Over the half-way point, but questions remain

[GUYINA13]

Good day/night everyone.
I hope everyone is doing well.

I have been in a Chapter 13 for over 2 1/2 years of a 5 year plan and things took a little more complicated turn when I received an inheritance from a loved one passing away.

I went from a 5 percent unsecured debt payback plan to now I will be paying about 92 percent of the total claimed (secured at 100 percent and unsecured at 92 percent) debt back once the five years is up.

My inheritance was in the 20,000 range and through my lawyer we negoiated to where I got to keep around 5,000 of it and I would payback the rest to my plan which would go straight towards the unsecured debt.

Here is my embarrassing question/problem?

I have kind of spent a huge chunk of the entire inheritance, so not just my 5,000 that was agreed upon that I could keep. I am trying to raise the remainder of what I agreed to pay in the next 2-plus years.

What happens If I come up short?

Could I still roll into a Chapter 7 at this point? Since I had already agreed to give up most of my inheritance, if I went to a chapter 7, what happens to that agreement with the Chapter 13 plan?

I wonder also if I could self-voluntarily get out of my chapter 13 and deal with the creditors right before the end of the five years (if say I am a couple thousand dollars short) and settle the accounts that way?

Thanks for your time!

[sophieanne]

Hi,,most importantly I’m very sorry for your loss. Regarding your inheritance, I’m sorry but I don’t know the answer. I would strongly suggest you contact your attorney for advice. Just remember that if you were to voluntarily walk away..the creditors aren’t going to wait till the end of the 5 years..they will be able to start collections for the full amount and interest that you owe. You could try to negotiate but no one knows what that outcome would be. I think you should start by making that call with your attorney.

[shipo]

I agree with sophieanne, one of the interesting things I've learned from the many posts here is much of the (assumed to be) bad debt folks include in their Chapter 13s is sold off to Junk Debt Buyers (or some such moniker); the way they make their money is to assume a certain number of folks will not complete their full 5-year plan and end up with a Dismissal. Once the aforementioned Dismissal is logged, they pounce, rather aggressively I might add, seeking not only payment in full of the debt, but interest dating back to the original stay (or thereabouts).

Long story short GUYINA13, if you can stick out the remaining 2.5 years and finish with a Discharge, you'll come out of your bankruptcy in much better shape.

[GUYINA13]

Thank you both for your responses.

The obvious choice I should've made when I got the inheritance was to turn over the money right away to the trustee.

But doing research, I concluded that since all of that inheritance money would've went toward unsecured debt (credit cards), it would've just sat the entire five years of the plan (because the trustee won't pay on unsecured debt until the very end of the plan).

So my justification at the time was why not keep that money for now. I agreed to hand it over, but there wasn't a deadline to do so.

All the trustee did was tack on that amount to my entire plan total and since I couldn't apply for new credit or anything like that, that lump sum money would kind of act like insurance in case I had expenses along the way to deal with. And of course a couple years later, I went to the well a few more times than I should've. Hey what can I say, If I were truly responsible I would've never been in a chapter 13. Haha.

I haven't told my attorney that I haven't already turned over that inheritance money, because i figure he would blow a gasket.

He (the attorney) has always described this particular trustee as very difficult, using examples such as someone was at the end of their five year chapter 13 plan, had made all their payments on time but at the very end came up 50 dollars short somewhow and this trustee actually moved to have their entire case dismissed.

So if that is true, yikes! I know this is someone I need to have my I's dotted and T's crossed in dealing with.

I think its possible, If I live in squalor for the remaining 22 months of the plan, that I could raise back all of that money and still keep current with all my regular monthly payments, but if I do in fact come up short at the end, (since I had already aggreed to pay that inheritance amount) am would I be in a lot of trouble? In other words, I truly hope I have not committed some sort of fraud, because it definitely wasn't intentional.

[shipo]

But doing research, I concluded that since all of that inheritance money would've went toward unsecured debt (credit cards), it would've just sat the entire five years of the plan (because the trustee won't pay on unsecured debt until the very end of the plan).

