November 24, 2017

What is the Secret to Making Your Chapter 13 Plan Work?

 

After 25+ years representing hardworking but financially struggling men and women in the Atlanta area, I can report to you that the #1 secret to surviving Chapter 13 is living below your means. This can mean you have to make some difficult choices.

Chapter 13 Trustees are Increasingly Demanding

When you enter Chapter 13, you need to eliminate the “wants” in your life in exchange for the “needs.” I advise my clients that if you find yourself meeting with a bankruptcy lawyer, everything needs to be on the table. And this includes your cars, home, furniture, jewelry and just about any other type of property you are financing. You will also find that your Chapter 13 trustee likely has a much more restrictive view of what constitutes a true “need:”

  • if you find yourself paying more than $300 per month for a car or truck, you need to consider giving that vehicle back to the creditor and buying a car for cash or financing a vehicle and keeping the payment below $300 per month
  • if you are financing vehicles, furniture or jewelry for your children or other relatives, you should be prepared to surrender that property and let your relative work out a deal on his/her own
  • if your budget includes out of pocket payments for your children’s college expenses, expect push back from the trustee. The trustee’s position will generally be that your child needs to use loans and grants to finance his/her own higher education and that your child may need to seek a less expensive education. Trustees generally do not agree with including someone else’s education costs in your budget
  • if your budget includes private elementary or high school for a child, you will need to produce evidence that your child has special educational needs that make public school insufficient
  • do not plan on keeping time shares or other non-essentials when you file Chapter 13

[Read more…]

The Problem with 401(k) Loans and Consumer Bankruptcy

Most of the clients who I represent in Chapter 7 or Chapter 13 cases view bankruptcy as their absolute last resort.  Usually, by the time they get to me, these clients have exhausted every other alternative – they have borrowed money from relatives and friends, sold possessions on eBay and cashed out or borrowed against retirement plans.

All of these choices, by the way, create unintended consequences – if you are reaching that point of desperation where you are thinking about selling things, cashing out retirement plans, etc., I would rather that you call me  before taking any action because of the risk that you might unknowingly lose some of the benefit from your bankruptcy filing, or possibly disqualify yourself altogether.

Retirement plan loans such as 401(k) loans create a variety of issues and are almost always a bad idea in a bankruptcy context.   Presumably you borrow against your 401(k) because you need cash now, you expect to repay that loan in the near term, you want to preserve your 401(k) account for the future, and because you do not want the tax consequences associated with cashing out your 401(k).

Bankruptcy trustees, however, look at 401(k) loans in a different light.   They see any allocation to repay a 401(k) loan (and sometimes any ongoing contribution to a 401(k) plan) as an unnecessary reduction of disposable income that would otherwise be available to pay creditors.    401(k) loan payments cannot be counted as allowable deductions in your means test calculations.   And both Chapter 7 and Chapter 13 trustees and/or creditors will often object if you include a 401(k) loan repayment allocation in your Schedule I and J budget in either a Chapter 7 or Chapter 13. [Read more…]

Can I File Bankruptcy Without Involving My Spouse?

married person can file individual bankruptcyIf you are married, can you file an individual Chapter 7 or Chapter 13 and not include your spouse?

Yes you can.  Regardless of whether you are married or separated, you can file bankruptcy on your own even if  your spouse does not want to cooperate.   Further, you non-filing spouse’s credit will not be damaged by your bankruptcy filing,  unless there are joint debts that end up not getting paid in your case.

If you are married, however, your non-filing spouse’s income and expense information, and possible his/her asset information may be relevant to your case and may have to be revealed.

The bankruptcy law requires us to consider household income, which means that your spouse’s income has to be considered.   The law assumes that two people living together as husband and wife both contribute to the household 1   If, however, you and your spouse have separated out your income and expense obligations, we can make an argument that some or all of your spouse’s income or expenses should not be counted in your case.

While filing jointly with your spouse is not required, it can sometimes make a lot of sense.  I often run “what if” scenarios with potential clients and their skeptical spouses to reveal the benefits and the downsides to a joint filing. [Read more…]

  1. By the way, Georgia is not a community property State.  For those of you who live in community property States, the analysis I am describing may not apply.   My Bankruptcy Law Network colleague Cathy Moran writes often about community property issues and bankruptcy on the BLN blog.

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