?? about qualifying for Chpt. 7

[SinkingFast]

What is the name of your state? Missouri

After typing in a lengthy explanation for why my husband is facing bankruptcy I opted to delete it all and just put forth the basics. The problems arose when he was led to believe that his (at that time) wife was paying the credit card bills from his business expenses (because the money was being deposited into the bank regularly to do so) and because she failed to tell him she was spending the money that had been set aside to pay income taxes. All of this took place while he was working out of state (computer programmer on contract). What followed was an (in my opinion) unfair divorce (she was able to borrow enough money to hire a good lawyer...he wasn't) so that she got all the stuff and he got all the bills. Add to that a year of unemployment (when the economy took a nosedive after 9/11) and you have a real mess. Enter new job, new state, and new wife, all in 2002.
Here's what we're faced with:

$32,000 owed in federal and state taxes (those penalties and interest bite)
$56,000 owed in old (charged off) credit card debt

Approximately an additional $15,000 in current obligations (car loan, medical bills, etc).

At our attorney's recommendation we are going to file for Chapter 7. However, he seems to be concerned that the ratio between my husband's income and our expenses is a little wide and we won't qualify for Chapter 7 but might have to file Chapter 13 instead. Personally, I don't see the chasm he's seeing. If it were there I'd be buying brand instead of shopping the sales and hanging out on the Freecycle board. The thing is, life happens. Even though my husband makes good money, every month it seems like we have unexpected expenses. Car repairs, medical bills, travel out of state (daughter's wedding, mother's funeral), kid stuff, etc, etc, etc.
Though the atty made reference to limits on allowable expenses I don't have a clue what they are and can't seem to find anything online. Here are my questions:

1) Is there a limit (imposed via state or federal) as to how much a person filing Chapter 7 is allowed to spend on housing, utilities, food, clothing, etc (like the ones that exist for someone filing an OIC)?

2) Can my husband claim business expenses such as cell phone and DSL (which are required by his current job)?

3) Can I use our auto repair bills from the past year, divided by 12, to figure our monthly auto expenses? Ditto for medical?

4) Is there a percentage the court uses (income to expense ratio) to disqualify someone from filing Chapter 7? If so, any way to find out what it is?

5) Is there REALLY a light at the end of this tunnel?

I know I should be asking our atty this stuff but he's a really busy guy and well, you know...

Thanks in advance,
SF

 

[spoiler]

Hi, I was looking at your post...and don't have a lot of answers for your questions but I did want to put my 2 cents in here. For one thing...your tax debt (in most cases I belive) are not dischargeable. For another thing you are saying that you have 56,000 in old Charged off credit card debt. How old is the debt?? Have you checked out the SOL?? If you are close to the SOL on this debt you might want to wait it out. Is your Chapter 7 a no asset case?? You usually will be forced into a chapter 13 if you have more than $100.00 left over at the end of the month. Do you have a home? does it have more than 15,000 in equity?? If so you could loose your house. Couldn't you consider selling some of your stuff on ebay or something and pay off some the the debt?? You don't seem to be someone who is scraping the bottom of the barrel to survive. Most of us who have or are going through bankruptcy 7 have wondered how we are going to buy food, or keep our homes from going into foreclosure. I mean....I would be excited if I could even shop at a sale! If you want some more information I will drop this post that ladynred has been handing out. It's a good site. go to www.thebankruptcysite.com

 

[SinkingFast]

Hi, Spoiler.

Thank you for taking time to respond to my post. I have a really hard time trying to post the important info while keeping the length of the post manageable. For reasons of embarrassment I opted to use the space to add a little personal background (i.e. "my husband's not really a bad guy") rather than add more specifics about the financial aspects. Here are the answers to the questions you raised:

1) The tax debt is from '98 and according to our lawyer, eligable for Ch. 7. (Though we originally planned an OIC, the CC debt makes the whole situation impossible)

2) Most of the CC problems began in '98 also (the year the ex didn't make payments). The charge offs began mostly throughout '99 as he was unable to keep up with the huge pmts required by the creditors (and as he attempted to pay for two households when they separated). However, since they have been passed off to various collection agencies it is my understanding that the SOL is restarted each time there is activity on the account. Is this incorrect?

