New BK Law - Early Pay Off

[aa06a47]

Due to an opinion rendered by a judge in my district, I was concerned that I would not be able to get out of jail early..uh, I mean be able to pay off my bk early.

He has changed his opinion on what congress meant. He now shows an opinion that it is more of an "amount" and not a "time".

http://www.mow.uscourts.gov/opinions/bankruptcy/federman/show_case_doc.pdf

While this case doesn't directly relate to the question of an early pay off, I believe the case opens up for early pay off. Your opinions are welcome.

[lrprn]

While this case doesn't directly relate to the question of an early pay off, I believe the case opens up for early pay off. Your opinions are welcome.

I just read the case, aa.

First of all, I feel very sorry for this woman who is trapped between court opinions. She is going to be denied her right to a fresh start this time around because her Means Test inflated income for the last six months forces her to file a plan that can't possibly be successful given her normal income and she makes too much to file Ch 7. You can read the judge's frustration between the lines through the whole opinion...what a terrible situation. Nuf' said about that.

Are you thinking that this opinion supports that a Ch 13 debtor can pay off early based on the total amount owed rather than the length of plan determined by the court?

[CATCHMEIFYOUCAN]

I just read the case too ! That totally sucks ! So attention filers, BEFORE you file try not to work overtime for 6 pay periods, don't let this happen to you ! Is time goes on after the new Bk Laws took in effect I'm seeing more and more cases that the creditor, trustee, Bk judge is just making it hard for those of us who seek a fresh start or making payments so outrageous for us filers we are doomed to fail (is it just me that is seeing this?)

Catchmeifyoucan

[needafreshstart]

I don't see how the courts will allow an early payoff unless your already paying unsecured back at 100%. My opinion the courts will ask how you can manage to payoff the plan early. If I'm not mistaken part of the new bk law is that your suppose to let the court know if you have an increase in income while in a chapter 13 plan, if there is an increase in income the courts will want to take it.

[aa06a47]

I don't see how the courts will allow an early payoff unless your already paying unsecured back at 100%. My opinion the courts will ask how you can manage to payoff the plan early. If I'm not mistaken part of the new bk law is that your suppose to let the court know if you have an increase in income while in a chapter 13 plan, if there is an increase in income the courts will want to take it.

Generally, the way people pay off early is through a home equity loan or something similiar. I was thinking 401k loan after 3 years just to get it behind me and start the credit rebuilding.

I really don't believe Congress intended this lady to not be able to file and get a fresh start. I hope she ends up getting to file a chapter 7 and the credit card companies who bought this new bk law get to eat road kill.

[vicmost]

I just read the case too ! That totally sucks ! So attention filers, BEFORE you file try not to work overtime for 6 pay periods, don't let this happen to you ! Is time goes on after the new Bk Laws took in effect I'm seeing more and more cases that the creditor, trustee, Bk judge is just making it hard for those of us who seek a fresh start or making payments so outrageous for us filers we are doomed to fail (is it just me that is seeing this?)

Catchmeifyoucan

Ineresting case,
I just completed an online means test today and I was withing a $300 of being under my states median income...Since I'm planning to file chapter 13 in about six months I was going to keep my income below the median in order to have a 3 year plan...I have worked a lot of overtime in the past!

[BnkrptcyLwyr]

Ineresting case,
I just completed an online means test today and I was withing a $300 of being under my states median income...Since I'm planning to file chapter 13 in about six months I was going to keep my income below the median in order to have a 3 year plan...I have worked a lot of overtime in the past!

Yes, the above case highlights the need to PLAN for bankruptcy ... and to sometimes WAIT at all costs to file. A sudden drop in income means that sometimes you will wait so that the lower pay can be reflected in the 6-month look-back period minimizing the DMI calculation.

[vicmost]

Yes, the above case highlights the need to PLAN for bankruptcy ... and to sometimes WAIT at all costs to file. A sudden drop in income means that sometimes you will wait so that the lower pay can be reflected in the 6-month look-back period minimizing the DMI calculation.

So what happens post bk when your income increases? I'm sure there is some criteria for the trustee to increase your payments.

[BnkrptcyLwyr]

So what happens post bk when your income increases? I'm sure there is some criteria for the trustee to increase your payments.

Yes, there is a procedure to increase your payments later.

However, the point is to have, at the outset, the Form B22C calculation of DMI be AS LOW AS POSSIBLE - because (depending on the district/circuit) that is the FLOOR below which you cannot go. A $200 DMI is better than $1,000.00 as your initial, minimum starting point. In the case cited above, the Debtor should have waited 6 months to file so that the change in her income was reflected in the calculation of her DMI.

[Trixie007]

I have to wonder if her attorney noticed this issue before they filed! This issue of waiting for the income to go down (6 mo averagae) is so common that it seems even the newest people on this forum know about it or figure it out pretty darn quick!!

This reminds me of the first attorney I met with who wanted us to file Feb 1st, even though DH had 10k in overtime in September. He actually said that we could just not include the OT pay on the means test, and make a side note to the Trustee that this was not a normal thing - DH was assigned to a fire for 3 mos last year, as a fishery biologist, that only happens every 3 or 4 years! Anyway, he seemed pretty sure that if we showed 3 years tax returns the Trustee would ignore the OT and not require us to use it on the means test, which excited me at first, but then worried me enough that I thought, why not just wait one more month for it to fall off???

I feel for this poor woman, this could've been me. Does anyone know, would she have been eligible to refile in a few months when that income fell off? I hope so! I hope she didn't just get stuck trying to file such an outrageous plan.

