Stair-step payment schedule

[Slingerland]

Good morning, everybody. I thought I'd post an update, and ask for some opinions from the experienced folks. I've been "planning" a C-13 for a couple of years now, but each time I've been able to pull a financial rabbit out of a hat and limp along. A few months back, my wife finally pulled a financial stunt that has hurt too much, and we're separated, heading for divorce.

In casual conversations with my attorney, I've decided to go ahead and file the C-13 once the divorce is final. Why? A clean start. And to be honest, I'm not sure I can recover from my wife's financial damage anyway. A C-13 makes far more sense than struggling month-to-month.

So here are the particulars: a 100% payback of unsecured over 58 months. The payment has two increases programmed in; each increase is when a court-awarded payment to my (soon) ex is completed (child support, and a car loan for our older son.) Here are the specifics:

• $800 for the first 12 months
• $1500 for the next 12 months
• $2100 for the remaining 34 months

To be honest, it is a payment plan I can live within. It will be very tight the first year, but then will ease up a lot. But also to be honest, there is actually room after about 32 months to increase it again... a 401(k) loan I had taken out to bail out my (soon) ex will be paid off. Adding the extra step-up would cause me to finish in about 48 months. But it will be very tight, and at 50 years of age I was planning on continuing that 401(k) loan money back into my 401(k) as a regular contribution.

We've proposed nothing but IRS allowances (which I can live within) and are not offering any tax refunds since it is a 100% plan. With the changes in tax law, I can't really project my tax liability next year... I have a lot of Schedule E deferred loss that I can't take yet. My past three tax returns all report losses under Schedule E. Due to my (soon) ex's actions, the IRS placed both of us on a locked "married with 0" withholding. It is my understanding this cannot change until at least a tax year after the divorce, when I can demonstrate to the IRS that the new withholding is too high. I suspect... suspect... that I'll see a rather hefty refund in the order of $6k or so, but I can't prove it on paper yet.

We've owned the IRS money the past three years, and the amount owed is in the C-13 plan. If the trustee asks about changing the withholding, my plan is to refer him to a copy of the IRS order and then shut up .

So my questions to the experienced folks... based on the details you see above, any thoughts or suggestions? Any cases where you've seen a trustee go crazy?

[Slingerland]

Well, 229 views and no comments, I guess I have a plan that is reasonable and will work

But all teasing aside, I can't begin to thank enough the folks on this board who have guided me through the past two years. If I had seen all the issues two years back, maybe I would be 40% through today. But for now, it's going to be a string of legal appearances; but in the meantime my rentals are profitable again (although a careful timing of property tax payments will lower the numbers for my six-month lookback!) my children are under less stress, I have a good, solid home to stay in, and a good day job with no signs of layoff.

My soon-to-be-ex on the other hand... well... she has some big spending adjustments to go through. Not sure she can even pay for the house she's trying to keep. But the property agreement covers me as best as it can.

Thanks again, everybody!

[dmc-2008]

Those are some hefty payments! I was wondering if they might stair step me cause my kids childcare will go away but they
Havent mentioned it! I guess I will fear it happening and I wish they would have just let me know up front.

[Slingerland]

In talking to my attorney, he told me up front what our trustees would be likely to look for: child support ending and 401(k) loans ending. Since the judge is also awarding the car payment for my son's car, I am anticipating the trustee would be looking at it as well. By stairstepping I go to 100% payback over 60 months, so that should help. I've been told the trustees here want the plan to succeed, and are willing to be flexible if it makes sense.

I just was wondering if the trustee might be required to make the plan harder on me in order to finish in less than 60 months. This plan pays back 100% over 60 months, but later in the plan I actually have more DMI. So my question to the experienced folks is along the lines of "which takes precedence, DMI or going the full 60 months where payback is 100%"?

[HHM]

I think the limited response to your thread results from the fact that you didn't really ask a question. There is nothing to respond too.

