Question about a TSP loan prior to discharge

[MetsfanTom]

I've made so many financial mistakes in my life and I am most definitely paying the price for it now. I'm almost at the conclusion of a 36-month Chapter 13 repayment plan; it'll end in April of 2022. My car needs a major repair, I'm two months behind on my mortgage and I'm deathly afraid of the trustee dismissing my case so close to the end. My lawyer tends to be a judgmental jerk (I apologize for being disrespectful about him but he's not a real nice person), and because of that I'd prefer to not even ask him anything. If I were to take out a loan from my TSP early next year, or even before my case is officially closed, would the trustee automatically dismiss the case? I'm going down in flames here and this is the only resolution I can come up to help save me (if it's even allowed). I am so embarrassed that this is happening. Thank you for any advice you might have for me.

[justbroke]

I can't say whether the Trustee will take issue. The real question is why are you behind and will borrowing money help or just delay the inevitable? Personally, I tell everyone that if they have a single financial event, regardless of the personality or abrasiveness of their attorney, to report it immediately to their attorney. Sometimes things can be done and sometimes they cannot.

You'd have to personally decide if you want to take the risk of the Trustee being upset that you obtained a loan... unless you're in a 100% plan or your plan allows for "some" new debt with a limit. (For example, in some districts they allow $5,000 - $10,000 in new debt without permission.)

I would also, myself, look to see what the conclusion will be after you are discharged. Is there still potential to fall behind in your mortgage? What are the factors that are contributing to this income squeeze? Can you now, today, deal with that squeeze -- because just saying/wishing it will be all good in the future is simply not a good plan? Look to job and income stability.

The missing mortgage payments is a big deal. If this was just a one-time event, then the solution "could" be borrowing from TSP. If it's not a one-time event and is likely to recur, that's a significant issue and the loan would only delay the inevitable -- that it would happen again.

[flashoflight]

Mortgage payments are considered plan payments under most circumstances and in most districts. You cannot be behind on your mortgage at the finish line in April 2022. At the end, the trustee will send a form to your mortgage lender and they need to either not respond at all or tell the trustee that the mortgage is current for you to get your discharge.

Assuming you don't want to notify your attorney and trustee, you could take a COVID mortgage forbearance and end it March 2022 by requesting a partial claim or deferral to push all of the arrears to the end which will make your mortgage current even though you didn't make payments. TSP loan is another option, but you need to get the loan completely caught up before your last trustee payment. Between both of these options, you have to completely catch up on your mortgage and fix your car.

[MetsfanTom]

Thank you for taking the time to reply to my inquiry. Without going into great detail I've had great physical and emotional disabilities over the past number of years and have missed a whole bunch of time from work, and this is the chief reason I've had to file the Chapter 13. The past month or two have shown a good amount of improvement and I've been working the normal amount of hours at my job and although nobody can predict the future, I'm extremely hopeful that this will continue. I was a month or two away from being caught up with the mortgage when this car problem arose, and it has thrown me into a bad predicament. Although I know it's a financially terrible decision I was hoping that a hardship withdrawal from the TSP in the final year of my plan wouldn't draw the ire of the trustee. Simply put I do not want to do anything to jeopardize my plan. Thank you for the responses once again.

[justbroke]

When having financial issues in the middle of a Chapter 13, inaction and hope are your two worst enemies. The more the mortgage goes into arrears, the more likely the creditor will file a Motion for Relief from Automatic Stay (RFS) to start foreclosure. While the creditor likely doesn't need the RFS, it would certainly put the Trustee and the court on notice that you are not paying the plan obligations. That is what puts you in jeopardy.

This is why we contact our attorney immediately if there is a money problem in a Chapter 13. Some things can be dealt with by notifying the Trustee. If we let the problem grow, it becomes more difficult to solve the issue.

[flashoflight]

In California, Notice of Default (NOD) is 120 days late. That's also when thousands in legal fees are added to your arrears and then it becomes nearly impossible to catch up. And then you get the RFS at the same time which alerts the trustee that you are in jeopardy of failing your 13 because you are behind in your mortgage. Missing your mortgage payment is literally the same thing as missing your plan payment. In fact it's worse to miss the mortgage payment because your arrears will grow fast once the NOD is filed.

In states with fast foreclosures, you could already be there with the notice of default at 60 days late.

If you were on a covid forbearance, then you would be in a lot better position and have multiple options to get current before the end of the plan.

As JB says, do what you need to do to catch up. Preferably talk to your attorney. But do something to catch up on your mortgage like the TSP or applying for covid forbearance.