Questions before we File

[KeepinFaith]

Hello Everyone,

I have been reading many posts and did not realize all that goes into filing bankruptcy. There is definitely a lot to be learned. Well, I have a few questions if you don't mind.

My husband and I are considering filing a 13 and have actually already spoken with at lawyer.The purpose of us filing is to keep our home. We tried working with our lender but that didnt work out well. Long story short. We took out a 401 hardship but it wansnt enough for the down payment and arrears. They appeared willing to work with us by pre approving us for a modification......came back denied.

We in the meantime had to use some of the funds we had on hand. My question is if we were to file a 13, will the remaining funds be taken by the trustee? There are some other things we can use and these funds would be helpful. If there is a balance in our checking accounts at the time of filing will we be able to keep it for future needs?

I would appreciate all knowledeable responses.

Thanks

[lrprn]

My question is if we were to file a 13, will the remaining funds be taken by the trustee? ... If there is a balance in our checking accounts at the time of filing will we be able to keep it for future needs?

Depends on how much cash can be protected by your state's bankruptcy exemptions. Which state do you live in?

One question for you - why aren't you returning the remaining money back to your 401K where it will be 100% protected when you file?

[KeepinFaith]

Texas. First I didnt know it could be returned and that it was an option and 2nd, we had a major repair needed that happened around the time we received it. ANd if we are going to go thru with the BK there are things that we need to take of because as I read here, money will be tight for the next 3-5 and we would have no ohter way to getting it taken care of.

[lrprn]

Texas.

Here's a link to the generous Texas bankruptcy exemptions - http://www.busby-lee.com/exempt.html

Note that you can exempt $925 cash as a wild card. If you don't have a home to protect, then you can protect up to $9,250.

First I didnt know it could be returned and that it was an option ...

If you borrowed the money out of your 401K, in most cases you have a specified amount of time to pay back what you borrowed into your retirement account before hefty taxes will be assessed. How do you plan to handle those taxes (typically 10% of whatever hasn't been paid back) if you don't return the money?

[KeepinFaith]

I have a question about disposable income. How does that work? I wanna be sure I have a clear understanding of this. From what I've read around here, you all are saying that any income left over after all bills being paid will be taken by the trustee. Do you mean Every penny? Then what are you to live on afterwards? In some cases has anyone had a surplus left over?

Thanks!!!!

btw, how do they handle possible future commissions?

[justplaintired]

Here's a link to the generous Texas bankruptcy exemptions - http://www.busby-lee.com/exempt.html

Note that you can exempt $925 cash as a wild card. If you don't have a home to protect, then you can protect up to $9,250.

If you borrowed the money out of your 401K, in most cases you have a specified amount of time to pay back what you borrowed into your retirement account before hefty taxes will be assessed. How do you plan to handle those taxes (typically 10% of whatever hasn't been paid back) if you don't return the money?

Wow, wish I lived in Texas. Very nice exemptions. Wonder why some states are so generous and others are just ridiculously low on what you can exempt?? Indiana where I am seems fair but I have seen other states like Florida who just about leave you with nothing.

[Yankeegirl]

In general, you have 60 days to rollover qualifed retirement funds into an IRA or other qualifed retirement vehicle to avoid the 10% IRS penalty.

A hardship withdrawal is NOT an eligible rollover distribution. As such, there is no way to avoid the penalty.

You will receive a Form 1099-R in 2009 indicating the withdrawal. You will need to include the distribution as income and there will be a code of "1" on the Form that will indicate that it was a premature distribution - meaning you will owe the 10% penalty. If you use tax software to prepare your taxes, answer "yes" to the question of "did you receive a Form 1099-R" and it will walk you through the process.

Also, keep in mind that you will not be allowed to contribute to your 401(k) for 6 months after a hardship withdrawal, which may impact your Chapter 13 plan.

[KeepinFaith]

Would both myself and husband need to file? Both our names are on the house and one other account and the other few are in our individual names. I am meeting a lawyer soon and just curious as to how one way or the other will affect us.

[Granny]

I filed Ch 13 in Texas to save my house. I was advised to file alone, so that if we ever got into dire straits again, he could file later.

If you both file, you waste the chance for another "fresh start".

What I wasn't warned about is that the trustee will not leave any money to pay on his credit cards that obviously weren't included in my BK.

Just something to think about.

[KeepinFaith]

Granny thanks for the fore warning...... but I am not understanding your statement about your husband not having money to pay his cards. He was not included in the bk so his finances should have been freed up, correct. Could you please clarify? I may want to not file for the reasons you mention and above so any info will be helpful so I may discuss this with my husband.

Thanks

[Granny]

My husband and I have always maintained separate credit accounts. There was not one account that we were both responsible for....they were either in his name or in my name. Initially, this was due to his first marriage and divorce ruining his credit.


When you file a Ch 13 in Texas, the courts consider ALL household income, including the non-filing spouse's income. The re-payment plan is based on both incomes. In approving my payment plan, my trustee doesn't allow for credit card payments for the non-filing spouse. If the payments on the cards are small, you can usually squeak by and use funds from another line item to make those monthly payments. But one of my DH's card had a $200.00 a month minimum payment and I didn't have enough wiggle room in the budget to continue to make that monthly payment. It wasn't long before we stopped paying on it. Yes, it ruined his credit, but the upside is, if we get into trouble again, he can always file BK to protect our house.

No, I'm not being pessimistic, or intending on running up a bunch of debt. We are getting older, and you never know how one's health/job etc will hold out, so his not filing is our Ace in the Hole to save our house.