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21

Jun 2014

Chapter 13: Your vehicle operating budget is too small.

Posted by / in Chapter 13, Chapter 13 Bankruptcy, Virginia Bankruptcy / No comments yet

If you are in Chapter 13, the vehicle operating budget you are allowed will be too small.

That’s (almost) a mathematical certainty.   Here’s why.

The census bureau shows–no surprise–that people who are working spend on average double on transportation gasoline and maintenance than people who aren’t.    (For more, see this from the American Association of State Highway and Transportation Officials.)

If you are in chapter 13, you’re working.  Unless you telecommute, you’ve got to get to work and get there everyday.

Your Chapter 13 vehicle operating budget in Northern Virginia is $277 a month, for one car, $544 for two or more.   That amount is figured based on all cars–NOT just on all cars owned by people who have to get to work.  (That budget is in the the bankruptcy means test.  That’s a formula that says how much money you have to pay back on your debts, and what you are allowed to keep to live on.)

For most people the chapter 13 vehicle operating budget is not enough to pay for car repairs.

For most people in Chapter 13, when you get that $700 car repair bill, the money won’t be there.

There are more cars than jobs in America.

There are 250 million passenger vehicles.

There are only about 150 million Americans working or looking for work. )

So there are a hundred million cars in America that are NOT being used to get people to work.

If we recalculated that $277 by whether people work, we’d have $340 monthly for cars that take people to work;  $170 for cars that don’t.

If your car takes you to work, your Chapter 13 transportation budget will be $65 a month short every month.

If your car takes you to work, your Chapter 13 transportation budget will be $65 a month short, every month.  That’s $780 short each year.

To put it differently, if you use a tank and a half of gasoline a week, driving to work (plus whatever else you have to do), you have enough money left for insurance, but NO money for car repairs.

People with short commutes aren’t using a tank and a half.  But for many people in the outer suburbs, that’s low.

Virginia Bankruptcy Lawyer Robert Weed

It cost me $1500 to get my Honda Civic through the safety inspection last month. My service rep said it was time to buy a new car.

A budget with no money for car repairs is ok, if you a driving a new car under warranty.  No money for car repairs is awful, if you’ve got a hundred thousand miles on your car.  And you have to get through a sixty month chapter 13 plan.

Car repairs don’t come on a regular schedule (well, you should change your oil every three months.)  At some point you need new brakes, new tires, a new transmission.  And you will need them now!

Maybe you’ve saved some money, but since the bankruptcy court is taking ALL your “projected disposable income,” saving is tough.

At that point, you’re choices are: skip the rent, stop eating for two months, walk to work.  None of those work every well.

Recently, I proposed a chapter 13 plan, with a higher transportation allowance,  each year of the five years, as the cars got older.  I pointed that the Supreme Court said we should project virtually certain changes in a chapter 13, when calculating how much you had to pay the chapter 13 trustee, and how much you could keep.

I argued that is was “virtually certain” that over five years the cars would get older.  Nope, said Bankruptcy Judge Robert Mayer–the cars will be older but who knows if they need repairs.   (Huh?  I thought everybody knew that.)

If you have to go into Chapter 13, and you have a long commute, how can you avoid certain failure of your chapter 13 plan?  What can you do when your car needs major repairs?

Here are some ideas.

1.  Have four thousand dollars for car repairs already set aside when you go into Chapter 13

2.  Get the boss give you a company car.

3.  Make sure you are driving a new car, with a strong warranty, before you file.

4.  Move closer to work.

5.  Ask the bankruptcy court for permission to buy a brand new car–and then see if someone will finance you while you are still in bankruptcy.  (Alexandria Chapter 13 Trustee Thomas Gorman recently told the Fourth Circuit Court of Appeals that buying a new car in chapter 13 is easy and painless. Brief 5-23-2014   To me, it looks a little harder.)

Here’s my last idea–keep track of all your transportation expenses–gasoline, car repair, insurance, tolls, parking–every year and ask your lawyer to submit them to get a reduction in your Chapter 13 payment.  Each year, here in Alexandria VA, Chapter 13 Trustee Thomas Gorman demands to see your tax returns to see if he can squeeze you for more money.  Maybe you and your lawyer should look at your transportation costs, and annually ask to pay less.

