Chapter 13 (TX): is pay off schedule supposed to take the entire length of the plan?

[matthewlesko]

I have 40k in debt and won't be able to settle individually. So if I did chapter 13, divided over 3 years that would be about $1200/mo, which I can't afford.

However, divided over 5 years, it'd be about $700/mo, which I could afford.

So if I were on the 5 year plan, would that be the most I would have to pay? Or if I could afford $900, would they have me paying $900/mo for "5 years" even though $900/mo would pay off 40k in less than 4 years?

[justbroke]

A debtor can propose any plan up to 60 months. The 36 versus 60 months is just the "minimum" plan duration for under-the-median and over-the-median debtors, respectively.

Also, just because you owe $40K to unsecured creditors does not mean you must pay them back at 100%. It will depend on the calculation of your DMI (disposable monthly income). (In some cases your best interest of creditors test result may effect the minimum payback).

Most Chapter 13 cases are not 100% payback cases. So unless you're in a 100% plan then you don't need to worry about this since you would only be paying in your DMI even if that only pays back $4K of that $40K.

Welcome to BKForum.

[matthewlesko]

Thanks right now after all my expenses/bills, as in important ones, my left-over is like $900/mo. I'm wondering if I should have 401k contribution and child school savings as well before filing, or if they take that from you as disposable?

[flashoflight]

The system is designed to not allow you to manipulate your finances so that you can soak up all of your disposable on the eve of bankruptcy. There are certain exceptions to that rule you can do on the eve of bankruptcy like adequately insuring your car with the lowest possible deductibles and adding full coverage to an old junker car, but 401k savings started just before filing and saving for a child's savings at the expense of your creditors won't be permitted. The system is designed to make you pay as much as possible towards your unsecured debt while making the plan barely affordable to you. Now if you asked us a year before filing, you can do a lot more to soak up your disposable.

[justbroke]

Thanks right now after all my expenses/bills, as in important ones, my left-over is like $900/mo. I'm wondering if I should have 401k contribution and child school savings as well before filing, or if they take that from you as disposable?

Only do this type of bankruptcy pre-planning if you speak to an attorney, you are using that attorney to file, and that attorney agrees. As flashoflight stated, the Chapter 13 Trustee will not like that you're changing your expense profile to "remove" otherwise disposable income from the bankruptcy estate.

Now, you should have a 401(k) plan, but the question becomes did you just start it before fling? The question will be whether that's "allowed" in your district or could your attorney fashion a reason that you must contribute (close to retirement with no savings).

What you should have are defensible expenses and hopefully an attorney that will craft a plan that can be confirmed and allows some wiggle room. A Chapter 13 is not designed to create a "head start" for a debtor (by letting them stockpile money). It's to alleviate the pressure of paying unsecured creditors, eliminating interest, and giving the debtor a reasonable time to pay what they can afford to pay. But the "afford to pay" is the devil in the details. What you may think you can afford to pay is not what the bankruptcy code allows; the code likely demands that you pay more.

[matthewlesko]

Thanks what's what I was wondering. If I applied in 6 months then maybe now is the time to do that.
I'm not really trying to soak it up, it's more just trying to make sure I don't delay savings by 5 years and instead have at least a few months of these savings started, while still being able to pay off the creditors within the typical timeframe.

[justbroke]

Thanks what's what I was wondering. If I applied in 6 months then maybe now is the time to do that.
I'm not really trying to soak it up, it's more just trying to make sure I don't delay savings by 5 years and instead have at least a few months of these savings started, while still being able to pay off the creditors within the typical timeframe.

Sounds like a plan!

Just know that it doesn't mean, even if you are contributing 10% to a 401(k) plan, that a Chapter 13 Trustee won't complain about the savings rate. There are factors which could compensate such as an older worker, close to retirement, with little to no savings.

The Education Savings Plan may be a harder sell.

[eap82]

I was able to include my contributions to The Florida Prepaid Plan for my kids into my plan. It's actually a contractual plan that you would have to cancel and may incur penalties depending on how long you had the plan for. I have been doing that for 7 years now as you can start when your kids are born. I do not know how the trustee would have felt about it if I had recently started contributing before my filing but they did allow it without any push back.

[matthewlesko]

The other thing too I'm worried about is tax rate. Right now I'm claiming 3 and will owe IRS. But will they allow me to claim 1 or 0 to reduce income and avoid having a tax bill each year if my past few months or past tax return showed more income?

[justbroke]

The other thing too I'm worried about is tax rate. Right now I'm claiming 3 and will owe IRS. But will they allow me to claim 1 or 0 to reduce income and avoid having a tax bill each year if my past few months or past tax return showed more income?

The Trustee (and perhaps your attorney too), will use your prior tax returns to determine your actual average monthly tax rate.

[shipo]

The other thing too I'm worried about is tax rate. Right now I'm claiming 3 and will owe IRS. But will they allow me to claim 1 or 0 to reduce income and avoid having a tax bill each year if my past few months or past tax return showed more income?

Be careful about reducing your W4 withholdings too much; many Trustees will then grab your tax return. The best is if you can set your withholdings such that you owe like $10.00 each year.

[eap82]

As shipo said, mine took my refund. It was after my plan was calculated so I used the income withholding calculator on the IRS website and adjusted my paycheck. It gave me a few extra dollars each month and at tax time I owed $200.00.