% Payback (it doesn't matter)

[HHM]

Ok...many people are getting hung up on the percent payoff in a chapter 13, meaning the percent that is being paid to unsecured creditors.

Let me say this crystal clear....

The % you pay to your unsecured creditors DOES NOT MATTER.

There is no minimum and it isn't even a factor of your plan. The % payback is a flexible number, it is merely informative. There is not even a reference in the BK code to the % payback. The ONLY numbers that matter in a chapter 13 plan are...
1. Net Disposable income (on the means test, referred to as Disposible Monthly Income, DMI).
2. Liquidation value of your BK estate.

Your net disposable income (NDI) is simply your Gross Income minus your allowed expenses. That is how your plan payment is calculated. If your NDI is $100, then you are paying back $6,000 over 60 months, if your NDI is $1000, you are paying back $60,000 over 60 months. What ever percent payback that equals is what it is; but the % pay back is merely "informative", but has NO legal significance. For example, if you are paying back $100 per month, but you get a $1,000 tax refund, that will necessarily change your % payback.

Liquidation value is simply the value of your non-exempt assets, if any. In a chapter 13, you are required to at least pay the value of non-exempt assets. In many cases, the liquidation value is 0; so your chapter 13 plan payment is simply based off of your NDI. However, if your liquidation value is $50,000, then your chapter 13 plan must "at least" pay back $50,000 over the course of 60 months. Caveat, your plan payment is still going to be based on your NDI so if your NDI would exceed that $50K, you will be paying back the larger amount, where people run into trouble with liquidation value is if they don't have enough NDI to cover the non-exempt equity, in which case, your chapter 13 would be dismissed.

Bottom line, your % payback to unsecured creditors has absolutely, positively, NO legal significance. It is merely an informational number subject to change based on your true NDI over the course of the plan and the creditors that actually file claims.

[thistoowillp]

Do you mean that if I own a car worth $10,000.00, a TV worth $3000.00 and file chap 13 to pay cc debt of $100,000.00 debt, They will not liquidate the TV and the car first to make a one time first payment before they go to NDI to calculate the monthly payment?

Thanks.

[HHM]

Correct, there is no liquidation of assets in a chapter 13, (unless "you" want to give up the asset). For all-intents-and-purposes, the only asset of a chapter 13 is your NDI.

Liquidation value is the value of "non-exempt" assets/equity.

Lets say you own a car that is worth $15,000, you only owe $5000, and your state only gives you a $5000 exemption. Thus, there is $5,000 of non-exempt equity (Value - liens - exemption amount = non-exempt equity). Thus, in the chapter 13 context, you would "minimally" need to pay $5000 over the course of 60 months (or surrender the car).

[thistoowillp]

Thank you HHM.

How about cash and cash equivalent such as stocks I have which is about $8000? Will the trustee take over the bank and liquidate the stocks and use the cash to pay off some cc debts first?

[justbroke]

Very nice posting HHM. I don't know if you want to change NDI to DMI (disposable monthly income) to match the means test? Just a suggestion. It does read very well though, even without that change.

[eddiep]

HHM
you have given me some great information about a "chapter 20" in another post so I have started reading up on chapter 13. So can you give me some advice on this:
We are currently under median income and would qualify for chapter 7, we have $150k in unsecured debt. Our lawyer thinks he can protect all of our assets except a big portion of a personal injury lawsuit that is expected to be settled soon. Our attorney wants to wait until Obama plan is finalized before we file because he thinks we may benefit from the proposed changes to bk laws. With our mortgage we are running -$200/month. if our mortgage was rewritten to 30 years it would reduce our payment by $1500/month! Rather than a "20" do you think a 13 would be better for us or would we just have to give any savings on the mortgage to unsecured debt? We are also behind on property taxes.

[HHM]

To hard to estimate right now. But yes, the weird irony of this cram down provision that is being floated by the Obama admin (senate bill s-61) is that for many homeowners, the net result is a wash. Some or all of the savings would suddenly become disposable income in your chapter 13 plan (more likely some, but still, its a big "catch").

I would be a little cautious, if extending the term back out to 30 years would reduce your mortgage that much, something is not right (you are probably underestimating the amount of interest that will actually be charged). Also, your mortgage must be in some sort of foreclosure status to qualify for the cram down. Also, the max time you get to extend the term is 40 years MINUS the number of years the mortgage has been in existence. The other "catch" is that the interest rate is subject to a "risk premium", which to date, is totally undefined by the bill.

I have a sense that a lot of people are going to try this only to find out it really doesn't save them anything.

What was your thinking that you believe you should do a chapter 20 in the first place?

[eddiep]

I do have an unusual situation with my mortgages. First off we have three mortgages. Our 1st was 20 year loan @5.75% with 14 yrs left, 2nd was 10 year loan with 5 yrs left @ 4.99%, 3rd loan was 25 year with 23 yrs left @9.9%. total combined balance $289,401. We are currently paying $2791 for principle/interest.
We chose to take the bigger payments hoping we would would be able to retire one day! Silly I know! Actually it was stupid not silly!

I think you suggested a chapter 20?

