NJ-Bankruptcy 13

[rjl0206]

Hey Guys,

Just had a few Questions (If possible, specific to NJ CH13).
*This is all under the assumption that Debtor will be in 100% plan with unsecureds; $85K, higher than Mediam Income for family of 4)
1.) 401K contributions no longer allowed even at Matching (average 5%) and/or having been done so for the past year on paystub?
2.) Student loan debt ($40k) will be part of BK13 or automatically be Deffered? (half of loan is subsidized, other is not)
3.) Total DMI will be higher than the proposed payments for 100% payback, *EVEN IF Student loan is added and treated as unsecured instead of forbearance. Will NJ Trustee attempt for all of DMI? or will they be OK since payment plan will be able to cover 100% in 5 year plan. OR will they try and stuff it into 3 year plan. Thank you in advance.

[justbroke]

I'm going to answer the first one first, and the 2nd one last.

Total DMI will be higher than the proposed payments for 100% payback, *EVEN IF Student loan is added and treated as unsecured instead of forbearance. Will NJ Trustee attempt for all of DMI? or will they be OK since payment plan will be able to cover 100% in 5 year plan. OR will they try and stuff it into 3 year plan. Thank you in advance.

You can propose a payment that is 100% over 5 years rather than your actual DMI. Your lawyer and Trustee may "suggest" that you pay it off earlier, but I would not do that at all. i would build an emergency fund because... life happens. Trust me. If you happen to have some extra after a large tax refund, and you're in the last year or two, then I would do that if I had a 6-month reserve in the bank.

1.) 401K contributions no longer allowed even at Matching (average 5%) and/or having been done so for the past year on paystub?

For Chapter 13, you can have a 401(k) contribution or payback a 401(k) loan. Since you are in 100% plan, this is irrelevant.

2.) Student loan debt ($40k) will be part of BK13 or automatically be Deffered? (half of loan is subsidized, other is not)

It will automatically be deferred. However, that's just a status of the student loan itself. The student loan debt is actually part of your unsecured debt, so your "plan base" will be based on the remaining loan debt. You can still pay on the student loan, and your Trustee will actually pay the student loan debt from the proceeds of the unsecured pool -- a/k/a your disposable monthly income (DMI).

If you're saying that, even with your student loan debt added into the unsecured pool, you'll still be able to pay 100% and have extra money left over, then you would propose to pay only the amount necessary to pay everything back in 60 months.

[rjl0206]

Thank you JB,

Just as I have been reading but had a few people say that 100% payback may not matter and some trustees either A.) ask for the whole DMI to be paid into the plan and have the Bankruptcy end sooner or B.) Cram them down to a 3 year plan from a 5 year. Which to me made no sense if one were to be capable of paying 100% plan with a higher chance of success. Anywho, some may wonder why then consider filing BK13?, well because the amount in terms of payments to cover just the minimum on the debts on top of trying to paying down said debts are about the same or more, versus going into BK13 and even with paying the same amounts (in this case a bit less), its at least a guarantee All unsecureds/student loans will be paid in full in 5 years.

As for the Student Loan, Will the interest still continue to be a factor since its in automatic deferrment AND Im will be paying it off as well? or will it remain the same? Thanks again for your time, it is truly appreciated.

[justbroke]

Just as I have been reading but had a few people say that 100% payback may not matter and some trustees either A.) ask for the whole DMI to be paid into the plan and have the Bankruptcy end sooner or B.) Cram them down to a 3 year plan from a 5 year. Which to me made no sense if one were to be capable of paying 100% plan with a higher chance of success. Anywho, some may wonder why then consider filing BK13?, well because the amount in terms of payments to cover just the minimum on the debts on top of trying to paying down said debts are about the same or more, versus going into BK13 and even with paying the same amounts (in this case a bit less), its at least a guarantee All unsecureds/student loans will be paid in full in 5 years.

That's what I meant by not allowing your attorney or Trustee to talk you into this. If you are over-the-median income, you propose a 5 year plan. If it's a 100% plan, then you pay the total amount divided by 60. As I wrote, there are both Trustees and debtor attorneys that will try to talk you into "paying it off sooner" but that's not required. They may even point to paragraph 1325 of the code and say that you have to pay your DMI, but it doesn't say that.

They tend to miss the leading sentence where it reads "If the trustee or the holder of an allowed unsecured claim objects to the confirmation of the plan, then the court may not approve the plan unless, as of the effective date of the plan" before it talks about proposing a plan that "the value of the property to be distributed under the plan on account of such claim is not less than the amount of such claim" (aka a 100% plan). In other words, you can have a 100% plan approved over the objection of the Trustee because you are proposing a plan that pays the entire amount of the claim(s).

