a necessity. What happened to the simple telephone? Why does anyone need to be able to text or communicate 24/7. Dump this - it is not needed and will save you a ton of money. Savings - up to $338/mo.

The cable/internet bill is at a bundled rate...I'm not sure how much difference it would be to cancel one or the other service, but I will look into this. My husband does enjoy the range of channels. . . As I am now disabled and primarily house bound, it will be a difficult sacrifice to make. . .

Another non-necessity. You can’t afford this. Dump it and when you are making money add it back. Rent a movie from time to time for entertainment and family time - a lot less costly. Personally, I can’t understand why anyone would pay for the privilege of watching a TV. As to the Internet, I am sure you can find a service that costs between $11 and $45/month. Savings - up to $250/mo.

By dumping these two items alone you save up to $588/mo ($7,056.00 per year). That is not chump change. Consumers are so brainwashed into thinking that these items are necessities. They are not and, if you can’t afford to put food on the table you let luxuries such as these go. If and when you can afford them without going into debt you add them back.

Des.

 

[LdiJ]

Explain why this is a necessity. What happened to the simple telephone? Why does anyone need to be able to text or communicate 24/7. Dump this - it is not needed and will save you a ton of money. Savings - up to $338/mo.



Another non-necessity. You can’t afford this. Dump it and when you are making money add it back. Rent a movie from time to time for entertainment and family time - a lot less costly. Personally, I can’t understand why anyone would pay for the privilege of watching a TV. As to the Internet, I am sure you can find a service that costs between $11 and $45/month. Savings - up to $250/mo.

By dumping these two items alone you save up to $588/mo ($7,056.00 per year). That is not chump change. Consumers are so brainwashed into thinking that these items are necessities. They are not and, if you can’t afford to put food on the table you let luxuries such as these go. If and when you can afford them without going into debt you add them back.

Des.

I disagree with you a bit about the telephones, most people are dumping landlines because its more practical and sometimes less expensive to have a mobile.

However...I have fairly recently discovered that AT&T has prepaid plans that are MUCH more reasonable than their regular plans.

I agree about the cable. You can watch nearly any show you want to watch on the internet, for free. All major networks have most of their shows available to stream...and for very modest rates you can get access to lots of movies.

 

[despritfreya]

I disagree with you a bit about the telephones, most people are dumping landlines because its more practical and sometimes less expensive to have a mobile.However...I have fairly recently discovered that AT&T has prepaid plans that are MUCH more reasonable than their regular plans.

Very true re: dumping land lines. But basic phone service (no caller ID, call forwarding or other crap), in my neck of the woods is less than $25/month. My cell phone does cost $45/month (no texting or other things one really does not need) and I could find something cheaper as I rarely use it. Call me old fashioned but just saying, when you are in a financial pickle you find the cheapest thing you can get and, if you really do not need it, you dump it.

Des.

 

[LdiJ]

Very true re: dumping land lines. But basic phone service (no caller ID, call forwarding or other crap), in my neck of the woods is less than $25/month. My cell phone does cost $45/month (no texting or other things one really does not need) and I could find something cheaper as I rarely use it. Call me old fashioned but just saying, when you are in a financial pickle you find the cheapest thing you can get and, if you really do not need it, you dump it.

Des.

I don't necessarily disagree, but dumping some things, just to dump them, isn't necessarily practical. Plus, if you have a contract, you CANNOT dump them.

 

[michellem0311]

I don't necessarily disagree, but dumping some things, just to dump them, isn't necessarily practical. Plus, if you have a contract, you CANNOT dump them.

This is the problem with "dumping" our cell phones. Of the 5 lines, 3 are still under contract (new iPhones, 2 of them 12 months ago, 1 of them just a few months ago) so the termination fees would be almost as much as just keeping the monthly plan. Unless of course that could be included in the bankruptcy, which leaves us with needing new service and would we qualify or be able to afford a plan from a different provider or just go prepaid? And the prepaid plans seem to be almost as much (per phone) as this contract is anyway...We haven't had home phones in close to a decade, so the cell phones are our only source of communication (beyond email and such)...

Our income last year from our joint tax filing is $135,000. Of course that was before I lost my income due to disability and before medical expenses and everything, but I am just having a hard time wrapping my head around the fact that we cannot afford a cell phone or cable tv (both of which I consider minimal luxuries, if not necessities). This is very hard! Of course I am willing to do whatever we have to to make it work, and looking at the financial picture as a whole, as it stands now, I can see we made some awfully stupid decisions and gave into far too many wants and luxuries, which put us in this position to begin with.