So my justification at the time was why not keep that money for now. I agreed to hand it over, but there wasn't a deadline to do so.

Hmmm, my trustee paid a portion toward my unsecured debt literally every month of my Chapter 13.

I haven't told my attorney that I haven't already turned over that inheritance money, because i figure he would blow a gasket.

Yup, pretty good bet.

I think its possible, If I live in squalor for the remaining 22 months of the plan, that I could raise back all of that money and still keep current with all my regular monthly payments, but if I do in fact come up short at the end, (since I had already aggreed to pay that inheritance amount) am would I be in a lot of trouble? In other words, I truly hope I have not committed some sort of fraud, because it definitely wasn't intentional.

I think others more experienced will need to comment on your question, but my gut tells me you might could well hosed if you cannot come up with the money.

Regarding your living conditions, you might want to look around for a circumstance where you pay a portion of your rent with your "sweat"; I've been doing this since before I filed Chapter 13, 30% of my rent is offset by taking care of about 11 horses (give or take a few on any given day) and pitching horse poop. Certainly not glamorous (either the work or the "Caretaker Apartment"), but the property I live on is very beautiful meaning my very inexpensive living conditions do not even remotely qualify as "living in squalor".

[sophieanne]

I was in the same situation as Shipo that the trustee paid secured and unsecured debt each month. I had a small car accident settlement and a small part went to the trustee. The trustee treated it the same as my monthly payment..it paid out the month it was received. With the increase to both your secured and unsecured creditors, I don’t think the trustee will not pay unsecured debt till the end. And although you weren’t given a pay by date for your inheritance..I’m pretty sure the trustee will be contacting your attorney for status. I really think you should speak to your attorney. (P.S. your attorney has access to your case - he would know you haven’t turned that money over)

[GUYINA13]

I was in the same situation as Shipo that the trustee paid secured and unsecured debt each month. I had a small car accident settlement and a small part went to the trustee. The trustee treated it the same as my monthly payment..it paid out the month it was received. With the increase to both your secured and unsecured creditors, I don’t think the trustee will not pay unsecured debt till the end. And although you weren’t given a pay by date for your inheritance..I’m pretty sure the trustee will be contacting your attorney for status. I really think you should speak to your attorney. (P.S. your attorney has access to your case - he would know you haven’t turned that money over)

thanks for your response.

I don't know about that, my attorney always seemed pre-occupied with other cases and other things. I always have to catch him up to speed about my case when I have dealt with him. I don't think he really pays much attention to my case

I also don't think the trustee is going to pursue the inheritance amount either (until the end) , since at the time I got the inheritance he just increased my balance with the inheritance amount, while my monthly payments to him remain the same as they always were.

I do wonder if I rolled this into a chapter 7, how complicated I have made matters as a result of that inheritance.

A chapter 7 would wipe out my debt, but then what happens to the inheritance that I had already committed to turn over in the chapter 13?

My trustee only pays my secured debt, because that was my orginal plan. My secured debt plus lawyer fees and trustee fees is basically my monthly payment plan that I have.

It is only when the inheritance came (which this was a sudden death, not anticipated by any means) that now the trustee says great, we can pay the unsecured debt off as well

[sophieanne]

I’m not an expert on chapter 7, but I can’t help wondering why you would be allowed to switch from a 13 to a 7..I think not doing what you agreed to do would not be looked on favorably ..,maybe someone else has some thoughts.

[flashoflight]

But doing research, I concluded that since all of that inheritance money would've went toward unsecured debt (credit cards), it would've just sat the entire five years of the plan (because the trustee won't pay on unsecured debt until the very end of the plan).

So my justification at the time was why not keep that money for now. I agreed to hand it over, but there wasn't a deadline to do so.

All the trustee did was tack on that amount to my entire plan total and since I couldn't apply for new credit or anything like that, that lump sum money would kind of act like insurance in case I had expenses along the way to deal with. And of course a couple years later, I went to the well a few more times than I should've. Hey what can I say, If I were truly responsible I would've never been in a chapter 13. Haha.