3) The Chapter 7 IS a no asset case. When we got married all we had was my household furnishings and personal effects. Having spent a lifetime of borrowing from Peter to pay Paul, my stuff wasn't exactly in tip top shape and mostly consists of pre-fab build-it-yourself Walmart stuff with a few Freecycled accessories thrown in for good measure. He borrowed money from his family to pay for the move to MO (and work!) and to set up housekeeping with me and my daughter. From that point until last month we've been paying $850 p/m child support payments and $1,000 quarterly (spousal) payments, as well as monthly payments to the members of his family that financed his divorce attorney and our move. And yes, it still left enough money to pay the bills on time every month (something I've enjoyed!) but not enough to even open a savings account. We rent a home, which we were blessed to find after being turned down at several places due to his credit report. Our rent is less than 25% of our disposable income. We're both fairly frugal and do our best to be financially responsible people. As to whether we have $100 left over each month it would depend on which month. If I go back one year and divide by 12, the answer would be "no". Because even though we might have some left over this month, I could almost promise that next month it will be used up in some emergency expense. Also, we have outstanding medical debts that we opt to pay on monthly rather than apply all "extra" money to. Last month I used bill money to help pay for my mom's cremation and related expenses and attend her memorial service. Not a necessity but not exactly an extravagance.

4) If I had something of worth to sell on ebay I'd happily advertise it. However, I doubt the 6 year old "stereo" (boom box), the t.v. with the blurry picture, or my collection of 10-yr. old clothes (I plan to wear someday when I lose a little weight) would put even the tiniest dent in this debt.

I know it's hard to relate to my situation. 10 years ago I WAS scraping the bottom of the barrel when I suddenly found myself alone trying to raise 3 kids and I did have to file Chapter 7, losing the house and the car in the process. (But, hey... I still have the bedroom furniture the creditors failed to claim...wonder what that might bring on ebay ) And maybe being concerned about not having money for unexpected car repairs or medical bills or a time in the future when my husband is no longer able to work (we're both pushing 50), and not knowing where or how we will live because trying to pay of this debt (whether on our own or through Ch. 13) will continue to keep us from being able to prepare for that time is a wrong reason to file. (Is it people like us that they made this new law for ) All I know is that when our atty (initially retained to get the IRS tax levy removed from my husband's wages last Nov. and help us file the OIC), who is VERY conservative when it comes to bankruptcy (and clearly advertises to that effect), saw what we were facing last week HE suggested our best hope is to file Chapter 7. And I feel no guilt for trying because a) I'm not filing and b) my husband was financially responsible in his actions. I don't consider it his fault that his ex wife bankrupted him. (After 17 years you'd think he could trust the woman) I just can't figure out why SHE'S not paying.

Thanks also for Ladynred's link. After seeing it in a previous post, I spent two hours going through most of it last night. I didn't find much new info though. And I was disappointed that most of the links (like the one concerning my question about qualifying financially for 7) led to sites selling something (like the book explaining the answer to my initial question ).

I do appreciate your response though.
SF

 

[bigun]

There is no qualifying for bk. You don't need a minimumincome or minimum debt level.
Basically, if you have $100 disposabe income or less left over at the end of the month {does not include the debt you're trying to discharge} the trustee will recommend a discharge. BK is all about numbers. Your income and expenses are the most important numbers.
Here's a sample expense calculator. Use this to get an idea of your true expenses.

http://www.ca-bankruptcy-attorneys.com/calculators/expense_calculator.html

 

[spoiler]

SF
ha! ha! he! love the bedroom set on ebay comment. Seriously I tried to sell everything or anything on ebay and most of the stuff wasn't worth crap, and ebays fees are so high I ended up in more debt! No kidding. I had to include them in my bankruptcy! That was bad advice....sorry. Ebay sucks! I'm just thankful that my husband doesn't have an ex-wife.(and I plan on never being one) I hear so many horror stories. I also looked on the SOL...and it looks like your states for credit cards is 5 years. I belive that it does not matter if they have sold the debt to other companies or not. If you havn't payed or have not made any promises to pay then the sol is still from the date that you made your last payment. Have you looked at your credit reports lately? are they showing any debt? if they aren't on your reports...then the sol has expired...if they are on your reports then try to find when you stoped paying. It would probably be a good idea to pull your reports anyway if you are going to file because then you won't forget to include anyone you owe to that is bringing down your credit. Have you ever sent the credit card companies a debt validation? you can find a lot of cool info out about credit card companies at www.creditinfocenter.com. They also have some information on Bankruptcy too.
As far as your expenses go....so many people underestimate there true living expenses! I know I did. My lawyer was great because she basically filled out a sheet for me telling me what my expenses for a family of 4 would be. When I handed in all the paperwork I gave her I had food at $60.00 a week! (my kids never even get to eat fruit or veggies) She put my budget at $600.00 a month. I can not wait to start eating real food again instead of mac and cheese! If you want you can email me at emettskateboards@yahoo.com and I can give you a breakdown list of all of the expenses that were included on my schedules so you can get an idea of what is included. also with your question "Can I use our auto repair bills from the past year, divided by 12, to figure our monthly auto expenses? Ditto for medical?" That is exactly what I would do.
I guess what this all comes down to is...how well do you trust your lawyer. If you feel he is giving you good advice then take it, but if you are not sure than do some research.
Hope some of this helped.

