Trying to figure out my payback percentage

[GUYINA13]

I am definitely not very wise when it comes to mathematics, or avoiding debt (hence the bankruptcy), however, I am just a little bit confused about the actual payback percentage in my chapter 13 which changed significantly after I received an inheritance a couple of years ago.

I am now near the final year of a five year plan.

My original base plan was 34,000 as to which 23,000 was secured debt to be fully paid back at 100 percent and the remaining amount going to about 30,000 in unsecured debt (resulting in a low percentage payback) after also considering lawyer fees and trustee fees as well.

Since the inheritance (right around 17,000) , my base plan has bolstered up to around 55,000 with all secured debt (23,000) being paid back and the rest going to the 30,000 in unsecured debt.

Now technically 23,000 in secured debt and 30,000 in unsecured debt equals 53,000 and since my plan is 55,000 you would think I was in a 100 percent payback plan. But add in the lawer fees (3,600) and trustee fees (seems to be 3,000 as he is taking out more and more each payment that is made (now up to 25 dollars each payment going to him) and so technically I suppose I am short of paying back 100 percent. But I would like someone to confirm that.

What sucks, is that if I am like at a 95 percent payback percentage, it almost makes more sense just to jump up to the full 100 percent where rules get a little looser (for instance at the end of the five year plan, I am a little short, I could pull from my 401k in a 100 percent plan to finish everything off) as opposed to being in a 95 percent payback plan where I likely would not be allowed to turn to a 401k for relief at the end, because they would look at that as money that should still be going to unsecured debt.

Any help/assistance with this would be appreciated.

I have always felt like the unexpected inheritance was a curse, that I never wanted to accept to begin with, but was told that since I was in a bankruptcy when my relative suddenly passed, I had no choice but to accept it because it was technically the bankruptcy's money not mine to begin with.

[shipo]

It does indeed sound like you're somewhere between 90% and 99% but I don't know if there is a definitive way to determine the ultimate percentage until the final report is issues. As for pushing up to 100%, I don't see the benefit in that. Said another way, there is virtually no difference in recovery between a 5-year 10% plan and a 5-year 100% plan except for things like keeping tax returns, bonuses, and other cash windfalls. The one other "benefit" of a 100% plan is you might get your Discharge a month or two sooner, but in reality, that doesn't even remotely compensate you for the loss from your 401K.

So, in your shoes, I'd simply ride it out to the end, get your Discharge, and then start rebuilding.

[GUYINA13]

It just seems silly to be that close to 100 percent payback but not actually there.

Being in the 100 percent plan - as I understand it, gives me the freedom to do things such as borrow from a 401k without permission from the court to finish off the plan, maybe even a few months early,

If I am in a 99 percent plan and I borrowed from my 401K without going through the courts first, they could dismiss my case and in the final days and that would be horrific.

[justbroke]

There's no way to tell unless you ask the Trustee's office. The Trustee has pretty good accounting. You can test them by asking for a payoff figure and seeing if that matches your math. Otherwise it's a bunch of hoops to try to understand whether you'll pay 90%, 95%, 99% or 100%.

If you're already in the nineties, I would suspect that the Trustee wouldn't be too bothered by borrowing from a 401(k). Most people don't even hit the 60% payback threshold.

I'm just speculating, but you could determine just what would make it a 100% plan. If you're that close, and the total is only $55,000, then 1% is only $550... 2% is only $1100... 5% is only $2750. Strategy-wise, if you're that close and paying the Trustee (or into the plan) another $2,750 makes the plan go away... it would be an interesting decision.

[GUYINA13]

Right I hear what you are saying.

But I am actually afraid I will fall short.

That is the only reason I bring up turning to a 401k at the end to complete the bankruptcy.

In a 100 percent plan - I would have no worries doing just that, in fact that seems to be a common thing people do if they are a few hundred/ 1000 short at the end

In a 95 percent plan, I would think I would have to get the court's permission, because if they found out I did that without notifying them, that could be grounds for dismissal of my case if I understand the rules at all. if unsecured creditors aren't getting every penny they claimed, then how can you take out a loan of any kind and not use that money to fulfill the unsecureds.

[shipo]

First, let's clear up a term, you don't want your Chapter 13 to be "dismissed", you want it to be "discharged"; those are two V-E-R-Y different outcomes (the former reinstates all of your pre-filing debts, including retroactive interest, the latter wipes those debts out).

