Car payment is ending, payment increasing?

[fedupwithit]

Hi everyone, I'm new here and new to chapter 13 and have a question please. In our trustee hearing the trustee said that when our car payment ends in a year our monthly payment will increase. The attorney said later it will increase by the same amount as the car payment. No one told us this would happen and I was counting on having that money to take care of long neglected expenses we have put aside, our house is literally falling apart. I am furious at now being expected to pay an extra $27,000 in our plan instead of putting that money into securing our home against further damage. And I'm pretty upset the attorney never warned us this would come up.

I do not want to agree to this in the confirmation. Attorney said it's no big deal, we can amend our budget when the time comes and it happens all the time. However, that is a fee to the attorney to do this when the time comes and also how do you reflect something like this in a monthly budget, when I would have to save some months in order to have a repair made, then save some months again to have the next repair made, etc. Also, isn't there a chance the court will not agree to this when the time comes, and because we agree to it in the confirmation we are stuck with it?

We were not advised of this before, and the trustee said it as an aside in the hearing and I didn't want to make anything of it at the time but now I really need advice on how to deal with this. I'm not paying this increase, I want to just forget all this chapter 13 stuff and deal with our debt in another way if this is what it means but unfortunately we cannot do that.

Any and all kind advice/guidance is appreciated. Chapter 7 not an option right now for various reasons and also we would definitely lose the car then.

Thanks in advance.

[flashoflight]

This happens to nearly everyone in a 13. You're thinking of the step increase as punishment when you should actually think of it as a gift. Think of your case as having a pot paid to the arrearages and unsecured creditors over 36 to 60 months. Because you have a secured debt (auto loan) that must be paid, the trustee will give you a break on the payments early in the plan so you can pay the car off. If you are in a less than 100% plan, American Express is actually helping you pay off your car. Then you will pay the rest of the pot faster once the auto loan is paid off. It is totally normal for your payment to go up over time.

As far as saving money in a 13, that's extremely hard to do without pre-petition planning you'd had to have done on your own (I don't think anyone had a lawyer that did extensive pre-petition planning). By definition, all disposable income must go to unsecured creditors unless you are in a 100% plan so your original plan runs counter to how chapter 13s work. What you needed to do pre-petition is to redeploy the old credit card minimum payments to expenses that count in the budget such as home maintenance and build a history of that backed up with receipts prior to filing.

Post-petition, if you get raises from your job and your trustee doesn't care if it is 10% or less annually, you can start saving up if you never go back to the trustee for a plan modification. Unfortunately, I've seen some posters have super anal trustees that are aggressive at increasing the dividend to unsecureds.

[fedupwithit]

Thanks for your reply, but we didn't have these expenses before filing because we could not afford them. I was counting on getting this stuff done when the car was paid off. This is not a gift and nothing is paid off faster from the car loan money going to creditors. It's still going to take 60 months but will cost a lot more, and be out of our budget. Also, edited to add, the car payment money will by no means be disposable income, it's already allotted for other things that need to be taken care of. I'm not looking at any of this the wrong way, this system is awful.

[flashoflight]

If your pot is $60,000 due to your budget, you're paying $1000/month to the trustee if there is no car loan. If you have $12000 left on a 0% $500 auto loan for 24 months, your pot is reduced to $48,000 and your plan payment starts at $500/month and $500/month to the car. Granted months 24-60 will suck more because you are paying the $1000/month to the trustee. But the end result is American Express is helping you pay for your car on top of getting paid nickels and pennies on the dollar. It's a gift.

It depends on the trustee whether they will take your word that you will spend money on future expenses. At a minimum you are going to need quotes from contractors for the repairs. When I brought this up with my lawyer, he was not too keen on this approach. For example HVAC is a one-time replacement with very low maintenance costs afterwards so why give you any credit in the budget going forward. Rather, he wanted me to spend on the house pre-petition so that's what I did. You are not confirmed yet, so maybe ask the lawyer if you can come up with a bunch of quotes so you can increase your home maintenance budget based upon future expenses. This approach may be a rough road for you to get past trustee arguments against it.