 

[Ladynred]

t is my understanding that the SOL is restarted each time there is activity on the account. Is this incorrect?

YES, it is definitely INCORRECT ! The date of delinquency that preceeded placement for collections and/or charge-off is the most often the date you use for the start of the state's SOL period for legal action. The only thing that can reset that SOL date is a payment and if no payments have been made the SOL is still running and nearing expiration. How often the account is sold means NOTHING, not for the SOL and not for reporting purposes on your reports.

Use the expense calculator Bingo provided the link to and sit down with your checkbook, reciepts, and bank statments and figure out EXACTLY what it is you're paying out on a normal basis.

If your husband's business expenses are required for his job and he is not reimbursed by the company for them, then yes, you include those.

When it comes to cars, take what it cost you last year and average it out to get a monthly estimate. If your medical expenses for last year are typical, use them too. One of the biggest mistakes people make is to undersestimate their TRUE living expenses.

The IRS tables you were speaking of for an OIC are NOT what you want to use. Those are not based on your ACTUAL expenses at all, that is what the IRS tells you they will ALLOW you to spend -even if its completely ludicrous. Unfortunately, those IRS tables are what the new bankruptcy law will be used to force people into long, restrictive 5 year Ch 13's !

 

[SinkingFast]

Much thanks to all who have replied and for the links supplied.

Ladynred, thanks for the SOL info. If we are nearing the SOL on these debts (most are 4-5 years old) then it might be possible to do an OIC on the tax debt and avoid filing bankruptcy. I need help here though. I need to know the SOL and don't know how to find out what it is. If the accounts were originally opened in another state do I look up the SOL for that state (even if the company extending credit is based elsewhere)? The answer is probably obvious but my head is spinning right now from the hours I've invested trying to sort through this mess. Since NONE of the debts are mine it's extremely time consuming to try to even make heads or tails of everything. So far I've pulled all 3 credit reports and have sorted through and organized every piece of paper my husband ended up with concerning these debts. It's hard to keep track when the accounts keep getting sold off to different collection companies and they tack on interest, changing the original amount due. Unfortunately, in an attempt to deal with the debt (I crack under pressure) there were two accounts I made small payments on a couple of years ago. (I stopped when one of them made an unathorized draft from our bank account for a payment) Since these would have a much later SOL now it might be possible to work out an agreement with them once we get the tax debt managed. (One of them is a $300 past due phone bill that the ex, according to the divorce, is responsible for...but tell that to the phone company that has the service listed in my husband's name)

The main thing we want to avoid is anyone garnishing wages. That could be disasterous in light of all we're facing.

I'm also trying to find info concerning our monthly pmts to the IRS. When our atty got the levy released on my husband's wages in November and informed the IRS we were working on an OIC (being one of the minority that actually qualifies for settling for a very low amount), they set up a monthly payment of $440 (because, as you pointed out Ladynred, they don't allow much for living expenses and no extras, not even for business expenses). Having to pay this amount every month really puts a squeeze on our budget. If we do end up filing bankruptcy, I imagine the court will make an adjustment (adding the payment back into our income or removing it from our expenses). My question is: would this amount now disqualify us from Chapter 7? I keep hearing "$100 or less" disposable income. I'm not sure where we would come out (brain's in recover mode right now so I can't figure it) if we had that extra amount. We were in the hole because on the atty's advice we went to 0 exemptions but are catching up on bills since the child support pmts. ceased, balancing out the new tax deduction and IRS pmt (in other words, it's almost like we're still paying child support instead of more taxes and a pmt. to the IRS).
Hope that made sense.

SF

 

[Ladynred]

The SOL on credit cards in MO is 5 years. If the last time you made a payment on those accounts is 5 or more years ago, the SOL is close or expired. That doesn't preclude lawsuits though. They CAN still try to sue you, but the SOL is your defense to get the case thrown out. Junk debt buyers like ASSet Acceptance just love to sue people on out-of-statute debts, they count on the ignorance of the general public to win a lot of default judgments on SOL debts.

If those taxes are 3 or more years old, they probably ARE dischargable. Why not just file for bankruptcy and get out from under the tax debt completely ?? If your lawyer knows what he's doing, it shouldn't be a big fat hairy deal at all. The IRS is pretty stingy about OIC's, so if you decide to go that route, good luck !