[truckerswife]

ok, is the 40 year mortgage something that the mortgage companies would have to do or would it still be an option for them? How would that effect past do payments? This site is so helpful. Our mortgage rate was already outrages. Our second mortgage was/is only a 15 year mortgage. The first was a 30 year. I wonder if we could get Countrywide to go lower on the interest if we put our second mortgage with them. I really don't like that condo and love my apartment. I would prefer though to hold on to that condo for a few years and sale it. I would like to buy a little house somewhere with a yard for my dog. Our 13 would be over in October and that would free up another $650 so it wouldn't be so difficult to make payments. guess we'll see.

[indebt00]

Correct, there is no liquidation of assets in a chapter 13, (unless "you" want to give up the asset). For all-intents-and-purposes, the only asset of a chapter 13 is your NDI.

Liquidation value is the value of "non-exempt" assets/equity.

Lets say you own a car that is worth $15,000, you only owe $5000, and your state only gives you a $5000 exemption. Thus, there is $5,000 of non-exempt equity (Value - liens - exemption amount = non-exempt equity). Thus, in the chapter 13 context, you would "minimally" need to pay $5000 over the course of 60 months (or surrender the car).

ok...after reading these posts and this one in particular....are you saying....

that if you have something with some equity/value/asset that the trustee doesn't take it and sell it and use the $$ towards your ch13....
it just increases the amount you pay back in the ch 13???? because i have been imagining the trustee making us sell something to get the money

ps...the exact reason I am asking this is because we have a timeshare that is about 50% paid off...not sure how equity works...all along we have thought they would make us SELL it and take the proceeds...and I keep thinking what a stinking hassle that would be. so....if I am understanding correctly...IF we have equity in this asset....we pay more back?

or I am completely off the grid thanks

[optimistic1]

ok...after reading these posts and this one in particular....are you saying....

that if you have something with some equity/value/asset that the trustee doesn't take it and sell it and use the $$ towards your ch13....
it just increases the amount you pay back in the ch 13???? because i have been imagining the trustee making us sell something to get the money

ps...the exact reason I am asking this is because we have a timeshare that is about 50% paid off...not sure how equity works...all along we have thought they would make us SELL it and take the proceeds...and I keep thinking what a stinking hassle that would be. so....if I am understanding correctly...IF we have equity in this asset....we pay more back?

or I am completely off the grid thanks

Yes you correct, if you have a possession or asset, that would not be exempt in a Chapter 7 liquidation BK, and you choose a 13, then the value of that assett is then calculated into your plan. Because, under liquidation (Ch.7), you would have had to sell it, or pay the trustee what it is worth, so that he could pay the creditors.

Doing a 13 allows you to keep it, however, the creditors will still get paid what it is worth through your plan.

[justbroke]

To make it even muddier, Trustee's find a terrible time trying to sell timeshares, so generally abandon them. This means that they want nothing to do with it. however, if you keep it, and as optimistic posts, you will have to pay at least that value to your unsecured creditors during your plan.

Probably best to just surrender the timeshare. Also, timeshares are treated differently amongst the States. It could be an actual deeded real estate or just an executory contract.

[indebt00]

I hope to find out more details for our state when we meet with the lawyer.
the timeshare was only 11k and we owe about 6k. so it wasn't a huge purchase. and there are 100's for sale of our timeshare at this time. I couldn't imagine trying to sell it...just too many for sale.
I believe its a deeded one....as I believe I have a deed for like 1/19th % of a unit...or something cooky like that.

we want to keep paying for it and keep it....protect the asset...but we will see if that is allowed.

[justbroke]

There was one State, I think it may have been Florida, in which a BK Judge found a timeshare to be a "luxury good" or "luxury purchase"... and not so much real property.

It ended up making the debt non-dischargeable because the person purchased an "upgrade" about a month before filing for Bankruptcy and it was over the $550 limit (at the time).

The key for your State will be, is a timeshare deeded real-estate, or is it just an executory contract / luxury good or service?

If it's an executory contract... just reject the contract. If it's a luxury good (unsecured debt), then it will just be discharged... if the Trustee abandons it.

However, be careful of the Tee. They may still want you to pay them for part of the value. Hopefully you'll have a great lawyer!

[indebt00]

There was one State, I think it may have been Florida, in which a BK Judge found a timeshare to be a "luxury good" or "luxury purchase"... and not so much real property.

It ended up making the debt non-dischargeable because the person purchased an "upgrade" about a month before filing for Bankruptcy and it was over the $550 limit (at the time).what does non-dischargeable mean?

The key for your State will be, is a timeshare deeded real-estate, or is it just an executory contract / luxury good or service? is this how the state views it or does my paperwork tell me what it is?

If it's an executory contract... just reject the contract. If it's a luxury good (unsecured debt), then it will just be discharged... if the Trustee abandons it.which of these would help us keep it?

However, be careful of the Tee. They may still want you to pay them for part of the value. if we pay for the value do we get to keep it? Hopefully you'll have a great lawyer!

would you mind helping me word the question I should ask my lawyer about this? this is one of the most important things I want to know about. thank you so much for your help