Saving in a Chapter 13

[Dj1995]

Hi,

If all of your DMI has to go into the paymnet plan for a Chapter 13, how does one save any money for an emergency?

[HHM]

1. Pad expenses

2. Debtor discipline.

For example, you may not actually spend $150 per month on car repairs, EACH MONTH, but you may spend $800 over the course of the year. The DEBTOR, YOU, just need to have the discipline to save that $150 per month when you don't have car repairs. Also, there is no rule in chapter 13's that says you actually have to spend what you have budgeted.

[4ever]

But say 6 months from now you haven't had to use all the money you set aside for car repairs, won't they see that extra cash in the bank and try to apply it to the amount you owe on your debt every month? Or are they sticking to your original payment every month without taking out the extra you are trying to save for emergencies? That is where I am getting confused.

[indebt00]

But say 6 months from now you haven't had to use all the money you set aside for car repairs, won't they see that extra cash in the bank and try to apply it to the amount you owe on your debt every month? Or are they sticking to your original payment every month without taking out the extra you are trying to save for emergencies? That is where I am getting confused.

Once your payment and plan are approved by the Trustee..that is it. You pay your payments each month and if you have a little left over and you can save it...that is good.
They do NOT take the leftover money you didn't use. You CAN save after filing ch 13...but it takes discipline.

Unless your Trustee reviews your tax returns and sees you are making huge amounts more than you used to...your payment isn't going to change.

so once you figure out how to live on your new budget....you will find ways to scrimp and budget...then you will find money to save.

honestly....for us...it was all about changing our view of what was important and what wasn't. and a budget. Our spending habits had to change drastically and once we learned that it was easier to start saving.

We have had quite a few repairs/savings busters in just a year...so we are very thankful we started saving from day 1.

[ABC]

But say 6 months from now you haven't had to use all the money you set aside for car repairs, won't they see that extra cash in the bank and try to apply it to the amount you owe on your debt every month? Or are they sticking to your original payment every month without taking out the extra you are trying to save for emergencies? That is where I am getting confused.

I have been paying ahead on some bills and saving $$ in a shoebox so there is less in the bank.

[Flamingo]

Hi,

If all of your DMI has to go into the paymnet plan for a Chapter 13, how does one save any money for an emergency?

During a Chapter 13, your lifestyle changes dramatically. You will learn how to cut corners if you never did so in the past, shop discount, use coupons and learn how to cut to the bone and actually save. It needs to be done because when you are looking at trying to come up with $400 or so to replace bare car tires, you have no credit card to use. Folks not being able to cope with this start becoming late on their Plan payments, start missing mortgage payments, etc. because they cannot learn to budget/cope with the change/discipline required. It is also the cause of many Chapter 13s being dismissed as some folks just cannot budget and save.

What we did to save was not only learn how to budget like mad and cut corners but at the end of each day put all our change into a big jar and did not touch it. We were able to use that money each year for Xmas presents, baby shower presents, etc., all the stuff that comes up normally and has to be coped with during a Chapter 13. Have friends that do house repairs/car repairs, etc.? Learn to barter...go cut their lawn for them fixing your car; watch their kids for them for patching that leaking roof, etc., etc.....

[HHM]

But say 6 months from now you haven't had to use all the money you set aside for car repairs, won't they see that extra cash in the bank and try to apply it to the amount you owe on your debt every month? Or are they sticking to your original payment every month without taking out the extra you are trying to save for emergencies? That is where I am getting confused.

There really is no ongoing over-sight in a chapter 13. Once the plan is set, that is it, so long as you make your chapter 13 payment on time each month, no one is going to care if you are able to save extra money.

[nursebette]

I'm currently thinking about filing a chapter 13 bk, but like so many others on this forum am concerned about what to do for emergency cash. I do have access to my 401k account, but according to some sources in this forum, if I withdraw any of this money, my chap 13 will be dismissed.

Then again, according to HHN, once the payment is set and you make monthly payments to the trustee as agreed, they pretty much leave you alone....is this correct? I posed this same question in another thread, but received no definitive answer.........just wondering? Any info would be much appreciated and would pretty much determine whether I file a 7 or 13.