Edited to add: Actually thinking about this (luxuries vs necessities) raises another question. Thank you everyone for your well thought out and patient responses! I do appreciate it. But, if my husband files individually, whether he is able to do a Chapter 7 or is forced to do a Chapter 13 what will happen or will anything happen to my personal luxury items that were purchased by him (on unsecured credit cards) then gifted to me? For example, he has spoiled me with a collection of Coach handbags. I now have 7 of them, average retail price was around $500 each. Resale prices would be far less, but still would have some value. Would these be considered assets of his and subject to seizure (or whatever they do) or would they be ignored since they are my personal property and I am not a party to the bankruptcy? None of them were purchased within the past 6 months, if that makes a difference.

 

[davew128]

This is the problem with "dumping" our cell phones. Of the 5 lines, 3 are still under contract (new iPhones, 2 of them 12 months ago, 1 of them just a few months ago) so the termination fees would be almost as much as just keeping the monthly plan. Unless of course that could be included in the bankruptcy, which leaves us with needing new service and would we qualify or be able to afford a plan from a different provider or just go prepaid? And the prepaid plans seem to be almost as much (per phone) as this contract is anyway...We haven't had home phones in close to a decade, so the cell phones are our only source of communication (beyond email and such)...

Aside from being with the HIGHEST COST CELL PHONE COMPANY, I find it inconceivable that you couldn't find a family plan that costs significantly less. I have two lines on my family plan with a low cost provider (with a pretty girl who wears pink) and unlimited everything costs me under $100. I strongly suggest you work to find a cheaper plan with ATT.

BTW, you do NOT need ridiculous amounts of data on a cell plan. Use Wifi instead.

 

[LdiJ]

This is the problem with "dumping" our cell phones. Of the 5 lines, 3 are still under contract (new iPhones, 2 of them 12 months ago, 1 of them just a few months ago) so the termination fees would be almost as much as just keeping the monthly plan. Unless of course that could be included in the bankruptcy, which leaves us with needing new service and would we qualify or be able to afford a plan from a different provider or just go prepaid? And the prepaid plans seem to be almost as much (per phone) as this contract is anyway...We haven't had home phones in close to a decade, so the cell phones are our only source of communication (beyond email and such)...

Our income last year from our joint tax filing is $135,000. Of course that was before I lost my income due to disability and before medical expenses and everything, but I am just having a hard time wrapping my head around the fact that we cannot afford a cell phone or cable tv (both of which I consider minimal luxuries, if not necessities). This is very hard! Of course I am willing to do whatever we have to to make it work, and looking at the financial picture as a whole, as it stands now, I can see we made some awfully stupid decisions and gave into far too many wants and luxuries, which put us in this position to begin with.

Edited to add: Actually thinking about this (luxuries vs necessities) raises another question. Thank you everyone for your well thought out and patient responses! I do appreciate it. But, if my husband files individually, whether he is able to do a Chapter 7 or is forced to do a Chapter 13 what will happen or will anything happen to my personal luxury items that were purchased by him (on unsecured credit cards) then gifted to me? For example, he has spoiled me with a collection of Coach handbags. I now have 7 of them, average retail price was around $500 each. Resale prices would be far less, but still would have some value. Would these be considered assets of his and subject to seizure (or whatever they do) or would they be ignored since they are my personal property and I am not a party to the bankruptcy? None of them were purchased within the past 6 months, if that makes a difference.

If they were purchased more than 6 months ago they aren't going to be a factor anyway. However I bet you could sell 6 of those 7 purses on e-bay and cover a couple of months of cell phone bills.

 

[single317dad]

Personally, I switched to mobile phone and high-speed internet over a decade ago, as together they were much cheaper than a regular landline and dial-up internet. I still have high-speed internet and my unlimited-everything mobile, and together they cost me about $100 a month. Landline + dial-up in my area was about $80. The prices you are paying are ridiculous.

The fact that your husband "enjoys the variety of channels" is irrelevant. Basic cable at my old place was $10 a month (local channels + a few others), and Dish's lowest package is $25. If you have two lines out of contract, dump those two lines. Get yourself, your husband, and your daughter a regular phone that doesn't use data, and drop the other lines. Straight Talk's cheapest plan is $30 per phone, and can use AT&T's network if that's all that's available in your area.

If you don't get the spending under control, you'll be right back in the hole a year after the BK is discharged, and guess what? You won't be able to file again. The fact that your husband's good credit is now wrecked should be a sign that changes need to be made, and not all in bankruptcy court.