Lump Sum

[Colorfulstom]

I am 20 payments in to my Chapter 13. In December I will be receiving my pension from my job in a lump sum payment and will retire. My question is would I be allowed to pay off my bankruptcy in full even though I have not reached the 60 months yet? My plan said I owed $79,000 when I started, my payments are $1326. Not all of my creditors claimed (approximately $23000). I am at 64% payback. The amount owed to all of the creditors that did claim total a little over the $79000. The amount of my lump sum would be approximately $230,000 before taxes are taken out.

[justbroke]

Since you were required to be in the plan for 60 months, the Chapter 13 Trustee would (likely) require that you pay 100% of the allowed unsecured claims, their commission, plus your attorney fees to get out. That would mean about $123,000 to the unsecured creditors, 10% fee of $12,300, plus any leftover attorney fees. That could mean about $150,000 or so. You would subtract any amount that you already paid towards the unsecured from that (approx) $150K.

Or, maybe you could save $80,000 by seeing if your lump sum can go directly into a retirement account and have your case converted to a Chapter 7. Now there's a lot of things I suspect will be an issue. One issue could be that the Chapter 13 Trustee may be mad that you took your retirement and put it into a retirement account (to protect it).

The likely key issue is going to be whether the retirement lump sum is protected. If it's not protected, then it's a windfall and you would likely be forced to use it to payoff the Chapter 13.

I would likely think about this and probably not use the retirement to pay this off. You are retiring and (may) need that income for your future. We always say... don't rob your future to pay for your past.

It's very interesting, though as I haven't experienced this issue. Maybe despritfreya has seen similar, but there's nothing in BKForum that I could fine that is similar.

(Notes: there may be additional issues if you're not 59.5 and take the money now which would be an additional penalty of 10% in taxes. That could mean a minimum 25% tax on that distribution (nearly $60K in taxes). Due to SARS-CoV-2, however, you may avoid the 10% penalty. Hope is that your lump sum can be diverted directly into a retirement account which is protected under Florida non-bankruptcy law. A bunch of things I listed are just my thoughts as I have no direct or indirect experience with this particular situation.)

[flashoflight]

There is no way you can get out of the bankruptcy early paying back just 64% as a lump sum. Early means 100% payback plus fees. The discount 64% deal requires you to stay in the ch13 for the entire 60 months plus on top pay windfalls like tax refunds, lawsuit money, and lottery that's earned during the 60 months which doesn't count towards the minimum 64%/60 payments. If this money is from a traditional pension rather than a 401k/IRA, my gut feeling is that it is a non-protected windfall that must go to the trustee and you STILL have to make your $1364 payment unless you pay 100%+fees. If it was from a 401k/IRA in my district, that money was previously earned and you deferred spending it until now so you'd just be on the hook for the $1364 payment as usual until month 60 or pay 100% plus fees.

I don't think you should retire until the ch13 is done.

[despritfreya]

You need to talk to your attny. I see two potential issues here:

1. The pension money, sitting in the pension plan, is exempt. Once you have complete dominion and control over the funds they are no longer exempt. Does destroying the exemption make the funds fair game for the Trustee? I don't know. This probably depends upon case law in your district.

2. As JB and others have alluded to, if your commitment period is 60 months (meaning you were over median income when you filed) you cannot get out of the Chapter 13 in less than 60 months unless you pay all allowed claims in full.

Talk to your attny.

Des.