Property paid in Ch 13

[Scottowl]

I have 2 vehicle loans in my plan that are paid in the plan.
My attorney originally set up the plan to run for 36 months, so all priority debts would be paid by then, and so far (15 months) that is on schedule. 0$ has been paid to the unsecureds.
At the confirmation the trustee amended the plan to run 60 months.
If the vehicles are paid for, are their contracts closed, even if I cannot follow through my case to the end?

[justbroke]

Scottowl when I say that it depends, there are some special considerations when it comes to vehicles in a Chapter 13. The issue will be whether or not the vehicles were "crammed down" in the Chapter 13. A cramdown is the normal way that vehicles, that have been refinanced at least once or you have had for more than 910 days, are dealt with in a Chapter 13. The cramdown allows you to pay the current market value of the vehicle as the secured (required) part. The other leftover value is unsecured debt.

If you cram down a vehicle during a Chapter 13 that doesn't necessarily mean that once the vehicle claim is paid, that it is in fact paid in full.

So, I can't answer that question unless I knew whether the vehicle was crammed down.

[Scottowl]

No cramdown, but both contracts interest rates were lowered sharply-10% or more.

[justbroke]

It depends. I would see if the lender/creditor were willing to release their lien and send you the title with the lien release. If you are in an electronic lien title (ELT) State, then they could electronically release their lien and send you a letter indicating that your account is paid and full and that the lien was released.

Unless and until they release the lien you may have issues with them in the future. The lender/creditor could be considering the crammed down interest to be unsecured debt and won't release the lien/title until the discharge. There are just several factors which play into this situation, but the lien release would be critical.

I say this because the cramdown of the interest is what may complicate this.

[Scottowl]

Would converting to Ch 7 AFTER all or most priority debts are paid cure this situation?
I am asking because of health reasons affecting my job. As of now I am in doubt I will hold up another 3-4 years.
After being locked in for 5 years, could my case just be discharged after 3, if my income drops and all priority creditors are satisfied?

[justbroke]

Would converting to Ch 7 AFTER all or most priority debts are paid cure this situation?

Not necessarily.

If you converted then the creditors are put back in the place they were before you filed. This is actually one of the unforeseen issues when converting from a Chapter 13 to a Chapter 7. Specifically real property (arrearages/stripoffs) and vehicle cramdowns could put a Chapter 13 debtor in a precarious position if they were to convert or have their Chapter 13 dismissed.

This can also be an issue for IRS debt. The IRS will generally file a claim with both a priority position and a regular (unsecured) position. You could end up converting into a Chapter 7 and still owe the IRS a lot of debt which you can't discharge.

I am asking because of health reasons affecting my job. As of now I am in doubt I will hold up another 3-4 years.

While there is a hardship discharge available to certain Chapter 13 debtors, I'm unsure of the ramifications. Such a hardship discharge doesn't discharge everything such as the home and vehicle. I would be certain that I don't run into Chapter 7 (related) discharge issues with vehicles for which I didn't already have clean title, and did some sort of cramdown in the Chapter 13 (interest and/or value).

After being locked in for 5 years, could my case just be discharged after 3, if my income drops and all priority creditors are satisfied?

A Chapter 13 can't just be discharged early when your income dictated that you must be in a 60-month plan. This is what happens to those that are over-the-median for purposes of the means test. The only way out early for someone over-the-median, and in a Chapter 13, is to pay 100% of the allowed unsecured claims from the creditors. So, technically, you can't end a Chapter 13 early just because your income decreased. Your recourse would be conversion (to Chapter 7) or seeking a hardship discharge.

At least that's my understanding of this issue. It was something I had to consider since I was a Chapter 13 and then converted to a Chapter 7. I had to do some interesting things to make sure I didn't lose my home or vehicles after the conversion to Chapter 7. (My vehicles were crammed down and my home had arrearages at the time that were being paid in the Chapter 13 plan.)