PS  Here’s a good article by Heather McGivern, a Michigan Bankruptcy Lawyer, that talked about this problem in 2011.  She says there are many people who drive to see their bankruptcy lawyer in car that probably won’t last much longer.  And there are many people about to file bankruptcy who need to go out and buy a newer car.  And that some people say your lawyer cannot tell you that.

PPS   I’ve got a hundred thousand miles on my Honda Civic, and it cost me $1500 last month to get it through the safety inspection.  My service rep at the Honda dealer told me it needs new shocks and struts but I should “buy a new car rather than spend any more money on this one.”

 

 

 

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27

May 2014

Dismissed Chapter 13

Posted by / in Chapter 13, Virginia Bankruptcy / No comments yet

Sometimes a dismissed Chapter 13 is all your need.

Chuck and Inez came to see me today about Chapter 7 bankruptcy.

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After Chapter 13 saved their house form foreclosure, I didn’t want Chuck and Inez to have it sold by a Chapter 7 trustee.

I had put Inez in a Chapter 13 in December 2011 when their house was days away form foreclosure.   The Chapter 13 was dismissed six weeks later.

BUT, that short Chapter 13 had stopped the foreclose, landed their loan mod application on a different desk, and they got approved for first and second mortgage loan mods by the end of 2012.

They also had three big credit cards that were late–and they came to see me today about what to do with those.  Do nothing, I said.  Because of the very limited homestead protection in Virginia, a Chapter 7 bankruptcy trustee would take and sell your house to pay for the cards.

Since they haven’t bothered you  in nearly two years–and were a couple years behind in 2011–doing nothing is your best plan.

I brag a little that my Chapter 13 dismissal rate is among the lowest here in Northern VA.   But sometimes a Chapter 13 dismissal is all the help you need.

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02

Jan 2011

Chapter 13 bankruptcy: Why it’s picked by only 5% of my clients

Posted by / in Chapter 13 / 4 comments

Chapter 13 is selected by less than 5% of my Virginia bankruptcy clients.  For other people filing bankruptcy in Northern Virginia, it’s about 20%.  That statistic jumped out from a computer study of cases filed in bankruptcy court for Northern Virginia for the last six weeks of 2010.

You might wonder if we avoid Chapter 13 bankruptcy because we don’t know how to do them.  Actually, our firm has really good qualifications to do them–but only when they are needed.

Lori Rupp, our Chapter 13 Senior Paralegal, was paralegal for the Chapter 13 Trustee in Flint Michigan.

I moderated the panel of bankruptcy judges on Chapter 13 at the NACBA national convention when the 2005 law took effect.

I have a whole website on how we can use it to get rid of second mortgages.   And I have a blog post on innovative use of Chapter 13 bankruptcy for people with overwhelming student loans.

Virginia Bankruptcy Lawyer Robert Weed

We’ve done nearly a thousand Chapter 13 bankruptcies–and we know that for most people, Chapter 7 is better.

We’ve done nearly one thousand Chapter 13’s.

We know a lot–including knowing enough to avoid Chapter 13 unless there’s some good reason to be there.

Why?  One reason is most of them fail.  In the last six weeks, there were 200 filed in Northern Virginia–and 120 were dismissed.   That works out to a failure rate of 60%.

Second, they are unpredictable.  Under the 2005 bankruptcy law, you are required to send your tax forms to the trustee every year.  If there’s an “unforeseen” increase in your income, the trustee can ask the judge to increase your payments.   You can get your case approved paying a couple hundred dollars a month–and end up paying over a thousand.  (Richmond Bankruptcy Judge Judge Keith Phillips explains that here.  Swain decision – KLP.)

(Bankruptcy is supposed to be a new start in life and clear field for future effort. I don’t think it’s much of a new start if the trustee can keep coming back asking for more.)

Third, it’s worse for your credit.   You start getting back to good credit when you get your bankruptcy discharge.  In a Chapter 7, that’s about four months.  In Chapter 13, it’s sometimes three and usually five years.

(About half the creditors keep reporting you as late every month of your payment plan–piling on five more years of bad credit.  Christine Wolk, a NACBA member out of Wisconsin, got her judge there to say that’s illegal.  You can download that Judge’s ruling here.  I’ve tried challenge to that unfair credit reporting here, too, but these judges did not see it my way.)

Chapter 13’s often fail.  Your payment is unpredictable.  They are worse for your credit.  For those reasons, and a few others, for most people, I think Chapter 7 works better.

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NORTHERN VIRGINIA BANKRUPTCY LAW OFFICES