We voluntarily dismissed

[em96]

After weighing all our options, we decided to do a voluntary dismissal of our Chapter 13. We were almost 2 years into a 5 year plan. Our monthly payment was starting to cripple us financially. When we filed, I was getting lots of OT at work and this caused our payment to be very high. That extra income dried up after a few months. We cut back as much as we could and kept current on our payments.

After our mortgage arrears were paid up, I took a long look at our case. I knew we couldn't continue making that huge monthly payment. The rest of it was credit card debt. I contacted the collection agencies about settling. Being in a Ch13, they could not legally discuss anything. But they all did say they would work with me in the event of a dismissal.

We took a huge leap of faith and decided to stop paying on our Ch13. I contacted our trustee and our attorney and relayed our decision. They both made sure we were aware of the consequences. We were. After the 2nd month of not paying we received notice of a motion to dismiss. We did not attend. Soon after we got the official notice that the case was to be dismissed for failure to make payments. Once I got that, I immediately contacted all the collection agencies and discussed our options. 5 accounts were settled for only 30% of the balance.

I received a notice in the mail stating the terms of the settlements and that the credit bureaus would be notified that the debts were paid. I borrowed from my 401k to pay these. The remaining 3 offered settlement amounts that were too high for me to pay. So we worked out a monthly payment instead. All 3 are for a set amount with no added fees or interest. So now there are 3 more bills for me to pay every month, but I made sure this was something we could afford to live with.

I want to make sure you guys and gals know this was not an easy decision to make. I am in no way telling anyone else to do what we did. In our situation we felt this was our best choice. I know we could have gone back to court and asked for our payment to be lowered. I know our credit will be further affected by our voluntary dismissal. Nevertheless, this was our decision. I'm very happy we were able to take care of the rest of our debt. It was a very hard lesson learned about financial responsibility. One that we will always keep with us.

I would also like to let everyone know how much I appreciate this site. I learned a lot about bankruptcy from so many of you before we filed. We now live on a budget well within our means. We live without the use of credit cards. We can start building up our savings back up.

I didn't participate a whole lot. But I was here almost daily reading and reading to learn as much as I could. I wish all of you the best of luck. Thank you all for all the help you have given us.

[HHM]

You know, you could have modified your plan payment to lower it if it really was that bad.

Best of luck. Although you broke one of the fundamental rules of debt management, never borrow or withdraw from retirement to pay dischargeable debt.

I hope everything works out...but, it is still a gray area regarding what happens to a mortgage in a dismissed chapter 13, just because the arrears were paid by the trustee, doesn't mean you have necessarily cured the default. The bankruptcy prevents the mortgage company from adding on the fees and interest on the arrears that "would have" accrued had you not filed BK. The concern is, with a dismissed case, they go back and add them back in, and bam, back in default. I hope that doesn't happen here.

[frogger]

You know, you could have modified your plan payment to lower it if it really was that bad.

I agree. Plans get modified all of the time.

And paying unsecured debt with an exempt asset? I hope it works out well for you.......

[kornellred]

You say you "borrowed" from your 401k rather than taking a withdrawal? That was a smart thing to do, as long as the 401k loan repayment plus the other three payment arrangements are substantially less than your Chapter 13 payment was. The good thing about it is that you are paying yourself back, so you are really just making a certain amount of money unavailable for the next 5 years.
Assuming that you are purchasing your own employer's stock with your 401k contributions, if the stock price takes a big upward jump in th next few years, you will really be patting yourself of the back for your decision to dismiss the Chapter 13! Good luck....

[em96]

I contacted my mortgage lender also before dismissal. My account was current and arrears were settled. No further action. I know I went about this in an unorthodox way. But again, it worked for me. I took a big chance by taking their word for it that they (collection agencies) would settle. In the end it paid off. Regarding the 5 accounts that offered settlements, they totaled almost $30k. I paid $9k to settle. I saved roughly $20k. The other 3 total about $10k and will be paid over 36 months with no interest. My 401k loan is also 36 months. These added monthly expenses are well within my means. And to repeat myself, I'm not telling anyone this is the way to go. This worked for my situation.

[flowerchild]

I'm glad it worked out for you. I'm sure it was a pretty tough decision. Many people wouldn't have the cash to settle so kudos to you. The only thing is now that you have a dismissed CH13, it will be 10 years instead of 7 years for CRA reporting.

[toojerm]

I considered doing just that em, because I'm sure this thing is has taken years off my life, and put considerable strain on my marriage. Being done is worth it. Forget the credit report. Just go cash, and pay whatever deposits you need to for utilities, etc. Good luck, make the most your new freedom, in a responsible way.

[alorth]

Hi...this is Alorth's wife. I have a question about the settlements with the credit card companies. Is it true that any amount "forgiven" by them (in this case a total of approximately $20,000) will be considered income on next years federal taxes and will owed taxes on?

[HHM]

Hi...this is Alorth's wife. I have a question about the settlements with the credit card companies. Is it true that any amount "forgiven" by them (in this case a total of approximately $20,000) will be considered income on next years federal taxes and will owed taxes on?

Will the forgiven amount be treated as income: YES

Will taxes be owed on that amount? MAYBE.

The forgiven amount is income. However, the debtor may not be liable to pay tax on that amount if she fits one of the exceptions to paying tax. In this case, since we are dealing with unsecured debt and there is no bankruptcy discharge, the only available exception is Insolvency. If the taxpayer can prove they were insolvent at the time they settled, then they do not pay tax on the forgiven amount.

[chp13]

I have been thinking of doing this on a daily basis, having my 13 dismissed. I had $25k in back taxs which is now near $17k. 19 months into 60 month plan. Once I get it down to $0 in back taxs then I'll make a decision. My total cc debt is $35k which I can handle.

[HHM]

I have been thinking of doing this on a daily basis, having my 13 dismissed. I had $25k in back taxes which is now near $17k. 19 months into 60 month plan. Once I get it down to $0 in back taxs then I'll make a decision. My total cc debt is $35k which I can handle.

That would be dumb. Sorry, just need to blunt. With the back taxes and other debts, there is no benefit to you for getting out early.

[LadyInTheRed]

That would be dumb. Sorry, just need to blunt. With the back taxes and other debts, there is no benefit to you for getting out early.

Yes, especially when, according to another post, chp13's plan pays only 0.56% plus tax refunds to unsecured creditors. Unless the tax refunds are huge, getting out early and paying off what remains of the $35K in unsecured debt would be very dumb and expensive.

[chp13]

em96, what was the amount of debt you owed?

[chp13]

HHM LadyintheRed, obviously it could be done and is very possible. I believe it all depends on one individual financial situation.

[TheBajan]

OP,

You took a gamble that (in your mind) paid off. I'm sure you considered the possibility that the cc companies would not actually settle once you were dismissed. Did you have a plan B if that had happened? This is not meant to be a criticism at all. I know you must have given this decision a lot of thought and none of us here know your situation well enough to say it was or wasn't right. It worked for you and I congratulate you. I'm only wondering b/c you really had to step out on faith that it would all work out and if it hadn't, certainly you must have had a back-up plan??

I'm also curious as to why you didn't try to have your chap 13 payments lowered?

Thank you for sharing your experience with us. I can't say I would be nearly so daring.

Best regards,
The Bajan