[justbroke]

This is just how Chapter 13s work. Whenever you have a payment which will end during the Chapter 13, that money, if deemed to be disposable monthly income (DMI) will go into the plan. These are known as "step" plans and the confirmation order should clearly show that you plan payments increase. For example, you're paying off a vehicle with only 12 payments left at the start of your Chapter 13 and the payment is $500/month. Your plan will increase by $500/month at month #13 (since the vehicle is now paid off). This is entirely normal.

You may believe it's not disposable income, but that value (DMI) is calculated based on your Chapter 13 Means Test and Schedule I/J when you filed. If your expenses increased in the interim, that's something you can discuss, but if the new expenses are outside the allowances, you'll need good reason.

You mention "other things that need to be taken care of." Are those new things that you incurred after filing? The Chapter 13 doesn't anticipate these are technically allow any new debt after filing. If you had a child, adopted, or a change in family or housing, you can ask your attorney to redo Schedule I/J to see how much of the car payment can be reallocated to these new (allowed) expenses.

The system is actually not awful. If this were an actual IRS case and you were under the IRS Financial Collection Standards (FCS) you would then see how awful it could be. A Chapter 13 is a great way to save and protect property. If you are in a Chapter 13 and were not trying to save property, then the means test determined that you had excess expense and could provide a dividend to the unsecured creditors.

Don't forget that a Chapter 13 is voluntary and you can exit at any time. In exchange for the court and laws protecting you, you agree to either pay the unsecured creditors 100% or surrender all of your disposable monthly income (DMI). Unfortunately, the calculation of the DMI is not what many people expect as the system is designed to make sure that you have basic living costs without the frills.

[fedupwithit]

No, these are not other things incurred after filing. We live in a home full of leaks, leaky roof, old pipes that keep bursting, all kinds of repairs needed to simply stay safe in our home. These are not frills. Also, we didn't work out our plan based on a set amount then divided into payments. Do we have a bad attorney? Because we worked out what we could afford each month for 60 months, assuming there is no more job loss (please God no more of that), not what we could afford for one year and then with an increase. I do the budget and worked out what we could afford for the 60 months, with the ending car payment then going toward long-needed repairs. I understand what you both are saying but neither applies to us and we were not informed of potential increases. I guess I should have researched all this on my own first but I trusted the attorney when I told him what we could afford to pay. Guess I'm the fool then.

Thank you both for your replies. So, what happens if we stop being able to afford the payment once it increases? I'm reading up in the forums and trying to figure everything out. But it seems that's going to happen to us within the year given this news. So then do we fail this chapter 13 and lose our protections and everything we have already paid into it, and then have to work things out individually with creditors? I'll keep reading. And again thank you for your replies to this newbie. Even though I don't like the replies (the truth about our situation), I still appreciate it.

[shipo]

I think what folks are trying to tell you is, unless you were actively paying for these repairs before you filed, then, as far as the Trustee is concerned, they are "new".

[justbroke]

No, these are not other things incurred after filing. We live in a home full of leaks, leaky roof, old pipes that keep bursting, all kinds of repairs needed to simply stay safe in our home. These are not frills. Also, we didn't work out our plan based on a set amount then divided into payments. Do we have a bad attorney?

No, first it doesn't mean you have a bad attorney. Chapter 13s don't provide for unanticipated repairs by allocating money up front. But a Chapter 13 can, if you have enough DMI, deal with emergency situations. What you can do, if you have an urgent need, is tell your attorney that you need to make repairs. Your attorney would contact the Chapter 13 Trustee and seek permission to either abate payments or to not make certain payments for some period of time.

Because we worked out what we could afford each month for 60 months, assuming there is no more job loss (please God no more of that), not what we could afford for one year and then with an increase. I do the budget and worked out what we could afford for the 60 months, with the ending car payment then going toward long-needed repairs. I understand what you both are saying but neither applies to us and we were not informed of potential increases.

I wish your attorney explained it better to you, but your plan should have surely displayed the increase in payment allocations to the unsecured creditors at the time the vehicle was paid off. That doesn't make you foolish at all. It is likely that your attorney didn't explain how the Chapter 13 works in a way that you could understand.

Thank you both for your replies. So, what happens if we stop being able to afford the payment once it increases?

If your expenses actually changed or you have an emergency expense the process is always to ask your attorney. You have to articulate an emergency expense as just that. In a Chapter 13, the debtor can't just say that they have ongoing expenses of maintaining a home as that would have already been an expense included on Schedule J. What the Chapter 13 debtor should do is articulate an emergency. For example, I had my sewer main break (and it was thousands to repair under concrete driveway), HOA violations which also cost thousands to fix. Each time I wrote a letter indicating the need to keep a tax refund or to change my payment structure. or abate payments through deferral.