[Scottowl]

This can also be an issue for IRS debt. The IRS will generally file a claim with both a priority position and a regular (unsecured) position. You could end up converting into a Chapter 7 and still owe the IRS a lot of debt which you can't discharge.

I do have IRS and State income tax debt included in my plan, and they are listed in unsecured debt as well.
Would they also charge penalties and interest covering the time spent in Ch 13?

Wow, I see the federal bankruptcy laws are not rocket science. They are much more complicated than that.

[justbroke]

I do have IRS and State income tax debt included in my plan, and they are listed in unsecured debt as well. Would they also charge penalties and interest covering the time spent in Ch 13?

I don't know, but typically you're put back into the same relationship you had prior to filing Chapter 13. That means that interest and penalties can accrue and creditors are allowed to roll all of that deferred (accumulated) interest onto the account balance. This is one of the reasons that there are junk debt buyers (JDBs) that purchase a lot of Chapter 13 debt. These JDBs actually hope that the debtor fails.

As for the IRS, I don't know their position on this deferred interest but I list their rules from the Internal Revenue Manual (IRM) below.

Wow, I see the federal bankruptcy laws are not rocket science. They are much more complicated than that.

It's a twisted mess. But I'm sure a person with a Phd. in forensic and tax accounting with a bankruptcy specialty, could probably figure out the numbers.

From the IRS: 20.2.11.6.1.6 (11-13-2018) Post-Petition Interest if a Case is Dismissed

Pursuant to section 11 USC 349(b) of the Bankruptcy Code, the dismissal of a bankruptcy case generally reinstates liens (and debts) and reverts property back to the debtor as if the bankruptcy petition had not been filed.

If... the debtor is not granted a discharge in a Chapter 7 case... OR a Chapter 13 case of an individual debtor is dismissed before the debtor receives a discharge... then IRS should assert a right to uninterrupted statutory interest on any tax debts.

Reference: https://www.irs.gov/irm/part20/irm_20-002-011

[Scottowl]

Thanks, JB. As usual, you are a wealth of knowledge.
I appreciate you taking time out to go through this for me!

[justbroke]

Scottowl my pleasure. I have actually had to deal with or think about these issues since I did convert from a Chapter 13 to a Chapter 7. I would say that my case was complex with lien stripping, cramdowns, mortgage arrearages, taxes, family, a vehicle for an elderly parent, HOA violations, emergency sewer line repair, and a host of other of life's challenges. Combine that with a conversion to a Chapter 7 with first day motions, redemption, and a modification, that makes for a lot of different things that I experienced. I am happy to share.

[Scottowl]

I do hope it's acceptable to reopen this thread with some more questions.

The most pressing medical problem is pain from bone spurs. I can't hang much more as-is. I missed 2 days of work last week.

If I have the recommended surgery, the Dr. predicts I will be off my feet for 10-12 weeks. As I understand things, they look back on the last 6 months of income? If so, with that reduction in income I would be under the means test, and eligible to convert my case. Is this correct?

My thoughts are I need this eventually, while I still have decent insurance. My max out of pocket is 5500$, which I would hit. Would that debt be eligible to be added to a Ch 7 case?

I have the priority debts. I would plan to surrender the auto, which is not worth anywhere near what is still owed. I could clear the mortgage arrears with a 401K loan, as well as pay the attorney fees and Oregon DOR. I would then set up a payment plan with the IRS, right around 10k still owing, plus fees tacked on from the past 2 years. Is that advisable?

The downside is that it would torpedo my credit for the rest of my life. 63+10 is getting rather ripe, especially with my health. If I continued to pay mortgage, I would not need credit anyway.

[justbroke]

I do hope it's acceptable to reopen this thread with some more questions.

It's your thread and it adds additional questions directly related. Besides, this is a "recent" thread as far as that goes!

If I have the recommended surgery, the Dr. predicts I will be off my feet for 10-12 weeks. As I understand things, they look back on the last 6 months of income? If so, with that reduction in income I would be under the means test, and eligible to convert my case. Is this correct?

