If filing Chapter 13, what should one know/consider? (1 Viewer)

[brun]

I have a friend who just told me she visited a lawyer who specializes in bankruptcy.This friend has no late payments in her credit history but has a big problem with spending. I helped her out about 4 years ago and she seemed to be on the right track but her debt is now back to where it was then, but now includes a 401k loan as well. To manage the debt she's been doing things like leveraging 0% balance transfers to new credit cards. She's definitely out of control, feels ashamed that she's let people down, but feels she's run out of choices. So, chapter 13.

The lawyer did a means assessment (I think that's what it's called) and told her she'd have a dollar amount that she'll have to pay to a trustee on a monthly basis once it starts. For now she's supposed to stop using and stop making payments on her credit cards and after 90 days they'll file. She gets to keep her retirement accounts, her car (purchased less than a year ago) and her condo (2 loans on this put her considerably upside down).

I'm a little sketchy on the details as there was a lot of info presented to her by the lawyer and it comes to me 2nd hand via a very emotional woman.

Anyone with knowledge and/or experience care to share any advice? TIA

 

[Dr Oadi]

I'm stupid and pay my bills so I can't help.

 

[jon_mx]

I assume she makes too much to file chapter 7. Why is she keeping her condo if she is upside down. Perhaps it is a good idea since she will have a hard time qualifying for a loan after she files. I assume most of her debt is consumer debt. If my assumptions are true, she is probably getting decent legal advice. How much unsecured debt are we talking? 20k? 50k? 100k?

 

[None_More_Black]

Only about a third of people who file chapter 13 successfully complete it.

 

[avoiding injuries]

I'd dump the condo too.

 

[jon_mx]

Is her car paid for? If she does not have a car payment, she should get one. Having a car payment will help reduce the amount she has to pay the trustees. So having expenses like that that qualify is a good idea.

 

[brun]

Her car is not paid for.

The unsecured debt is about 40k.

Her condo would probably sell for about 30k less than what's owed. She doesn't have cash to make the difference and never wanted to go through foreclosure.

Yes, she makes too much for chapter 7.

 

[jon_mx]

Her car is not paid for.

The unsecured debt is about 40k.

Her condo would probably sell for about 30k less than what's owed. She doesn't have cash to make the difference and never wanted to go through foreclosure.

Yes, she makes too much for chapter 7.

Keeping the condo makes no financial sense if she is that much upside down.

 

[brun]

Only about a third of people who file chapter 13 successfully complete it.

Are there typical reasons for the failures?

 

[NutterButter]

Her car is not paid for.

The unsecured debt is about 40k.

Her condo would probably sell for about 30k less than what's owed. She doesn't have cash to make the difference and never wanted to go through foreclosure.

Yes, she makes too much for chapter 7.

Keeping the condo makes no financial sense if she is that much upside down.

Couldn't she just stop making payments and eventually just walk away?

 

[tjnc09]

If her second mortgage (HELOC) is not backed by anything - that is it has become an unsecured debt - she can get rid of that in bankruptcy as well.

I believe the appraised value has to be entirely below the 1st mortgage balance though for that to be possible.

 

[brun]

Her car is not paid for.

The unsecured debt is about 40k.

Her condo would probably sell for about 30k less than what's owed. She doesn't have cash to make the difference and never wanted to go through foreclosure.

Yes, she makes too much for chapter 7.

Keeping the condo makes no financial sense if she is that much upside down.

When we've talked about it in the past her hope was to eventually have the cash to make up the difference as she didn't want togo tthrough a foreclosure.

 

[jon_mx]

Her car is not paid for.

The unsecured debt is about 40k.

Her condo would probably sell for about 30k less than what's owed. She doesn't have cash to make the difference and never wanted to go through foreclosure.

Yes, she makes too much for chapter 7.

Keeping the condo makes no financial sense if she is that much upside down.

Couldn't she just stop making payments and eventually just walk away?

She would still be liable for the difference. At least in most states.

 

[jon_mx]

Her car is not paid for.

The unsecured debt is about 40k.

Her condo would probably sell for about 30k less than what's owed. She doesn't have cash to make the difference and never wanted to go through foreclosure.

Yes, she makes too much for chapter 7.

Keeping the condo makes no financial sense if she is that much upside down.

When we've talked about it in the past her hope was to eventually have the cash to make up the difference as she didn't want togo tthrough a foreclosure.