So then do we fail this chapter 13 and lose our protections and everything we have already paid into it, and then have to work things out individually with creditors?

Yes, the downside is that if the Chapter 13 Trustee and you (your attorney) can't agree on a change in the payments, and you can't afford them, then your plan is likely to fail. You would be back in the place your were prior to filing, but with all accumulated interest which accrued during your Chapter 13.

I would recommend looking at what would constitute emergency repairs. I would ask my attorney to ask the Trustee to abate or remove enough of the increased payment to cover that specific expense. It will not be a "monthly" allowance of sorts, but it would allow you to either abate (defer) payments or to exclude that car expense for several months to deal with an emergency repair. The Chapter 13 Trustees do understand that there are emergencies.

I don't know if you'll be successful because it depends on how well you articulate the emergency expense and how well your attorney communicates those to the Trustee and/or court. In my case, I always just filed a Motion to Modify Confirmed Plan whenever I had extraordinary expense. I did send it to the Trustee at the same time with a cover letter to explain the situation and the Trustee was always okay with my changes.

Some Chapter 13 Trustees even have certain forms on their website which would allow a debtor to incur new debt. Emergency home repairs are something that any Chapter 13 Trustee should allow and they may even allow you to do so on credit.

[fedupwithit]

justbroke, shipo, flashoflight, thank you all for your replies. This is making more sense now. Just broke, special thanks to you for your detailed replies, especially the one right above. Saving this thread for reference. I really appreciate it, thank you.

[Barbisi]

If it's any comfort, fedupwithit ,we recently had our "step up" payment increased by nearly $200 more after a protracted struggle. Our car was supposed to be paid off in December 2020 ($197) , but our thoughtful trustee decided to raise our payment in August 2020 by more than $600 ostensibly due to my husband's pay stubs increase since we filed in Feb.2017. With our befuddled attorney's "help", we managed to get the new payment amount decreased somewhat - down to nearly half of the original demand.
These trustee are relentless and ruthless and unless your insurance backs you up on the roof leaking, for example, you will have a steep battle trying to reduce post-petition payments. (See my posts about our allowed medical expenses struggle pre-confirmation, and then, the hawkish monitoring of our post-confirmation income ever since.)
I'm sorry you have to deal with a run down dwelling that really needs $$$$ in repairs while you are trapped in this BK13 whirlwind.
Good luck on surviving five years in Hades!

[fedupwithit]

Sorry to hear this, Barbisi. I'm leaning toward throwing all this chapter 13 stuff out the window and braving it on our own. Will see what happens at confirmation hearing. Good luck to you also.

[shipo]

fedupwithit, keep in mind, by proceeding without the protection of a Chapter 13 filing, lots of bad things can happen, including, but not limited to, judgements against you, repossession of assets, and 1099-C forms being sent to you (and the IRS) which can dramatically impact how much income tax you'll owe.

[fedupwithit]

shipo thanks, I have a lot of thinking to do.

[justbroke]

Bankruptcy is the only thing that is definitive as to the status of debt once a discharge is entered. shipo mentioned most of the issues with being without that protection and definitive nature. Another issue is that sometimes creditors will negotiate, take a lower payment, but then sell the balance to yet another debt collector. It can be a vicious cycle.

I didn't realize that you are not even through confirmation. Since you are not through confirmation, this is the period of time where you attempt to deal with things. If you need things fixed "today" then you need to have your attorney plan the step-up payments differently. Even I did relatively small payments in the first 6 months, and then stepped up. However, my stepped up payments still paid what was necessary, just spread over the remaining 54 months.

[fedupwithit]

Hi justbroke, I apologize, I should have been more clear in my initial post. We only had the first hearing and that's where the trustee said payment would increase later. I spoke with my attorney about it after and he said we would submit a new budget down the road to adjust the payment and account for this. He never mentioned having a step up plan in place or anything like that. I am reluctant to keep calling to bug them about this but am also upset that maybe the whole process is not being laid out. I haven't been informed of a base payment amount or anything like that. Might call the paralegal today to inquire. Thank you for your information.