[BnkrptcyLwyr]

I have to wonder if her attorney noticed this issue before they filed! This issue of waiting for the income to go down (6 mo averagae) is so common that it seems even the newest people on this forum know about it or figure it out pretty darn quick!!

This reminds me of the first attorney I met with who wanted us to file Feb 1st, even though DH had 10k in overtime in September. He actually said that we could just not include the OT pay on the means test, and make a side note to the Trustee that this was not a normal thing - DH was assigned to a fire for 3 mos last year, as a fishery biologist, that only happens every 3 or 4 years! Anyway, he seemed pretty sure that if we showed 3 years tax returns the Trustee would ignore the OT and not require us to use it on the means test, which excited me at first, but then worried me enough that I thought, why not just wait one more month for it to fall off???

I feel for this poor woman, this could've been me. Does anyone know, would she have been eligible to refile in a few months when that income fell off? I hope so! I hope she didn't just get stuck trying to file such an outrageous plan.

Let me say something here as well, sometimes you do not need to wait for the income to fall off.

If the income is a one time shot (a bonus you received - and it's the only one you received in the last 4 years) ... then you have to know the procedure for how to take this back out. You initially include the income, but you then claim the one time bonus as a "special circumstance" requiring a downward adjustment of income. I've done this many a time.

So, your attorney was correct that you could take it out ... but he was not correct about that particular procedure for doing so. But it really would've been easily fixable.

But, sometimes, if my clients can afford to wait ... I tell them, let's wait.

I personally like have a means test calculation of DMI that is as low as possible without having to claim any special circumstances whatsoever. That gets me no objections from the Trustee.

[justbroke]

I still don't see, and haven't seen, an early payoff less than 100% to the creditors that filed and have allowed claims. While I await the challenges and caselaw -- and some appellate decisions -- I am not holding out for this.

The case included in the posting above is what they say in Court, an absurd result. Another appellate Court recently ruled that the applicable commitment period doesn't apply when your disposable monthly income (DMI) is negative or zero dollars ($0.00).

This Court, from this case, seems to rely on Frederickson (8th Circuit) and in following that case, deems that the B22C amount for the DMI is simply multiplied by applicable commitment period. Other courts have found that the "projected" DMI is not simply multiplying the DMI by the applicable commitment period.

Welcome to the world of Bankruptcy law!

Someone please get Congress to fix this mess they caused!

Adding that, the reason I still don't believe you can buy out for less than 100%, is because you can't submit a plan for less than the applicable commitment period, unless it pays all allowed unsecured claims in full. But, that's just to get a plan confirmed under 11 USC 1325. I wonder if someone will argue that plan confirmation is different than a plan buyout. For me, it's that darned "applicable commitment period" that is telling. I wonder if you could get a Court to believe that if you have no "applicable commitment period" -- because of a negative DMI -- then you could get out early. But, how do you buy out a $0.00 plan. I think that's the rub.

[BnkrptcyLwyr]

Normally, in order to buy out of a chapter 13, you must pay the filing unsecured creditors in full. That may be a lot, or it may be very little. And a buyout will depend on whether you are paying very little to unsecureds (0%) or alot (90%). Sometimes it makes sense just to keep going - I mean, why pay your creditors any extra if you don't have to!

But whatever you do, don't incur debt (like refinancing your house) to buy out of the bankruptcy - that's just swapping dischargeable debt for new nondischargeable debt - with the effect that you will still be paying the bankruptcy through a mortgage payment - and where has that gotten you?!?!

We actually had a client do that (advised by another attorney in their prior bankruptcy case). Now they had to refile because they fell behind on their mortgage payment and were threatened with losing their house! Oh boy.

[Trixie007]

Let me say something here as well, sometimes you do not need to wait for the income to fall off.

If the income is a one time shot (a bonus you received - and it's the only one you received in the last 4 years) ... then you have to know the procedure for how to take this back out. You initially include the income, but you then claim the one time bonus as a "special circumstance" requiring a downward adjustment of income. I've done this many a time.

So, your attorney was correct that you could take it out ... but he was not correct about that particular procedure for doing so. But it really would've been easily fixable.

But, sometimes, if my clients can afford to wait ... I tell them, let's wait.

I personally like have a means test calculation of DMI that is as low as possible without having to claim any special circumstances whatsoever. That gets me no objections from the Trustee.

Very helpful info, thanks! I don't know that I thought it couldn't be done, but like you said, if there's no urgent need to file right away, it seemed simpler to me to wait a month! No reason to make anything more complicated than it has to be!

[Flamingo]

Generally, the way people pay off early is through a home equity loan or something similiar. I was thinking 401k loan after 3 years just to get it behind me and start the credit rebuilding.

I really don't believe Congress intended this lady to not be able to file and get a fresh start. I hope she ends up getting to file a chapter 7 and the credit card companies who bought this new bk law get to eat road kill.

You may have an issue as to paying off your Plan with a 401(k) loan as those funds were exempt from your filing and there could be an issue as to why they could not be used to fund the plan in the first place if you did that....investigate with your attorney. Most plans when bought out early are paid via a refinancing. The buy out has to be approved by the Trustee and he/she is always interested as to where the funds come from.

The New Law effective 10/05 made it harder for people to file bankruptcy for those that were able to pay at least a portion of their debts. One of it's purposes was to eliminate the glut of Chapter 7 filings and make it more difficult to file a Chapter 7 and make people who could afford to pay, pay toward their debts. Those that really need the BK system and its benefits suffer from those that have abused the system.