Less than 30 days from BK being over --- Notice of Dismissal for Lack of Feasibility

[May2014]

Same thing happened to us (in Missouri, too). In our case, the attorney waived the $3000 in fees we still owed him and that fixed it for us. Bringing a lump sum would have been an option as well. I think the issue comes in when “not enough” gets paid to unsecured creditors...they have to get what they would have gotten had you filed a chapter 7. It’s scary, but it will work out...no one wants to see you fail!

[sophieanne]

flashoflight - the. Cares act does include withdrawals from a 401k with the ability to repay it within 3 years..this was an option for employees at my husband’s work and was included in the cares act documentation.

[shipo]

Shhh, don't tell nobody, but I was at my max contribution for my 401K for the last two years of my Chapter 13.

[flashoflight]

I don't think anyone in a 13 is contributing the max. But if you take a covid withdrawal, you get 3 years to pay the taxes and pay no penalties. You have the option of paying it back into an IRA. When you put it into an IRA, tell the brokerage to flag it as a rollover or CARES act repayment and not as a contribution. You probably won't be able to repay into a 401k. So it doesn't really matter if you are maxed out on a 401k or not.

[sophieanne]

shipo Your ending point about being in chapter 13 makes sense. As I said above, we’ll have to wait for the IRS guidelines, but because repayment is an option due to the cares act...I think you would be able to exceed your contribution limit for the year..as your individual contribution amount will be treated separately from the cares act repayment amount. There will have to be a way to show that the amount over your yearly allowance is in fact a cares act withdrawal repayment. If repayment is made, there will also have to be a way to show you’re entitled to a refund of the tax you may have paid after year 1 and 2, if applicable. Lots of guidelines to be announced. This is my opinion.

[shipo]

Thanks sophieanne, yeah, I get the whole repayment of the loan concept, but I think premise of what flashoflight was proposing was, in lieu of a loan from a 401K, a person needing money can take a distribution, and then if their financial situation turns around, they can "recontribute" to bring the 401K back up to pre-distribution levels.

What I am wondering is, if you're already contributing the max (i.e. $19,500 or $26,000, depending upon your age), can you exceed those limits if you are paying back for an earlier distribution? Now, I think it is fair to say that is a highly unlikely condition as I don't see too many folks in a Chapter 13 both needing money and contributing the max, so all in all, this is probably an academic question with little basis in reality.

[sophieanne]

shipo - I don’t believe that would be taken into the equation. The cares act allows you to repay the loan , if you choose, within 3 years. Also you can split the tax liability over 3 years. you may pay part or all of the tax in years 1 and 2; however if you repay the loan by the end of year 3, you can can get a refund of the tax you already paid. I know more details will be coming before tax time. So a repayment wouldn’t count against your yearly allowed contribution.

[shipo]

You can always recontribute voluntarily into the 401k to rebuild it. Also remember that if you have to take a 401k hit, it's way better than failing the 13.

Is that true if you're already contributing the IRS max?

[flashoflight]

I'd just add take a covid no penalty withdrawal from the 401k if possible rather than take a 401k loan. You don't want mandatory payments afterwards that may come with penalties if defaulted. You can always recontribute voluntarily into the 401k to rebuild it. Also remember that if you have to take a 401k hit, it's way better than failing the 13.

[justbroke]

It is definitely a shame that the attorney and the Trustee both missed the feasibility notice. But the outcome is similar to if your tax preparer and/or the IRS messed up on a calculation or forgot to tell you something; you are still liable for the taxes despite the error.

Portfolio Recovery Associates is one of my debtors and they've gotten about 50% of their debt.

They made at least 750% of their investment (if they bought it for the standard JDB rates of 3-6%).

Very sorry to read this and I hope that you don't rob your future to pay for your attorney and trustee mistake.

[Lesa13]

I have talked to my attorney very very briefly. He asked if I would be able to come up with a lump sum if need be. I said I guess I could take a loan from my 401(k) depending on how much it was. He said he wanted to "explore all options" before making a recommendation, but didn't have a reason as to why these numbers are so screwed up. Apparently there was a notice of lack of feasibility filed by the trustee on the same day he confirmed the plan at the beginning so not sure why this wasn't dealt with then.