Stair-step plans are not unheard of and proceed just as you suggest, usually when an expense stops during the plan (e.g. court ordered payment, car payment etc), the trustee expectation is that the money gets devoted to the plan, (is recapitilzed in the plan).

Ultimately, the rule in chapter 13 is that you must devote ALL your monthly disposable income to the plan. So, when the plan is gong to be 100% anyway, trustees do look for ways to shorten the lifespan. For example, you say your initial 12 months would be $800 per month...that is fine if that number accurately reflects disposable income, but if you really have $1,500 per month is DMI, the trustee will object.

The other type of stair step plan (or step-up plan) is the "wishful" thinking plan. These plans are used for below median debtors trying to save a house from foreclosure (or for poor cash flow individuals with high priority claims). Within in reason, you can back-load a plan. For example, if the debtor needs to cure $20,000 in mortgage arrears, but at the start of the plan can only spare $200 month, you can get a plan approved that steps-up the payments in year 3, 4, 5 in the "hope" the debtor can increase income. However, those plan rarely work.

[Slingerland]

Thanks, HHM... fortunately this plan is not a wishful thinking one. Once the divorce is final and I move into the C-13, we'll propose the 60 month, but I'll be ready for a shorter timeframe.

The ironic part... I actually had a livable plan through CCCS (I guess I'm one of the few.) But the divorce shot that plan in the head, and there's no way I can carry the CCCS payment now. But I can't risk any further financial shenanigans from my (soon to be) ex.

[dmc-2008]

Do they let you know if you are going to be in stair step up front or just send you notice during the 13?

[HHM]

Do they let you know if you are going to be in stair step up front or just send you notice during the 13?

All chapter 13's are proposed and finalized upfront. As part of the confirmation process and resolving trustee objections, a step-up plan may emerge, or as in the case of Slingerland, it will be proposed upfront.

[dmc-2008]

"may emerge" hmmmm does that mean I will know it in advance or ?? My atty said one time it was possible and then he never said another word. I guess i would be ok qirh it but just would like to know when.

[HHM]

You would know before your case is confirmed. It is not something that happens 2-3 years into the plan.

It almost never happens by surprise, any half-way decent attorney will see the issues prior to filing your case. For example, if you are paying a 401(k) loan, and it will be paid off in year 3 of the plan, that will cause an chapter 13 plan payment increase and will be written into the plan from the beginning. Same thing with car payments, if the car will be paid off before the end of the chapter 13 plan, that payment you were making gets then put into the plan. There really is no mystery about these sorts of issues.

[dmc-2008]

Thank you! I will probably see a step after the lam motion and I get some paperwork, I have not been given anything stipulating terms in writing since 341! Thx again

[Slingerland]

It almost never happens by surprise, any half-way decent attorney will see the issues prior to filing your case. For example, if you are paying a 401(k) loan, and it will be paid off in year 3 of the plan, that will cause an chapter 13 plan payment increase and will be written into the plan from the beginning. Same thing with car payments, if the car will be paid off before the end of the chapter 13 plan, that payment you were making gets then put into the plan. There really is no mystery about these sorts of issues.

dmc, HHM is exactly right about this. And in my case, we have a couple of big unknowns: will the rental houses continue to turn a profit going forward, and what will my tax refund be next year? The rentals are looking good... everything that has broken recently was repaired with warranties, the tenants are not losing their jobs and are staying longer. The tax refund... well... based on this year's laws, and based on the mandatory withholding my (soon) ex caused us to be put on, I could get about $6k but it's not a sure thing. I REALLY want to put that refund back into the rental houses' repair reserve.

So in order to make my case more streamlined, we're offering up the stair-step agreements up front, along with the 100% payback. The tax issue we're going to say "IRS said to leave withholdings at this level." The question will be whether my specific trustee will sign off and go with it, or will want claim part of the refund to speed up the payback.

Talk to your attorney and ask these questions. They're the right questions!

[dmc-2008]

Thank you! Tomorrow is lam motion day and i will call tomorrow afternoon. I hope i get the plan in writing. And good luck with your refund! That would be great!