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Atty suggests Ch 13 / A few questions / inheritance / etc.


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OK I had a consultation with an attorney and she recommended I think about filing Ch. 13 instead of 7.


This will let me keep my car. They said it would add approximately $200 per month to the amount I would pay the trustee in the payment plan in order for me to keep the car. Otherwise, we would be looking at the whole big nightmare of them auctioning the car, leaving me with the $3,600 allowed in Missouri, which will NOT buy anything decent.


My free consultation was well over an hour, and the attorney's assistant was ushering me out as I was still asking questions. She said we can answer the rest of them when I come back for an appointment to file. But I need answers about a few other things BEFORE I commit to filing.


I'm in Missouri. My debt is either $7,000 or $15,000 or $30,000. Why don't I know exactly? Because the 3 credit reports are so far off from each other. Some old debt has fallen off of one report, but it is still on another. It's a mess.


I am currently on unemployment, but looking for a job. I can't file until I have a job. So as I soon as I get a job, I could file.


She said if I file Ch. 13, my disposable income will go to the trustee in a payment plan for 3 to 5 years.


1. By "disposable income," does that mean I lose ALL of the money leftover each month after I pay rent, utilities, and other reasonable bills? Because the jobs I've seen available DO NOT pay enough for me to pay all of my basic bills, and that is part of the problem. In fact, when I was working full-time before, it was not enough to pay my bills and I had to freelance.


2. If the plan is set up and we determine the amount I will pay each month for those 3 to 5 years, does that mean I will have paid 100% of what I owe everyone at the end of the 3 to 5 years? Is this just spreading me out in a payment plan over 3 to 5 years and I'm not liquidating at all, as I would have been in the Ch. 7?


Remember, $200 of it would already be spoken for because of the car. When I was working full-time before, I did not ever have $200 spare leftover after paying basic bills. And this is during the time when I was NOT paying on these credit cards. Defaulted student loan. Barely made enough to pay rent, utilities, car payment, car insurance, cell phone, gas, groceries.


3. She said that if I receive inheritance during the 3 to 5 years, I will have to report it and they could likely take it from me. I have a loved one who is in great shape, but elderly. You never know what might happen within that 3 to 5 year timeframe. I would inherit 2 houses for a total of about $200,000 (no mortgages) and about $100K in CDs. All of this is set up to avoid probate and slide straight to me (POD, beneficiary deeds, etc.).


a. Does that mean they take 100% of my inheritance and keep it? That doesn't seem right.


b. Or do they take it and pay off my creditors in full vs. the amount they would have received if the 3 to 5 years had been completed?


c. Or do they pay off what I WOULD HAVE paid the creditors by the end of the 3 to 5 years? Do they take into consideration the amount I had been paying monthly while in the plan or is that money lost?


d. Do I get the remainder of my inheritance back?


e. I was reading about spendthrift trusts. Should this loved one set up a spendthrift trust for me, and then if this person is still alive after the 3 to 5 year payment plan we would cancel the trust, or if this loved one passes during the 3 to 5 years I would have access to the trust AFTER the 3 to 5 years are over?


4. What if I moonlight, freelance, start a business, get a raise, or get a job with better pay? She said if I my income changes while I'm in the 3 to 5 year payment plan, I have to let the trustee know. Does this mean all of the extra money I might bring in will be taken from me?


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Your ability to pay under BK13 is based on your income, less "allowed" expenses.  Some of those may be your actual expenses, others may be based on IRS installment agreement limits for your area.


You seem to indicate the car is the only factor leading to BK13, but you don't say why in enough detail.  Unless you own a very high value car (auction value) outright or have other assets soaking up the exemptions, I'm not sure you would lose it as you suggest.


I would consult another attorney.  BK13 ties you to a 3-5 year payment plan supervised by the Trustee.  BK7 is an immediate relief in about 90 days.  When you say you have to find a job to even file BK13 I see you as a prime BK7 client.

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I agree.  Talk to another lawyer.  You don't list what state you're in, but your car may be exempt, and all your other debts would go away.  If you get enough on unemployment to make the car payments and basic expenses, you could probably file quickly.

I did list my state. I'm in Missouri.


I own the car 100%. Missouri allows exemption of $3,000 for car + a $600 wildcard.


Car value is $10,000.


If I file Ch. 7, I lose the car.


I do not get enough on unemployment to make car payments and basic expenses. I am living off insurance settlement from when my previous vehicle was totalled almost a year ago. The money is dangerously close to being gone.

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OK, since you are not going to listen to good advice and get rid of the car then here are your answers:


1. All income left over after reasonable expenses is used to pay down the debt over 3 - 5 years. The government gets to determine what is reasonable, not you and you will be expected to live as if you owed the IRS. Don't expect to have stuff like cable and vacations and eating out. I hope you know how to cook.

2. You have to pay the amount over 3 - 5 years of what your disposable income is. The unsecured debts will then be discharged but you will still have the secured debts.

3a - 3d. They would take the amount you owe "TOTALLY" on the debts minus the payments and use that to pay off the creditors in full, then you get the rest back. Realize that in full means any legally proper interest on all the debt too.

3e. The might not be able to touch the trust but they might be able to take any amount distributed to you from the trust to pay the debt. They might also have a look back period of 6 months to a year in which they can take an inheritance and use it to pay on the debt.

4. Any extra monies must be reported to the trustee and used to pay on the debt.

I am sorry to be a little crass here but there are many people who come here looking for advice that is what they want to hear, not what they need to hear. Ch. 13 is a payment plan BK. This means you must have a job AND you must make payments on your debts in order to keep your assets. Ch. 7 is a liquidation plan where you get rid of all non-exempt assets and then get rid of your debts. Both are suppose to be painful. When we say that no car is worth the hassle of a Ch. 13, we meant it. Also, because of the strict expense rules, most CH. 13s fail which means if your does, you end up in a Ch. 7 and then have to dump the car anyways. Save yourself the expense and trouble.

As for not finding a reliable car for $3600, I found one that is still running today 3+ years ago for $300. They exist. You just need to look hard enough.

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Let's look at this car thing logically.

You don't have a $10K car. You try and sell it and you likely get in the $8500-$9k range.

Secondly, cars depreciate. Are you telling me you'd enter a 3 year Chapter 13 to protect a depreciating asset that at the end of the Chapter 13 might be worth only $5K? And, we haven't even added in the several thousand in legal fees that'll be part of the bk plan.

You also state you're nearly out of money. View that car as cash. Sell it, pay something within the exemption limit and spend down the balance on daily living expenses until you get a job.

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I'm thinking it's not worth filing, legal fees, losing the car, being stuck in payment plan for 3 to 5 years, because it looks like the total of everything I can put into the bankruptcy is now looking like it's going to be between $10,000 and $15,000.


And only one of those is actively trying to get any money out of me at the moment. I could probably get in touch with the others start making payments once I get a job (they haven't sued and don't have judgments).


$10,000 to $15,000 is way too low to do a Ch. 7, in my opinion. What if I have a medical emergency that I can't pay? I wouldn't be able to file again for many years.l

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