Voluntarily dismiss chapter 13 advice

[TWOHIO]

We have been in a chapter 13 for 36 months.
My wife has had a pending class action lawsuit going for about 6 years. Have not heard anything, basically gave up hope on it.
We asked our attorney for them to find a payoff quote for us to pay off after 36 months. (we're only in a 1% plan)
She gave us the amount and said we can pay at any time but the trustee wants in writing the status of the pending lawsuit.
I mailed out the balance of our payout and then got word that it appears that the pending lawsuit is close to pay out.
Attorney suggested we dismiss our bankruptcy because most of the settlement will go directly to paying off the creditors at 100%.
He suggests dismissal, seeing we've been in chapter 13 payment plan for 3 years some creditors might not even try to recover the debt. If they do, settle with them then.

Does this sound like the best path to take?

Thanks

[shipo]

I am far from the expert here, but on the surface at least, that does sound like a plan.

[justbroke]

Since you're represented I would not second guess the attorney. Normally you would need to pay 100% of the allowed unsecured claims in the case. It seems that you were going to pay less than 100% but the Trustee noticed the pending lawsuit. I don't know if that complicates a voluntary dismissal. That is why I wrote that I won't second guess your attorney.

What surprises me is that your attorney forgot about the "property of the bankruptcy estate" (the pending/un-liquidated lawsuit) and had you send out the payment before thinking it over more thoroughly. The Trustee seems to have caught that. Whether or not you'll be able to dismiss and then recover the lump-sum payment, that you already made, will be interesting.

I'm on the fence. Why not just let the lawsuit payout and pay the creditors 100%? That would be the "easier" way to deal with this if the lawsuit yields more than the unsecured pool (plus Trustee commission). If you dismiss, you'll likely reset the date on your credit accounts. Settling would also reset them to paid less than full amount, and the could remain for another 7 years. What is driving the desire to not want to pay 100%?

Also, welcome to BKForum!

[TWOHIO]

I am far from the expert here, but on the surface at least, that does sound like a plan.

I just wonder how realistic the creditors not perusing is.
Seeing its been 3 years... Do they keep an eye open for it to be officially discharged. Will they have some way to know I voluntarily dismissed it?

[TWOHIO]

Since you're represented I would not second guess the attorney. Normally you would need to pay 100% of the allowed unsecured claims in the case. It seems that you were going to pay less than 100% but the Trustee noticed the pending lawsuit. I don't know if that complicates a voluntary dismissal. That is why I wrote that I won't second guess your attorney.

What surprises me is that your attorney forgot about the "property of the bankruptcy estate" (the pending/un-liquidated lawsuit) and had you send out the payment before thinking it over more thoroughly. The Trustee seems to have caught that. Whether or not you'll be able to dismiss and then recover the lump-sum payment, that you already made, will be interesting.

I'm on the fence. Why not just let the lawsuit payout and pay the creditors 100%? That would be the "easier" way to deal with this if the lawsuit yields more than the unsecured pool (plus Trustee commission). If you dismiss, you'll likely reset the date on your credit accounts. Settling would also reset them to paid less than full amount, and the could remain for another 7 years. What is driving the desire to not want to pay 100%?

Also, welcome to BKForum!

Thank you for the welcome.
At this point I'd say just needing the money is why I don't want to pay out at 100%
I've been off work since Oct of last year because of back surgery. Paying monthly payments with LTD.
Needing to replace a rusting out truck.

But I feel I'll be always looking over my shoulder waiting for this creditor or that creditor to hit me at the worst possible time.

[justbroke]

I just wonder how realistic the creditors not perusing is.

In Chapter 13s, most debt is sold to Junk Debt Buyers (JDBs). Look at your claim list and you'll probably see names like B-Real, LVNV Funding, Roundup Funding, B-Cast, Midland Credit Management, Portfolio Recovery Associates, and others. They thrive on this. They buy it exactly to pounce when a Chapter 13 case is dismissed. Some of them are known to be relentless. You need to hope for the best, but be prepared that one or more of these JDBs may come after you quickly; they're trying to beat the statute of limitations. Depending on their asset search, they may be less inclined to give deep discounts on settlements, but all of them would settle. It's a matter of the amount of debt.