OP, I would've done the same exact thing except going to the well unless it was a dire emergency.

In my district, the unsecureds get nothing until secured, priority, and lawyer debts get paid first. There is no pro-rata to unsecureds. That means it's possible for unsecureds to get nothing until payment #60 or close to it. If you had paid the inheritance, the secured debt would be paid off early and your future payments would go to unsecureds. It would not have sat there. But you don't really benefit much from having the secured and priority paid off early.

You have to save almost $700/month to make up the shortfall. Maybe the Donald will send another stimulus so you get a head start.

Do you have a 401k or IRA? Corona makes it easy to have in-service withdrawals from 401k accounts. Roll it over to an IRA with corona to preserve your ability to withdraw after month 60 if you fall short.

Your lawyer can delay the trustee motion to dismiss and give you time to use month 61 wages to pay the shortfall if you are close. Another option with a nice(r) trustee is to enter a very short payment plan for month 61+ to catch up on the arrearages if you made all 60 plan payments. Ask your lawyer if your trustee will entertain this if you fall short.

Remember lots of people live just fine with below median income just like many seniors can survive (barely) with just Social Security. Hopefully you can do the same with your budget to reduce or eliminate the shortfall.

[GUYINA13]

OP, I would've done the same exact thing except going to the well unless it was a dire emergency.

In my district, the unsecureds get nothing until secured, priority, and lawyer debts get paid first. There is no pro-rata to unsecureds. That means it's possible for unsecureds to get nothing until payment #60 or close to it. If you had paid the inheritance, the secured debt would be paid off early and your future payments would go to unsecureds. It would not have sat there. But you don't really benefit much from having the secured and priority paid off early.

You have to save almost $700/month to make up the shortfall. Maybe the Donald will send another stimulus so you get a head start.

Do you have a 401k or IRA? Corona makes it easy to have in-service withdrawals from 401k accounts. Roll it over to an IRA with corona to preserve your ability to withdraw after month 60 if you fall short.

Your lawyer can delay the trustee motion to dismiss and give you time to use month 61 wages to pay the shortfall if you are close. Another option with a nice(r) trustee is to enter a very short payment plan for month 61+ to catch up on the arrearages if you made all 60 plan payments. Ask your lawyer if your trustee will entertain this if you fall short.

Remember lots of people live just fine with below median income just like many seniors can survive (barely) with just Social Security. Hopefully you can do the same with your budget to reduce or eliminate the shortfall.

Thanks for your response.

This inheritance thing has just been a mess.

My original chapter 13 plan was super easy and uncomplicated. Just make the monthly payments for five years and you are done. And I was having no trouble doing so.

And then comes this inheritance.

The person that passed away did so unexpectedly and the fact this person left me anything let alone a big chunk of their retirement was also unexpected.

I immediately went to my lawyer to report the inheritance and at the time, I felt like he was trying to talk me into getting out of my chapter 13 plan and just dealing with the debt head on (negotiate with each creditor one by one if they even pursued the debt) with the inheritance money.

I thought he was crazy at the time. I had been making my payments no problem in the Chapter 13 for over a year and why would I want to voluntarily get out of it, when I wasn't struggling to make the payments each month.

But now I am starting to regret that decision.

The trustee doesn't give a lick about me, he is only concerned with getting as much money out of me as possible.

I could've taken that lump sum inheritance and paid off the smaller debts first and gone from there where I have a feeling the trustee is going to take that same money and just pay an even amount/ little bit off of each account (unsecured credit card debt, I literally have over 20 different small accounts)

So in the end, very few of those accounts will actually be paid off in full and to me that inheritance money will just have been completely wasted.

At the same time I went to my lawyer to report the inheritance, he told me to strongly suggest getting out of the chapter 13, dealing with the debt head-on or rolling my chapter 13 into a chapter 7.

I have thought about a Chapter 7, but again the stinking inheritance comes into play. I already committed to turning it over in the chapter 13, so will the trustee try to object if I switch to a Chapter 7 Bankruptcy at this point?

