Playing "What if?"

[cso5@]

Ok, here goes -- I am in a 13, about half way through. Just paid payment #36 of a 58 month bankruptcy term.

So far, mortgage arrears and the attorney fees have been paid. If it continues like that, in 2 months, all mortgage arrears will be paid.

Left to be paid are state and federal taxes. They are divided up into secured (the actual taxes) and unsecured (the interest and penalties). I filed in 2006, so the taxes are from maybe the 3 years (?) before then. I am not sure if I filed the 2006 taxes or not. Probably not, since I filed on 4/20/06. I can check.

Also left to be paid are a few little credit cards and other miscellaneous unsecured debt, to be paid at 4.97%. None of that has been paid.

Now the what if: If I lose my job, I will get a severance package. Between savings (really trying hard to save now in light of this possible job loss) and the severance, I'd probably have about $10K at the end of my job. My hope at that point would be to go back to school and finish my degree.

Could I convert to a 7 if my job is lost? What happens to the taxes? Would the trustee take my severance to pay off some of the balance of the 13? It wouldn't pay it all off -- I pay $611 a month and like I said, I have 22 months left, so that's what? $13,14K? Somewhere in there.... Would I have to stay in the 13 and just have the payment reduced? The payment wouldn't be do-able if I lost my job.

I was below the median when I filed, and I still am -- just filed to save the house.

I am trying to sort through the possibilities and likely outcomes before it happens so I can be prepared. Any insight is appreciated.

Thanks,
Cat

[Flamingo]

Your severance package contains funds which are funds that cover your pay for a certain time after discharge (i.e., six months, one year, etc.). Those funds would be available to make your Chapter 13 payment each month and you would need to budget that out. That is the purpose of a severance package; to cover you for several months giving you time to find another job and giving you possible benefits during that period to help out also (i.e., medical insurance, dental, etc.). That is why one cannot get unemployment until the severance package runs out (term of months it covers).

When/if your scenario occurs, you need to contact your attorney at that time and advise him of your layoff/job loss, amount of severance package and what it covers and what is included in it. He/she will guide you from there as to what needs to be done. Depending upon if you get another job and when that severance runs out will determine your outcome.

[cso5@]

I understand that is what severance is for. :-) It's given in a lump sum and it's a week for every year you've been employed there.

What I really would want to do it convert to a 7 and am wondering what happens to the income taxes. All the secured / mortgage arrears would be paid -- we also get 60 days notice in the case of a layoff. So that would pay off or just about pay off the mortgage arrears. And the crammed-down car.

Sorry if I wasn't clear.

Cat

[Flamingo]

If your scenario happens and you get laid off, you get bet your attorney is going to advise you to find a job ASAP and probably advise you to modify your plan. As to the taxes, those need to be paid and if you cannot find a job and end up converting to a Chapter 7, you will have to find a way to pay them - your attorney can correctly advise you. I am not sure if at the time of a conversion from a 13 to a 7 if taxes owed during a 13 at that point would again start accruing interest and penalties since they were not paid during the Plan which is considered a "payment plan" by the IRS. That plan would be stopped and you would have to start another one with them if you cannot pay the taxes in full. You probably would not be able to convert to a Chapter 7 until your severance period runs out if you cannot find a job during that period of time and then how are you going to make your mortgage payments without a job? Will you be able to afford the house that you tried so hard to save?

I suggest giving your attorney a call and taking a few minutes and discussing this scenario with him/her expressing that it is possible you could be laid off in a few months and want to know if that happens, what you should do at that time. He/she knows your situation the best. Best of luck to you!