[HHM]

The issue with withdrawing from 401K is not that it is expressly disallowed, it is that it increases your expenses because it will be an additional monthly expense.

Your 13 won't be dismissed because of it, but it does create a higher risk that you cannot meet all expenses, and hence, your chapter 13 would fail because you cannot make the payment.

[LadyInTheRed]

I'm currently thinking about filing a chapter 13 bk, but like so many others on this forum am concerned about what to do for emergency cash. I do have access to my 401k account, but according to some sources in this forum, if I withdraw any of this money, my chap 13 will be dismissed.

Then again, according to HHN, once the payment is set and you make monthly payments to the trustee as agreed, they pretty much leave you alone....is this correct? I posed this same question in another thread, but received no definitive answer.........just wondering? Any info would be much appreciated and would pretty much determine whether I file a 7 or 13.

I just went back and looked at your thread regarding your 401k. I think you misunderstood Flamingo's statement:

Before you proceed, you need to thoroughly discuss with your attorney; otherwise you risk dismissal.

I don't think her intention was to say that a 401k withdrawal during Chap 13 would result in a dismissal. She meant that before you make a withdrawal, you should discuss it with your attorney to make sure it would not be a problem in your particular case and in your particular district. You would risk dismissal because that is one thing that can happen if you make a move regarding your assets and/or income without discussing it with your attorney and it later turns out that what you did was prohibited.

Did you talk to your attorney yet about whether you still qualify for a Chap 7 or, if you still want to file 13, but can't fund a plan without the 401k, whether you can propose a plan that anticipates making withdrawals? [for others who didn't read the other thread, nursebette is of retirment age and would not be penalized for 401k withdrawals.]

ETA: To anyone worried about emergencies during a 13: This is why it is important to work with your attorney to get the best plan you can. Your budget should allow for savings (no, it won't be a line item on Sched J, but it should be built in somewhere). This month, I bought a new pair of boots AND put $200 in savings. I will save at least $200 every month to cover emergencies and those expenses that only occur once or twice a year, like car registration and regular maintenance.

[nursebette]

HHN, now I'm really confused. How is withdrawing from my 401k creating an extra expense? I'm 69, retired and should incur no penalties with withdrawal. Please explain......I'm totally new to this and certainly have a lot to learn.

[nursebette]

Lady in The Red..........I e-mailed my Atty re: this issue, filing chap 7 vs 13 and which would be most advantageous for me. I definitely qualify for the 13, but if I can't access my 401k account for emergencies, then I would try for a chap 7 if my Atty says I qualify.

When my Atty responds, will let you know what he advises.

[HHM]

HHN, now I'm really confused. How is withdrawing from my 401k creating an extra expense? I'm 69, retired and should incur no penalties with withdrawal. Please explain......I'm totally new to this and certainly have a lot to learn.

As with any situation, as you disclose more FACTS, the advice will change. If you are at retirement age, then by all means, withdraw. The reality is, most people in chapter 13 are not past retirement, so when some ask, can I withdraw against my 401K, they are talking about a 401K loan. The loan has to be repaid as a payroll deduction creating more expense...etc etc.

However, if you are 69, that begs the question of why you are in a chapter 13. I generally advise against anyone over 62 filing a chapter 13 unless there is NO OTHER option to solve the problem.

[nursebette]

Thank you for your response HHN. Reason I'm thinking of chap 13 is......Approx. 30,000 underwater on my 1st(according to a certified appraisal expert) Have a 125,000 2nd and would like to take advantage of lien-stripping option.

I read your advice on another thread re: settlement on a 2nd mtg which got me seriously thinking if a chap 13 is the best option to pursue?

My Atty is unwilling to advise me on pros and cons of a 7 vs 13.....he seems to know his stuff, but hesitant to advise me one way or another.

I've already paid 1000.00 for a retainer so kind of stuck at this point.

I'll say it again, I've learned more on this forum about bk than any other source. Should be required reading for anyone contemplating bk!