Unless I'm mistaken, you don't need permission to "borrow" from your 401K at any time in a Chapter 13. The point most folks around here try to make is, the loss in 401K portfolio growth is not really recoverable for the portion you've borrowed. The other point is, getting out early in your last year won't really buy you all that much in terms of added flexibility and credit recovery. Regardless of whether you're in a 36-month, a 60-month Chapter 13, or something in between, you still need to wait the full 7-years to do things like apply for an automatic underwritten mortgage.

Think about it this way, even if it is only say, $2,000 in portfolio growth you lose between when you borrowed the money and when you've fully paid it back, that money will be gone many times over by the time you retire.

[GUYINA13]

Yes I do know the difference.

What I meant was me going into a 401k and not being in a 100 percent plan is not a good thing without getting court approval first and could be grounds for them to dismiss my case instead of me getting the discharge.

That would be horrible this late in the game. As far as plan payments go, I have made every one on time.

If I was in a 100 percent plan, not only would they not care about me going into a 401k, I could likely pay it off a few months ahead of schedule. I wouldn't take any hits on fees as this is a TSP (Thrift Savings Plan) instead of a bonafide 401K. This is treated as a 401k and was approved in my bankruptcy original plan to keep. You don't get taxed for borrowing from yourself, and a TSP is not considered a debt. You pay it back into your plan with very small interest.

The only reason I would even consider going into a 401k is that if I get to the end and am short the amount I agreed to paid.

I haven't turned over my inheritance (17,000) amount and have borrowed a little from it and am trying to catch up in the final year a little bit at a time.

[shipo]

Ummm, somebody correct me if I'm wrong, but Chapter 13 filers do not need court approval to borrow from their 401K as they are borrowing their own money.

[GUYINA13]

Trust me. I hope you are spot on about that as that would give me quite a bit of relief.

I attempted to look into that myself online - specifically with borrowing from your TSP (Thrift Savings Plan) and while I couldn't get a solid answer, it did talk about if you were filing for a Chapter 13, you must inform your employer to stop taking deductions out for a TSP Loan you have as the Bankruptcy court would have to approve that first.

Basically the consensus I got was that once you enter a Chapter 13, you are no longer in control of your income and what can and cannot get deducted from your pay. It's all up to the Bankruptcy Court.

But it is my money. I don't look at it as me running out to a loan place and getting a loan without telling the trustee and then using that money for whatever.

[justbroke]

Ummm, somebody correct me if I'm wrong, but Chapter 13 filers do not need court approval to borrow from their 401K as they are borrowing their own money.

Technically they should not. The Trustee will claim, or has claimed, that under 11 USC 521 (Duties of the Debtor) the Trustees job is to make sure you don't fail. One of the ways to keep you from failing, is by barring any new debt. Now a 401(k) loan is not technically debt, but it would reduce your paycheck. The reduction in the paycheck could affect your ability to maintain your case.

So, if you do need to borrow from a 401(k) while you are in an active Chapter 13, it is highly recommended to consult your attorney. Whether or not there are any local rules on whether or not disclosure is required, is another story.

In most cases, unless it's a small amount, I would advise against it... especially if the debtor is already feeling the pressure of a Chapter 13. This can be especially difficult if you have a Wage Deduction Order (WDO) in place. Your pay could be reduced to an intolerable level.

Of course you can do whatever you want with your money, but you risk dismissal of the case, and the protection that the case provided.

[GUYINA13]

Technically they should not. The Trustee will claim, or has claimed, that under 11 USC 521 (Duties of the Debtor) the Trustees job is to make sure you don't fail. One of the ways to keep you from failing, is by barring any new debt. Now a 401(k) loan is not technically debt, but it would reduce your paycheck. The reduction in the paycheck could affect your ability to maintain your case.

So, if you do need to borrow from a 401(k) while you are in an active Chapter 13, it is highly recommended to consult your attorney. Whether or not there are any local rules on whether or not disclosure is required, is another story.

In most cases, unless it's a small amount, I would advise against it... especially if the debtor is already feeling the pressure of a Chapter 13. This can be especially difficult if you have a Wage Deduction Order (WDO) in place. Your pay could be reduced to an intolerable level.

Of course you can do whatever you want with your money, but you risk dismissal of the case, and the protection that the case provided.

Yes I wouldn't turn to the TSP loan if I don't have too, but if I get down to the end and I am short (several hundred or 1,000) then I think the best thing to do would be to take out the TSP loan to complete the plan. Being just under 100 percent though makes me nervous about making that decision without court approval.