Bankruptcy is OK, but foreclosure is not? How much does she make, $30K is a pretty healthy chunk, plus all the sales costs.

 

[brun]

If her second mortgage (HELOC) is not backed by anything - that is it has become an unsecured debt - she can get rid of that in bankruptcy as well.

I believe the appraised value has to be entirely below the 1st mortgage balance though for that to be possible.

Her lawyer brought this up. He said that since can't afford to pay for an appraisal. She may get by with a market analysis from a RE agent.

 

[DiStefano]

How hot is she? I might be able to help her out.

 

[brun]

Her car is not paid for.

The unsecured debt is about 40k.

Her condo would probably sell for about 30k less than what's owed. She doesn't have cash to make the difference and never wanted to go through foreclosure.

Yes, she makes too much for chapter 7.

Keeping the condo makes no financial sense if she is that much upside down.

When we've talked about it in the past her hope was to eventually have the cash to make up the difference as she didn't want togo tthrough a foreclosure.

Bankruptcy is OK, but foreclosure is not? How much does she make, $30K is a pretty healthy chunk, plus all the sales costs.

She didn't want either. She's been in denial (my opinion) and she can no longer work the credit card shell game that has allowed her to get this deep.

 

[brun]

How hot is she? I might be able to help her out.

She's not bad for 55, but I don't know if "hot" would apply.

 

[None_More_Black]

Only about a third of people who file chapter 13 successfully complete it.

Are there typical reasons for the failures?

Not being able to make the payments. Keeping real estate you can't afford. If you get a tough bk trustee, which is luck of the draw, you wind up pledging most of your disposable income to debt repayment. Some hardship comes along in the future and all of a sudden you stop making the payments.

 

[sbonomo]

55:and starting over must suck. I bet she dresses well and has all the designer outfits.....she is getting what she deserves. Hope she learns her lesson.

 

[Abraham]

I guess I don't understand how this works. Can she pay her bills on time?her spending problems won't magically get fixed if her debts go away.

 

[Juxtatarot]

I guess I don't understand how this works. Can she pay her bills on time?her spending problems won't magically get fixed if her debts go away.

Rinse, repeat. After this bankruptcy is over, she can start anew, rack up balances on new credit cards, and later file again.

 

[brun]

55:and starting over must suck. I bet she dresses well and has all the designer outfits.....she is getting what she deserves. Hope she learns her lesson.

Generally I agree. Usually we all get what we deserve.She's getting help learning her lesson. She's started seeing a therapist.

 

[None_More_Black]

13 might be right for her if she can make the payments and learned her lesson. She might very well be able to get rid of the HEL on her condo. Her credit will suck for a while so there is little chance she will be able to rack up big debts again in the short term.

 

[Spanky267]

If she's upside down on the condo has she reached out to the mortgage holder to refinance? They probably wont be eager to help if she's been making her payments on time. But stop paying for 3 to 6 months and she'll have their attention. Is the condo truly worth $30K less than the notes she has on it?

 

[CletiusMaximus]

Only about a third of people who file chapter 13 successfully complete it.

Are there typical reasons for the failures?

Not being able to make the payments. Keeping real estate you can't afford. If you get a tough bk trustee, which is luck of the draw, you wind up pledging most of your disposable income to debt repayment. Some hardship comes along in the future and all of a sudden you stop making the payments.

The plan has to be 3-5 years, but I think most are 5 year plans as the only way to make them work under the chap 13 parameters in most cases is to stretch it out as long as is allowable. So imagine an already financially irresponsible person operating under a tight budget for 5 years, going back to court every time your income changes or an extraordinary expense is incurred, disposition of a large asset, inheritance, etc. Meanwhile, no vacations or nice date nights and the like, and very few "luxuries" allowed outside the odd movie night or maybe HBO at home, etc. I don't have much experience with these, but my impression is that the surprising part of the statistic above is that 1/3 are actually able to complete a plan and get their discharge.

 

[Yankee23Fan]

Yeah, CH. 13's are a bear. They can work and be useful but it takes a committment.

 

[Patriotsfatboy1]

I have heard that Granny p0rn is a money maker.

 

[jon_mx]

The shark move is to quit your job and qualify for a chapter 7. I am really not sure it can be done, but a chapter 13 is a rough way to go.