Expert: Terry Leeders - 9/1/2007

Question
I am 36 years old and live in Louisiana.  I am currently married, but filed for
divorce in June of 2007.  It will be final in December 2007.  I owned a small
business since 1999.  When my ex got involved, his main job was to handle
the paperwork and financial matters.  He failed miserably at both and as a
result, I closed the business July 3, 2007.  I recently found out that there are
back local sales taxes owed to the city and state as well as unpaid
unemployment taxes and very little was filed with the IRS.  The total bills I
owe personally are very managable since I am also an Engineer making about
$53,200 per year with no children.  I have been trying to make payment
arrangements with creditors on my own, but quickly realized that the min.
amounts they are demanding far exceeds my current salary.  The business
bills I owe besides the taxes are notes for loans from my previous landlord,
advertising expenses and a couple of loans my ex took out in the business
name without telling me.

I took the means test and because of my income failed it.  I am interested in
filing Ch. 7 because it seems like a more direct way to get this sorted mess
over with, but with so much in taxes (maybe about $30-$40k total), Ch. 13
might be the way to go.

First, I don't understand how Ch. 13 would work and what people mean when
they say their plan is 100%.  Is that 100% of your disposable income?  I talked
to a couple of BK attys in my area and one said my mo. pmts would be about
$947 per month.  How would I find out what percentage is being paid to non-
secured creditors?  I have a very small amount of equipment left over from
the business that the Trustee can have and my house has little or no equity
because of 2 mortgages and a couple of liens and my car's valued at less than
$7500.

Is it acceptable to pay off a Ch. 13 plan early. I'm thinking about using the
exempt equity in my home (by selling it and living with relatives) after I find
out what I would be required to pay monthly "officially". I have a prenump. the
ex doesn't own anything and the house is 100% mine. . Is it necessary to wait
3 years?  Is there any other way to expedite the plan if you have equity or
money from relatives?

If I get engaged or married after filing Ch. 13 (say about 1 year after), how
would that affect my payment plan? Do I declare his income and bills to the
Trustee? Can they garnish his wages or take his assets if I drag him into this?

My income is above what the Means Test allows. When I did the test, I passed
if I had late payments from my 1st and 2nd mortgages using the 1/60
calculation from the Test. If I don't have any late pays, I fail the test. That
doesn't seem right. If I did "miss" a payment or two of the mortgage and paid
off other mounting debts, what would the possibility be that the Trustee will
still convert my case to Ch. 13 if I filed Ch. 7. If most of my debt is from
business sales taxes, does it make sense to file Ch. 7 or Ch. 13 considering
the interest and penalties that continue to accumulate.  Can someone with
tax debt like I described file Ch. 7 and how would that work?

Who should I continue to pay creditors other than personal bills? I know to
continue with secured payments like the mortgage (the car is paid off). What
can creditors do to me in the 90 days I'm waiting to file? (I am waiting to file
because I have 2 new loans taken out in July 2007 for 5k each from 2 banks
in an early attempt to keep up with mounting business debt)  Can I get sued
in that 3 months or wages garnished?

Do Trustees normally comb over bank statements, cc statements, etc. with a
fine tooth comb? I have recent loans and must wait at least 3 months before
filing (I think I can hold creditors off that long) because I don't want to give
the impression that I am trying to pull a fast one. I'd like to get my central A/
C fixed in the Louisiana 100 degree heat.

What bills are allowed as part of what is considered in the Ch. 13 plan when
calculating my disposable income?  I have a YMCA membership, cable, etc.
and was trying to realistically figure out what kind of expenses I would have
after filing. I am single without dependants living alone (I am already
preparing for the worst).  Does the Trustee object to some expenses?

With the type of tax debt I have, would the 50% in non-consumer debt rule
apply to me? (None of the taxes are over 3 years old)

Sorry for so many questions. This is keeping me awake at night and I am
really confused.  Sometimes I feel that maybe, if the creditors I am dealing
with are reasonable, I can make it, and for the most part they are (when I'm
paying them). Most of them don't really care about me or my personal
situation and want me to blow off the rest of the creditors and put them first.
I have liens on my home and need some solution to have some peace of mind
because I feel that at any day now, someone can come and force me out of
my home.

As a final effort to save my credit, I wrote a letter to the two main creditors
asking for a reduction in the agreed monthly payment I am making to them.
Normally they would be ringing my phone off the hook, but so far 2 days and
no hear from. I guess they need time to think it over. In my letter to them, I
did express the BK alternative which hopefully will shock them into reality and
make them understand that it might be all or nothing. Sorry for so many
questions, but this is one of the best resources I've found so far.   Thank you
for any help you can give me.  Angela

Answer
Chapter 13 is a very complex calculation as you can see.
The numbers will vary month to month as you calculate it.
When you do chapter 13, you need to 1. pay back enough of the unsecured debt to protect your assets.  2. You need to commit all of your disposable income to the case. (means test)
3. Local caselaw has interpreted means test issues differently, so you should definitely have a local attorney help you with the calculations.  Any secured debt can be surrendered to the creditor, not the trustee, as Chapter 13 trustees do not liquidate anything (only ch 7)
To answer a few of the other questions:
Non-income tax debt is paid 100% in a chapter 13.  the trustee's do pour over tax returns, paystubs and bank statements.  They will have you complete a biz. budget too if you are trying to stay in business.  As for what is allowed in the means test calculation- tax, some insurance, mandatory payroll deductions (union dues). Also, certain secured debt payments, charity, and some utilities, healthcare, childcare, child support etc. can be factored in...but only if reasonable and necessary.  The IRS sets out certain allowable standard deductions.  Once again, you should have an experienced Chapter13 attorney help you calculate your means test to be able to calculate your chapter 13 plan.