You must also be careful with settlements. The amount that is forgiven is a taxable event (1099-A/C Forgiveness of Debt). Whether or not you'd need to pay taxes on the forgiven portion is a tax question (I can't answer). Whether or not your settlement will have a condition where they won't sell the forgiven portion is another question (and you should make sure that they don't and it's in writing).

The only thing that guarantees that the debt will go away (well, your personal liability to pay) is to have it discharged in the bankruptcy or pay it off in full.

[flashoflight]

Usually you should follow your lawyer, but it sounds like terrible advice to me.

Were you trying to pay the remaining payments on your 1% plan to get out early so you avoid the settlement being part of the estate? You can't do that unless it's a 100% and the trustee is not going to let go of the settlement. You have to pay 100% of the unsecured creditors to get out early. Many trustees proactively warn debtors not to pay ahead unless it is 100%. It's better to deal with debt within bankruptcy because of all the interest and penalties suspended and ultimately removed by the chapter 13. If you have JDBs as creditors, you can forget about them sleeping at the wheel in trying to collect or forgetting to add the interest and penalties. The BK effectively gives you a discount in dealing with the debt even if it is a 100% payback because of the suspended interest/fees.

The JDBs can look at your case information and grab all the information needed to put a lien on your home and garnish your bank accounts and wages.

Exempt what you can, try to convince the trustee you need a few thousand more on top of that for support of the family to replace a broken furnace/roof/broken truck/teeth/healthcare/your BK lawyer fees/whatever and let go of the rest of it. Then take your well deserved discharge and move on. With a 1% plan, you may have no room to incur extra legal fees in the plan.

[TWOHIO]

After a few stressful nights of researching and thinking I decided to take the advice of the attorney... I mean he is more experienced and knowledgeable about this than I am for sure.
Filed motion to voluntarily dismiss and now it's officially dismissed.
I feel now.... LET THE GAMES BEGIN.
I still fear I made the wrong choice.
Attorney says if debt collectors come at me with double, triple or higher amounts and I can't settle with them that I can file a ch 7 or refile chapter 13.
The thing that worries me the most is there's still no confirmed time frame of receiving the settlement funds, debt collectors can be beating at the door without us having anyway to settle with them.
I pointed these issues out to my attorney and the paralegal I contact but they say I can just refile later if I have to.

[justbroke]

You'll just have to see how it progresses. I would expect 1 or 2 of the creditors to be "aggressive" (whatever that means). But that may just means a lot of dunning (letters and phone calls). Maybe your attorney would be happy to take all their calls (redirect them to your attorney?).

I wish you the best.

[sophieanne]

justbroke - this is now just a question of curiosity. What if the class action settlement didn’t pay out during the 5 years? The trustee couldn’t get it after the fact, could they? Class action suit payout times don’t always happen as planned..there can be delays. I would have wanted to know for sure it was paying and the timeframe. I would also want to know the payout amount hadn’t changed after the 6 years since the amount could change based on the number of claims made - but that’s just me.

[TWOHIO]

justbroke - this is now just a question of curiosity. What if the class action settlement didn’t pay out during the 5 years? The trustee couldn’t get it after the fact, could they? Class action suit payout times don’t always happen as planned..there can be delays. I would have wanted to know for sure it was paying and the timeframe. I would also want to know the payout amount hadn’t changed after the 6 years since the amount could change based on the number of claims made - but that’s just me.

Yes. I'm so confused at this point and stressed to the max. That's why I fincame to the conclusion to take the advice of my attorney. I even have thoughts that he advised me of that in hopes I'd have to turn around and pay them again for another bankruptcy filing whether it be ch 7 or 13.

I just know I haven't worked since Oct of 2019 due to back issues, having another surgery in July. Living on LTD. My wife can only work part time due to her health issues as well.
So I feel greedy when I think we need the entire settlement funds and not want to pay off creditors but we really need it...

Questions I've neen looking for...
This type of lawsuit, mesh lawsuit, what kind of lawsuit is this? It wouldn't be considered personal injury right? Is any part of this type of settlement exempt from bankruptcy in Ohio?
I can't seem to find the answers to this.
Don't even know what kind of lawsuit it's called.

[flashoflight]

First, ask your BK lawyer straight up if this mesh class action lawsuit qualifies as a PI lawsuit in Ohio. He is the best person to ask.