At a rough guess, I'm saying all of the non-secured trustees (most of them) have already got paid about 50% of what they were owed. Some of these were payday loan type places that I'm not feeling too sorry for, but again, if they were told they were going to get X amount, that's what they should get. That was the whole point of the Chapter 13 - I wasn't trying to screw any of them and was happy to pay them back for a reasonable amount in a reasonable length of time.

This has been a horrible time for me - this situation is one of several that happened within about 3 days - my child got very ill (finally on the mend as of today, thankfully), I had $500 charged on my debit card by someone on Amazon and can't seem to get anyone to refund the money (Amazon or bank) even though they know it wasn't my account, I didn't order it and what was ordered (multiple crock pots) didn't ship to me or have anything to do with me. Then this BK thing out of the blue on top of all of that.

I am hopeful this can be worked out. I am tending to think this is my attorney's fault because I don't see a response to the initial notice of lack of feasibility filed in 2016, but I also don't understand the trustee going ahead and confirming the plan when he said the same day "hey, this isn't feasible." Why confirm it then?

The few things I've been able to research on my own is to have the trustee continue the hearing on the dismissal for as long as possible, keep accepting my monthly payment until it's paid, then actually "have" the hearing which will be moot at that point. I don't think that can happen due to the amount I think we are short.

Apparently it used to be common that when there was a lack of feasibility at the end of the plan, they just went ahead and kept accepting the payments like nothing happened and just wouldn't dismiss the case or release you until everything was paid according to the plan. That would be the best option but it seems to me that's unlikely due to the fact that there seems to be a really strict limit on time - no more than 60 months.

It's just such a shame. It didn't have to happen. Another $25 a paycheck would have paid all of this off with no issue at all from me.

Portfolio Recovery Associates is one of my debtors and they've gotten about 50% of their debt.

I definitely hope I don't have to physically go to court - I don't need to be around a bunch of people who may or may not be social distancing or may or may not wear masks. What a mess.

[justbroke]

shipo is on the money. No creditor is allowed to "collect" on a pre-petition debt (period).

However, unsecured creditors have been known to sell their portfolio of "junk debt" to large debt buyers that we lovingly call "junk debt buyers" or JDBs. They buy these portfolios of bad debt for less than $0.10 on the dollar and sometimes much much less (literally only a few cents). Their hope is that one of the following two things happen; a.) the Chapter 13 pays more than 3-6% to them (because they literally only paid that amount for the debt), or, what they're really hoping for, b.) that your Chapter 13 fails. The former is the biggest reason to take that bet as around 50% of Chapter 13s fail. At that point, the JDB could collect all the accrued interest plus the original balance and maybe some fees.

JDBs are truly an interesting business model.

(justbroke's study guide: most Chapter 13 debtors will notice names like B-Real, LVNV Funding, Roundup Funding, Resurgent Capital, eCast Settlement Corp, Sherman Financial, NCO Capital, Portfolio Recovery Associates (PRA), and B-Line. These are the "major" JDBs in the debt industry and they buy a lot of Chapter 13 debt! They don't buy the debt to be nice by consolidating the debt into one or two of these companies. They buy the debt hoping that you'll fail.)

[shipo]

This makes me wonder, can the unsecured debt that's in your "confirmed plan" be sold to another junk debt buyer and can that new junk debt buyer pursue you while in the active CH13 for more $$$?

Simple answer, "no". Not legally anyway.

[Franco]

Lesa13 let us know what happens, that sounds ridiculous to be honest. I'm half way through my CH13 and I too would be livid if something like that happened. Only thing I have to complete is the 2nd BK coarse before the end of my BK. This makes me wonder, can the unsecured debt that's in your "confirmed plan" be sold to another junk debt buyer and can that new junk debt buyer pursue you while in the active CH13 for more $$$?

In my plan, my vehicle & trustee are getting pretty much everything, the unsecured debts are getting very little so this makes me wonder.

[Lesa13]

Thank you so much. I'm racking my brain trying to figure out if I did something wrong but I am guessing it's someone else who screwed up. Just remains to be seen what happens.