Not necessarily. It really depends on how conversions work in your district. I'm not even sure for Florida as I technically qualified for a Chapter 7 when I filed my Chapter 13. I did a simple notice of conversion and redid my Means Test and Schedule I/J just to make sure. I wasn't sure if a new Means Test was even required in my district, but I did it anyhow to demonstrate my paltry DMI.

My thoughts are I need this eventually, while I still have decent insurance. My max out of pocket is 5500$, which I would hit. Would that debt be eligible to be added to a Ch 7 case?

The nice thing about conversion from Chapter 13 to a Chapter 7 is that you can include "most" debts incurred up to the date of conversion into the Chapter 7 converted (11 USC 348). By most, it just means that the date is not "reset" for priority debt such as taxes.

I have the priority debts. I would plan to surrender the auto, which is not worth anywhere near what is still owed. I could clear the mortgage arrears with a 401K loan, as well as pay the attorney fees and Oregon DOR. I would then set up a payment plan with the IRS, right around 10k still owing, plus fees tacked on from the past 2 years. Is that advisable?

You could do a redemption in the Chapter 7 converted case. I did exactly that using a 722 Redemption loan to shave off about $11K in negative equity from a vehicle (11 USC 722)!

The downside is that it would torpedo my credit for the rest of my life. 63+10 is getting rather ripe, especially with my health. If I continued to pay mortgage, I would not need credit anyway.

If you convert, then the time is measured from the date that you filed the Chapter 13 and not the date when you converted. So you would have already satisfied "some" of that time. For example, I converted about 24 months into my Chapter 13, so I only had 8 years from my filing date for the Chapter 13/7 to fall off.

[Scottowl]

Not necessarily. It really depends on how conversions work in your district. I'm not even sure for Florida as I technically qualified for a Chapter 7 when I filed my Chapter 13. I did a simple notice of conversion and redid my Means Test and Schedule I/J just to make sure. I wasn't sure if a new Means Test was even required in my district, but I did it anyhow to demonstrate my paltry DMI.

I am not sure I would fail the means test now, as is. I had less OT in 2020, and did not withdraw $23,000 from my 401k, like I did in 2019, within 6 months of the time I originally filed. I think my income may be under the wire since the time I filed.

I know it is a question for my lawyer. He winters in Arizona, and does not spend a lot of time monitoring e-mails from his 5,000+ clients.

I know he must omit his personal feelings, but I wonder if he would secretly prefer to convert it, and have 1 less case to monitor?

[justbroke]

I know he must omit his personal feelings, but I wonder if he would secretly prefer to convert it, and have 1 less case to monitor?

I don't know about Arizona's so-called no-look/presumptive fees, but in Florida I recall that a Chapter 13 attorney can charge $50/month for that "monitoring fee" which can be worth $3,000 in a 60-month plan.

From the "Presumptive" Fees standing order in parts of Florida.

** Attorneys may include an additional monthly monitoring fee up to $50 per month, effective in the month following confirmation of the plan, to cover all post-petition legal services.
** If an attorney provides extraordinary services for a debtor in a chapter 13 case (including services in an adversary proceeding), the attorney may file a fee application with contemporaneous time records as to the specific extraordinary services for which additional fees or costs are requested

This is why I say that, at least in Florida, attorneys who charged this fee should ignore their clients.

And the prices in Florida for a Chapter 13 that are "preapproved" (presumptive)...

$ 4,500 – for getting the debtor to confirmation
$ 1,800 -- for mortgage modification
Monitoring Fee – $50/month for term of plan AFTER confirmation

So with a Chapter 13 with a mortgage modification and ongoing (monitoring) fees post-confirmation, that could be a total of $7,500 for a 36-month plan, and $8,700 for a 60-month plan (inclusive of the monitoring fee 12-months post filing). Luckily this comes from the DMI if you have sufficient DMI to cover at least the Trustee's commission, attorney fees, and priority debt.