As for the Student Loan, Will the interest still continue to be a factor since its in automatic deferrment AND Im will be paying it off as well? or will it remain the same? Thanks again for your time, it is truly appreciated.

Since Student loans are non-dischargeable, interest also accrues while in deferment. So you must pay both the principal due and any accrued interest.

At least, that's the general consensus in most Districts. How a particular Chapter 13 Trustee pays the unsecured pool is too subjective. Some of those trustees pay a pro rata rate each month to the unsecured creditors, while other make large bulk payments towards the end of the Chapter 13 plan period.

[rjl0206]

Thank you JB,

In your opinion, Since the plan will be in 100% payback and the student loan has a consigner with it, considering what you said that it may be paid pro rata and possibly not the full amount per month. Will loan creditor go after the cosigner?, if this is a possible scenario, the debtor will take out or borrow from their 401K for the amount of the secured student loan so this should not be an issue when they file. Even though it will be a 100% plan, will the trustee have a problem with the 401K distribution upon filing?. FYI, Filing plan will be in 6-7 months. Thank you

[justbroke]

Creditors in a Chapter 13 cannot pursue a co-debtor because there is a co-debtor stay (11 USC 1301 I believe). The only way a creditor could go after a co-debtor is to file a Motion for Co-debtor Stay Relief. Those are rare as far as I know and I would think nearly non-existent for student loans. I say that this would be nearly non-existent for student loan debt because a student loan creditor would have to prove, at the hearing on the motion, that the debt would "not" be paid back (e.g. you were discharging the student loan). Quite hard for them to prove when they are actually receiving money during a period where the loan is in non-payment status... and being paid.

As for pro rata, your student loans could be the lion's share of the unsecured debt pool. For example, you have $100K of unsecured debt, but $60K is the student loans. The student loans would get 60% of the unsecured pool monthly. This would likely be a larger payment than the student loan would have normally received (especially in a 100% plan). The Trustee has to pay the unsecured pool pro-rata based on the individual creditor's percentage of the total unsecured debt pool. Since student loans probably average a 10-15 year payback, so paying it 100% in 5 years is certainly not going to get the student loan lender mad.

As a side note, I would personally not rob my future to pay for the present (borrow or take a distribution from a 401(k) to pay for things today).

[rjl0206]

Creditors in a Chapter 13 cannot pursue a co-debtor because there is a co-debtor stay (11 USC 1301 I believe). The only way a creditor could go after a co-debtor is to file a Motion for Co-debtor Stay Relief. Those are rare as far as I know and I would think nearly non-existent for student loans. I say that this would be nearly non-existent for student loan debt because a student loan creditor would have to prove, at the hearing on the motion, that the debt would "not" be paid back (e.g. you were discharging the student loan). Quite hard for them to prove when they are actually receiving money during a period where the loan is in non-payment status... and being paid.

As for pro rata, your student loans could be the lion's share of the unsecured debt pool. For example, you have $100K of unsecured debt, but $60K is the student loans. The student loans would get 60% of the unsecured pool monthly. This would likely be a larger payment than the student loan would have normally received (especially in a 100% plan). The Trustee has to pay the unsecured pool pro-rata based on the individual creditor's percentage of the total unsecured debt pool. Since student loans probably average a 10-15 year payback, so paying it 100% in 5 years is certainly not going to get the student loan lender mad.

As a side note, I would personally not rob my future to pay for the present (borrow or take a distribution from a 401(k) to pay for things today).

Thank you again JB,

One last thing, when finishing a CH13 in 100% payback, is there a discharge? or how does it go about when actually finishing? also, do creditors look a tad more favorably or take any consideration that it was 100% payback when they see it credit reports or do they NOT even see that. Thank you.

[justbroke]

Thank you again JB,

One last thing, when finishing a CH13 in 100% payback, is there a discharge? or how does it go about when actually finishing? also, do creditors look a tad more favorably or take any consideration that it was 100% payback when they see it credit reports or do they NOT even see that. Thank you.

When any Chapter 13's plan is completed, a discharge is entered (unless the debtor was not entitled to a discharge for other reasons, such as previously having received a Chapter 7 or Chapter 13 discharge within so many years0.

Creditors look at one thing: FICO or some other score. That's based not only how lenders try not to use subjective factors, but also my experience. The bottom number matters! The fact that there is a bankruptcy (7/11/12/13) doesn't help as some creditors will just see that fact that you filed (or have a public record).'

However, a Chapter 13 falls off 2 years after discharge (technically 7 years after filing). So within 2 year from discharge, you could be in the mid to high 700s with good payment practices (and low usage of credit).