Bankruptcy Law Questions? Ask a Bankruptcy Lawyer.
Is it anticipated that your clients monthly expenses will be less than or equal to their monthly income after their unsecured debts are discharged?
If not, how will they pay their expenses each month? (This is something the trustee may also want to know.)
It is not true that they do not own anything of value, since the home has a gross equity of $133K ($374K - $241K). Since there is more equity in the home than the allowable exemption, you will have to convert to a Chapter 13 to avoid losing the home.
This looks like a problematic case, because they will have to pay the non-exempt equity over the course of the Chapter 13. Taking into account the cost to sell the home (5%), the non-exempt equity is $103,800, which will result in a $1730 monthly payment just for the home equity.
Are you sure the current market value of the home is $374K?
That is not the amount the Bankruptcy trustee will look at. The trustee will want to know how much the house can sell for, which is often far different from the county assessment. Perhaps you can go to a website such as Zillow.com or a similar site to find out - at no charge - what their home can sell for.
Do you understand why that is a problem if the balance of their mortgage is only $241K? (The problem is that Virginia's homestead exemption is one of the lowest in the country.)
I am anticipating that your next question will be how do you get your clients out of this predicament, and as I do not know the answer, I will opt out of this question so that someone else can help you further.
Yes - but I don't know if that will be an actual solution, because when a Chapter 13 is filed, the unsecured creditors have the right to receive what they would have received if a Chapter 7 had been filed. This amount is approximately $100K, which is the non-exempt equity in the home.
That means your clients would have to pay at least $100K over the life of the plan (5 years) - which is over $1500 per month. Since their disposable income is negative, this is not possible.
The botXXXXX XXXXXne is they cannot save their home by filing a Bankruptcy.
You will not be able to have the Chapter 7 case dismissed.
I think they have to decide how important the house is, and they have to decide if they are able and willing to budget so that they are able to pay the $1500 monthly (maybe a little less, because trustees can negotiate) over and above their other necessary expenses for the next 5 years. This way the decision is theirs, and if it is possible for them to budget, you should be able to convert to a Chapter 13.
Otherwise, they have to accept the fact that they are going to lose the house.
It looks like my client will need the 401k to fund the plan because monthly disposable income (B22A line 50) and 60 month disposable income (B22A) is negative.
I do not understand the paragraph about dismissal.
What would have been the alternative to bankruptcy. They were not allowed to borrow against the equity in the house to pay off their unsecured creditors; their unsecured creditors were hounding them and wouldn't work out payment arrangements; the husband couldn't get at his 401K to help out in settling with creditors.
Am I really exposed to malpractice? These people look like they will lose anyway.
I have done a lot of work in boning up on Chapter 13 and I took a CLE in drafting a 13 plan.
I admit that I am getting concerned about my position in this. I will try to work it through.
You are fairly sure that the clients can dismiss out of this; that the court won't put them back into 7?