I know about the general reluctance of even good BK attorneys to give any planning advice, but at least he should have given you some hints.

Ask your BK lawyer if you can double the Ohio exemptions as a married couple, especially for the stuff mentioned below.
Use the first $150k+closing costs (or $300k if doubled) of the settlement to buy a house with cash and use the homestead exemption for it. You need to live in this house. Maybe you can sell this house later or reverse mortgage it post 2nd BK.
Pay your back taxes in full.
Start buying replacement appliances like refrigerators and laundry machines. The value of used appliances is nowhere close to the original purchase price.
Buy a car worth about $5k with cash and repair everything wrong with it and get new tires/brakes/etc. I might even "replace" the tires and keep the original if they're still good. If you have trouble with the means test to get into a 7, finance two cars as a couple instead with 72 or 84 month auto loans.
If possible with sufficient employment income, make an annual contribution to an IRA.
Get medical care early and often. Spend down the settlement.
Keep the last 25k of the settlement in cash as long as you file BK within 12 months of getting the settlement.

As you know, you can't have $300k cash and expect to keep it in BK or when sued by debt collectors. So the general strategy is to convert non-exempt cash into exempt assets in a legal way and then ch7 to wipe out the unsecureds. Hopefully you qualify for a 7 instead of a 13. Don't file until after you get the settlement and spend it down.

[TWOHIO]

First, ask your BK lawyer straight up if this mesh class action lawsuit qualifies as a PI lawsuit in Ohio. He is the best person to ask.

I know about the general reluctance of even good BK attorneys to give any planning advice, but at least he should have given you some hints.

Ask your BK lawyer if you can double the Ohio exemptions as a married couple, especially for the stuff mentioned below.
Use the first $150k+closing costs (or $300k if doubled) of the settlement to buy a house with cash and use the homestead exemption for it. You need to live in this house. Maybe you can sell this house later or reverse mortgage it post 2nd BK.
Pay your back taxes in full.
Start buying replacement appliances like refrigerators and laundry machines. The value of used appliances is nowhere close to the original purchase price.
Buy a car worth about $5k with cash and repair everything wrong with it and get new tires/brakes/etc. I might even "replace" the tires and keep the original if they're still good. If you have trouble with the means test to get into a 7, finance two cars as a couple instead with 72 or 84 month auto loans.
If possible with sufficient employment income, make an annual contribution to an IRA.
Get medical care early and often. Spend down the settlement.
Keep the last 25k of the settlement in cash as long as you file BK within 12 months of getting the settlement.

As you know, you can't have $300k cash and expect to keep it in BK or when sued by debt collectors. So the general strategy is to convert non-exempt cash into exempt assets in a legal way and then ch7 to wipe out the unsecureds. Hopefully you qualify for a 7 instead of a 13. Don't file until after you get the settlement and spend it down.

There's 2 cases for her mesh lawsuit settlement. Both total $77,000.
I've read while trying to research this stuff that Ohio PI settlement has a $25,000 exemption, I believe I'm right on that, Its hard for me to find correct up to date information.
So if that's the case and it's doubled for being married $50,000 of the $77,000 should be exempt.
What do you suggest then?

You have some GREAT INFO and ideas!!
Exactly what I'm looking for.

[TWOHIO]

I asked our bk attorney if any of this type lawsuit is exempt and he responded with this...

"Certain proceeds can be exempted from bankruptcy but a lot of that depends on type of funds, when received, how settlement structured, etc. In other words, should you need to get back into a case, we'll need to review at that time to determine the best course of action to protect any funds."

I'm going to email him again explaining what the lawsuit was for, thinking he might've not researched our case before replying to my question. Giving him the benefit of the doubt.
He should have given me more of a better answer.

[flashoflight]

I think he suggested you leave ch13 because there really isn't a good way to prevent the settlement from becoming disposable income. It's protected as an asset but when you receive each periodic (or lump sum) payment of the settlement, it's disposable income. Each payment you would need to try a motion to retain funds just like trying to keep a tax refund. Outside of BK, you'd need to spend it down, turn it into an exempt asset, or don't let the exempt portion of the proceeds age beyond 12 months before filing CH7 BK to get rid of your unsecured creditors. Maybe they will be slow at filing lawsuits on you. But I think they won't be if they're JDBs and if they paid attention to your petition, they know about your settlement already.