But if I just offer to get out of my plan early (by going to 100 percent payback) then I don't think it matters how I come up with the money. All debts (secured and unsecured) would be paid in full to at least what they claimed

[shipo]

GUYINA13, I still don't understand what you hope to gain by getting out of your Chapter 13 a month or three early.

[GUYINA13]

GUYINA13, I still don't understand what you hope to gain by getting out of your Chapter 13 a month or three early.

I actually am kind of stuck.

I got an inheritance at which i reported right away to my lawyer and then the trustee and was obligated to turn it over as part of the plan (we never said when I would turn it over and trustee didn't set a deadline, he just raised the plan base by that amount over the course of the five year plan) which took me from being in a plan that barely paid back any unsecured debt over the course of 5 years to a amended plan that now has me paying back almost all of the unsecured debt because of the inheritance.

Well, I haven't turned over the inheritance amount yet and have borrowed some from it over time and in my final year plus of the plan, I am trying to catch up.

Its possible I could catch up by the end and, if so, I wouldn't need to turn to a 401k type loan (TSP Loan), however, if I get to the final few months and I am still short 500 to 1,000 in my plan, then I have to do something.

I was thinking at the very end about just borrowing the 500 or 1,000 or whatever the amount I am short at that time from my TSP., however, with my luck, I would do that complete the plan as scheduled and then right before discharge, the trustee would come back and say Hey I see you borrowed from your TSP, you didn't get permission from me to do that, therefore, I am dismissing your case.

If I am short at the end by a relatively small amount (500- to 1,000 as example) then I could request a payoff amount (100 percent plan) and at that point they wouldn't care how I came up with the money to payoff the plan at 100 percent.

[newlife13]

I actually am kind of stuck.

I got an inheritance at which i reported right away to my lawyer and then the trustee and was obligated to turn it over as part of the plan (we never said when I would turn it over and trustee didn't set a deadline, he just raised the plan base by that amount over the course of the five year plan) which took me from being in a plan that barely paid back any unsecured debt over the course of 5 years to a amended plan that now has me paying back almost all of the unsecured debt because of the inheritance.

Well, I haven't turned over the inheritance amount yet and have borrowed some from it over time and in my final year plus of the plan, I am trying to catch up.

Its possible I could catch up by the end and, if so, I wouldn't need to turn to a 401k type loan (TSP Loan), however, if I get to the final few months and I am still short 500 to 1,000 in my plan, then I have to do something.

I was thinking at the very end about just borrowing the 500 or 1,000 or whatever the amount I am short at that time from my TSP., however, with my luck, I would do that complete the plan as scheduled and then right before discharge, the trustee would come back and say Hey I see you borrowed from your TSP, you didn't get permission from me to do that, therefore, I am dismissing your case.

If I am short at the end by a relatively small amount (500- to 1,000 as example) then I could request a payoff amount (100 percent plan) and at that point they wouldn't care how I came up with the money to payoff the plan at 100 percent.

I may be misunderstanding, but it sounds like they already "took" your $17K by including in the plan and allocating it to unsecured creditors.

[GUYINA13]

I may be misunderstanding, but it sounds like they already "took" your $17K by including in the plan and allocating it to unsecured creditors.

Well I still have the 17,000. In other words, they added the amount to my plan, but I never physically turned over the money yet from that inheritance. And now I am trying to catch that amount back up as I borrrowed from it.

If I come up a little short in the end of being able to catch up the 17,000 that I rightfully owe, then I am likely going to have to go into my 401K/ Thrift Savings Plan to make up the difference or take out enough to raise my plan to a full 100 percent plan.

For whatever reason, my plan only pays secured debt at first and I still owe about 10 months worth of that.

The plan which still has over a year left total, will only start paying on the unsecureds once the secured debt is paid.

I'm not sure why they do it that way, but that is what they do.

[justbroke]

Almost all Trustees pay secured debt, and priority debt, before the general unsecured debt. This is called priority and is in the bankruptcy code. Some Chapter 13 Trustees "may" send a token $1 to each unsecured creditor during the life of the Chapter 13 ,but most found this to be counterproductive. The cost to send a $1 is quite expensive (probably about $.50) so the Trustee loses more of their commission by paying for paying $1 when they only get $0.10 for sending that check. (Trustees generally can claim a 10% commission on everything that they pay.)

So, to make it easier, may Chapter 13 Trustees will wait until all the secured debt is paid before sending a single dime to the unsecured creditors. It just makes accounting sense, and the secured, priority (attorney fees and attorney commission), and priority tax debt should be paid first anyhow.