[flashoflight]

GUYINA13 What's in the secured / priority portion of the 13? Do you have mortgage or car loan arrearages? If you go into a 7 with secured debt arrearages that aren't fully paid by the 13, those assets will be foreclosed/repo in a 7. So I can't say if 7 is right for you.

[GUYINA13]

GUYINA13 What's in the secured / priority portion of the 13? Do you have mortgage or car loan arrearages? If you go into a 7 with secured debt arrearages that aren't fully paid by the 13, those assets will be foreclosed/repo in a 7. So I can't say if 7 is right for you.

That is a great point. The secured debt is basically the car loan.

But when it comes to a Chapter 7, I was under the impression that you got to keep an automobile and that would not be put in the bankruptcy.

In other words they can go after your assets in a Chapter 7, but everyone is at least entitled to reliable transportation. I definitely could be wrong about that though.

CORRECTION - Of course it would be an issue since the car isn't paid for.

However, the car will be paid off in full just before the end of my chapter 13. I know it would be kind of slimy, but I guess I could look into a Chapter 7 at the very end of my 13

[justbroke]

In other words they can go after your assets in a Chapter 7, but everyone is at least entitled to reliable transportation. I definitely could be wrong about that though.

That is not the case, as you mentioned. If there is a loan on a vehicle, then you must be both current and paying the lender in order to preserve the vehicle in a Chapter 7. A Chapter 13 conversion could unnecessarily make that more complex, but I think that flashoflight explained it well.

I don't know why anyone would convert to a Chapter 7 a or near the end of their Chapter 13. There are some very strategic reasons to do this, but just about every conceivable scenario, it's not worth the aggravation, costs (attorney wants more $$$), and more scrutiny (another 341 Meeting and by a Chapter 7 Trustee). A good reason to do this is not that the debtor planned to convert, but there are actually financial issues -- loss of income -- that is driving the conversion. Death of the debtor or co-debtor is another.

[flashoflight]

However, the car will be paid off in full just before the end of my chapter 13. I know it would be kind of slimy, but I guess I could look into a Chapter 7 at the very end of my 13

You can go into a 7 still owing on a car loan as long as you're current when you file and you weren't behind when you filed chapter 13 years ago. If you were behind when you filed the 13 or today, you need to catch up on payments quick after filing a chapter 7 or they will repo.

With the numbers we have been talking about and assuming the car isn't a Ferrari or Lambo, why are you in a 13 in the first place? Sounds like you could have done a 7 unless your income was too high.

[GUYINA13]

You can go into a 7 still owing on a car loan as long as you're current when you file and you weren't behind when you filed chapter 13 years ago. If you were behind when you filed the 13 or today, you need to catch up on payments quick after filing a chapter 7 or they will repo.

With the numbers we have been talking about and assuming the car isn't a Ferrari or Lambo, why are you in a 13 in the first place? Sounds like you could have done a 7 unless your income was too high.

I already did a 7 and still had about 6 months left before I was eligible to do another 7 when I did the 13

I know that sounds horrible, but things in my life as a whole have actually improved drastically.

When I did a 7 way back when that was a combo of both being in a low-paying career field and not being very wise when it came to credit.

The 7 was great, it erased my debt, but I still had a fairly large student loan to contend with, no savings whatsoever and very little income left after paying just regular bills every month. I started freaking out about unexpected crap (basically I was forecasting doom and gloom if I ran into a major car breakdown or something to which I could no longer turn to the old credit card to bail me out, my car was getting old and my job required a ton of driving all over the state) So that is why I turned back to credit cards. And when you come out of a chapter 7, now the only credit cards you can get are very low credit limit cards with much higher interest. Talk about getting suckered back in fast.

Now, I am doing a lot better financially, would never have a desire to turn to a credit card to bail me out of anything

But at the time I began the 13, I had just started a new career field and was still very much sinking financially from my previous career field.

Had I gotten the inheritance sooner, I would've never even thought about doing a second bankruptcy to begin with.

But of course that is life.