Chapter 13 - Disposable Income

[browndog]

Does anyone know if the court can, or will, reevaluate your expenses each year under Chapter 13? From what I read here, they will look at your income each year, but will they compare that to the expenses that where listed on the date of filing?

Thank you...

[gunsmoke]

Depends on your trustee. Some want to see your yearly tax returns, some even want your refunds.

[lrprn]

Does anyone know if the court can, or will, reevaluate your expenses each year under Chapter 13?

Ch 13 trustees do not check your paycheck stubs and ask for an accounting of your expenses every year if that's what you mean. The whole Ch 13 system would grind to a halt if they did that.

Most Ch 13 trustees ask to get copies of your tax returns every year and use what they see there as a guide to see if you've had a significant increase in your income or not.

A few Ch 13 trustees don't even ask for your tax returns. Once your plan is confirmed, they just expect to see your payment every month to the end of the plan.

Ask your lawyer how the Ch 13 trustee you'll be assigned handles annual tax returns and if he/she takes all or part of any refunds you might get while you're in your plan.

There's big variations in trustee practice around the country in this area. What happened to another Ch 13 filer is no guarantee that will be what happens to you.

[browndog]

Ch 13 trustees do not check your paycheck stubs and ask for an accounting of your expenses every year if that's what you mean. The whole Ch 13 system would grind to a halt if they did that.
M

Thank you for your response. Yes, I was referring to expenses, not income. It appears I will be permitted to use a home I plan to surrender at some point as an expense, at least the home's mortgage. By doing so, my disposable income will be near nil, resulting in me paying the minimum. After surrendering the home, my disposable income will increase dramatically.

That's why I was curious as to whether the court reviews expenses. Once the home comes off the "books", could they force me to increase my payments?

[JollyGG]

Thank you for your response. Yes, I was referring to expenses, not income. It appears I will be permitted to use a home I plan to surrender at some point as an expense, at least the home's mortgage. By doing so, my disposable income will be near nil, resulting in me paying the minimum. After surrendering the home, my disposable income will increase dramatically.

That's why I was curious as to whether the court reviews expenses. Once the home comes off the "books", could they force me to increase my payments?

Well selling a home is something you have to tell the trustee about.
Now you are talking assets not expenses.
The home would be an asset of your BK estate and the trustee would need to be notified before it could be sold. If you sell it you would then need to redo your schedules.

[browndog]

Well selling a home is something you have to tell the trustee about.
Now you are talking assets not expenses.
The home would be an asset of your BK estate and the trustee would need to be notified before it could be sold. If you sell it you would then need to redo your schedules.

Since this home is no longer my primary residence, I have decided to surrender or '"walk away" from the home. A foreclosure will follow, but not likely until I am at least six months into my Chapter 13. The foreclosure is the primary purpose for my filing. I need to protect against a possible large deficiency judgment and lien.

My attorney advised me earlier today that the court will not amend my repayment plan after I am no longer paying for foreclosed home. I hope he is right.

[aa06a47]

Since this home is no longer my primary residence, I have decided to surrender or '"walk away" from the home. A foreclosure will follow, but not likely until I am at least six months into my Chapter 13. The foreclosure is the primary purpose for my filing. I need to protect against a possible large deficiency judgment and lien.

My attorney advised me earlier today that the court will not amend my repayment plan after I am no longer paying for foreclosed home. I hope he is right.

I believe your attorney is wrong. If your surrendering your home at the time of filing, your current house payments will not be shown as an expense, and therefore it will be disposible income.

If your surrendering your home after filing, your lender will fill a motion with the court to lift the automatic stay to allow them to forclose / sell your home. Your trustee will be all over that and smell the money.

Good luck, I hope your attorney is correct, but it doesn't smell right to me.

[browndog]

I believe your attorney is wrong. If your surrendering your home at the time of filing, your current house payments will not be shown as an expense, and therefore it will be disposible income.

If your surrendering your home after filing, your lender will fill a motion with the court to lift the automatic stay to allow them to forclose / sell your home. Your trustee will be all over that and smell the money.

Good luck, I hope your attorney is correct, but it doesn't smell right to me.

The following is excerpt from a opinion filed last year that is in line with what my attorney has stated. The opinion is very interesting if you get a chance to read it.

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"Even if the debtor intends to surrender the real property, he may deduct the scheduled mortgage payments on the means test. This was the decision handed down in the seventh circuit case of Randle, 2006 Bankr. Lexis 3519 (Bankr. N.D.Ill. 2006)
With the means test, Congress intended on a mechanical test for establishing a presumption of abuse. Bankruptcy Code Section 707(b)(2) instructs debtors to deduct amounts scheduled as contractually due in each of the 60 months following the date of the petition, without regard to whether or not the debtor intends to keep the collateral."

http://www.ilnb.uscourts.gov/JudgeDoyle/Opinions/Randle.pdf

[JRTLover]

That is an interesting loophole in the new law!

The new law just says that you have to state your intentions of what you plan to do with secured debt. Doesnt say that you have to change/redo your schedules, if you say you plan to give it up a secured debt like a house.

Although, Browndog, if you planned to give up the house all along, why are you even getting into a Chapter 13/5 year debtors prison? Even though your payment may be small, being on a leash for 5 years, having to answer to the trustee for every thing you do is not fun.

Why not just walk away from the house, and let the mortgage company foreclose anyway? You wouldnt be tied to a 13 plan then. Do you have other secured assets that you want to keep?

[browndog]

Why not just walk away from the house, and let the mortgage company foreclose anyway? You wouldnt be tied to a 13 plan then. Do you have other secured assets that you want to keep?

With the sharp decline in the real estate market where the house is located, I may be looking at close to a $100k deficiency on a second after a foreclosure. I would even take the tax hit if I knew for sure the lender would "forgive the debt" and forgo a deficiency claim. But with equity in my new home, I am concerned about a getting hit with a lien, and that I don't want!

It's been a very difficult decision. I don't really need bankruptcy to pay off my unsecured debt. It's that potential deficiency that has me looking at the Chapter 13 option.

[JRTLover]

With the sharp decline in the real estate market where the house is located, I may be looking at close to a $100k deficiency on a second after a foreclosure. I would even take the tax hit if I knew for sure the lender would "forgive the debt" and forgo a deficiency claim. But with equity in my new home, I am concerned about a getting hit with a lien, and that I don't want!

It's been a very difficult decision. I don't really need bankruptcy to pay off my unsecured debt. It's that potential deficiency that has me looking at the Chapter 13 option.

Ahhh.. I see. Equity in a second house they could come after.

I hope it will be worth it for you to endure the pure he11 of Chapter 13. I endured 3 years, and I could not fathom 5.

[balancaster]

Is this loop hole still in effect? I plan to try to strip the second lien on my home. If it doesn't work I can't afford to keep my home. So, if the lien strip does not go through I was told I could change my intention and surrender my home after the plan was confirmed (so my plan payment would not increase). Thanks in advance for your help. This is very stressful.

[momofthree]

While you are permitted to deduct the payment on the means test, you are NOT permitted to deduct the payment on your schedule J as it is forward-looking.

[balancaster]

Thank you Momofthree!!

Will my payment be based on the higher of the means and the Schedule J?

Also- is it true that my deficincy will be discharged once the Ch 13 is complete?

[momofthree]

Thank you Momofthree!!

Will my payment be based on the higher of the means and the Schedule J?

I believe so, yes.

Also- is it true that my deficincy will be discharged once the Ch 13 is complete?

Yes. It will be treated as unsecured debt and paid at the same rate as your other unsecured creditors. At the end of your plan, any remaining balance will be discharged.