Buyout - what is it?

[arlington]

Every now and then I see a post where someone mentions that they got a buyout. What exactly does that mean and is it a good thing, a bad thing or just a thing?

[bkdone]

Buyout is when you get a lump sum of money and pay off your CH. 13 early. We refinanced our house during our BK and used the money to pay off our plan after only 2 years. Our original plan was for 55 months. I was tired of the BK, especially the problems I was having with getting my plan payments posted. Several of the payments were 'lost' only to find out that they'd actually been held by the trustee for some unexplained reason.

At the time (2006) we had alot of equity in our home, and the refinance allowed us to take out additional cash to do some repairs and upgrades as well. We refinanced into only 1 loan (not a 2nd loan) and it made sense for us because our plan payment was $1000 monthly, and our mortgages were $1100 monthly= $2200 right off the top. After refinancing, the plan was paid off (no more plan payments) and the new mortgage payment is $1226, which puts $800 back into our budget each month. It relieved a lot of stress.

The buyout was good for us. Some people dont feel it's worth it, but for us, we were glad to get out of BK and move on that much faster.

[badandy]

are buyouts allow in every ch 13 case or case by case? what if your parents gave you money to buyout your plan or your borrow money to buyout your plan? does the trustee allow that?

[Flamingo]

Under the Old BK Law (prior to 10/05), if you bought out of your plan prior to 36 months, you had to pay 100% of your Plan; after 36 months if you are/were able to buy out, the pay off is the percentage at which your Plan was approved (i.e., present balance due). I see bkdone stated he/she bought out at year two - I am assuming (since he/she did not mention) that they had to pay 100% of their plan to do that. You also have to have the funds available to be able to buy out of your plan. The most common way is to have enough equity in your house to refinance. We were also able to buy out due to high equity in our home and started the process (with attorney approval) in the fall of 2005. We refinanced in April 2006 but we had major house repairs that had to be done and could not wait until the end of our five year plan. We needed to replace our entire roof.

No one yet under the new law (after 10/05) has yet to post on here as to buying out prior to month 36 and whether or not the 100% payback is required to do that prior to month 36 or if the same rules still stand that were under the old law.

[bkdone]

Yes, we paid back at 100%, but our plan was 100% anyhow...it would not have helped us to wait. We came out with 2 cars paid off and the unsecured creditors got only pennies on their claims.

As for the question: Yes, some buyouts are approved and some are denied...they are looked at on a case by case basis. The Trustee has to feel that it is in your best interest, while still considering your overall financial well-being. They will not allow you to buyout using a refinance of your home if it will sink you into a worse financial situation; the Trustee is not going to set you up to fail later.

If you somehow fall into a huge lump of cash (a gift, or inheritance) you can pay off your BK by simply sending in the money. But, still consult with your attorney. Get your final amount due, make sure there arent some filings in process. The Trustee is going to want to know where the money came from too.