Chptr 13 - Like to pay it off early at 37 vs 48 mo.s

[GTSecret]

Just found this forum. We are currently in Chptr. 13 which was filed in Tx. We are in the 18th month of a 48 month plan. Part of our plan to control our finances was to control our debt and raise our income. We did both. We kept our house and cars but everything else went in the Chptr. 13. We are current on our payments and don't foresee any problems.

As part of our plan we moved to the Washington DC area and have increased our income. As I looked at our taxes, I realized that next year, we are in jeopardy of paying a lot of taxes since our home in Texas is on the down-side of the amortized scale of the mortgage and house prices are much more in this area than in Texas. So, we will have less mortgage interest to help us bring down our tax liability in the future.

I would like to sell our home in Texas, take the capital gains from that sale and pay off the Chptr 13 at the 37 month without penalty. My attorney says we need to stay in B for 36 months. How can we get out of Chptr 13 early without increasing our monthly payments today and perhaps paying a lump sum (the monthly payment for the period remaining which will be 12 months) or by some other mean? Any advice will help.

[GTSecret]

One more thing to add ...

As one may deduct, we filed our case under the old 'B' regulations. I am not sure if the new regulations have taken precedent over the old or if we are still under the old regs governing Chptr 13. Perhaps someone can address that too!

[StaciMM]

The one thing I'm certain of is that you go by the rules in effect when you filed. So, you're still an old law bankruptcy case.

[Jman30]

GT, I would definitely go to your attorney with this one.

You can pay off your Chapter 13 at any time. But if you pay before thr 36th month, you are paying back 100% of the debt. If you pay back after the 36th month, you only pay whatever percentage your Chapter 13 says. Of course, this does not matter if you are pay 100%.

You need to talk to your attorney, run these scenarios by him/her. Generally speaking, I think it is always better to stick it out until the 36th if you are paying less than 100%.

[coit]

As part of our plan we moved to the Washington DC area and have increased our income. As I looked at our taxes, I realized that next year, we are in jeopardy of paying a lot of taxes since our home in Texas is on the down-side of the amortized scale of the mortgage and house prices are much more in this area than in Texas. So, we will have less mortgage interest to help us bring down our tax liability in the future.

This statement is confusing to me. I'm in the same boat as you, contemplating a relo to MD.

If you are buying a new house, getting a new MTG, you will have more interest to deduct, not less?? This will reduce your tax liability, not increase it.

My difficulty is that I'm in the reverse situation. I'm new in my CH 13 plan, and won't be able to get a new mortgage. Thus, I'll have to rent, and lose 20K or more in interest deductions.

Maybe you could clarify a bit?

[SinkingFast]

At the beginning of a home loan, the amortization schedule applies very little to principal and lots to interest. Therefore, a big mortgage interest deduction come tax time.

Toward the end of a home loan, most of the payments apply to principal with less and less going to interest. Therefore, lower mortgage interest deduction come tax time.

They are closer to the end of the mortgage on the home in Texas, thus lowering the amount of mortgage interest deduction on their taxes. Evidently, they have not purchased a new home in the new location yet.

You can adjust for this thru the amount withheld from your paycheck thru out the year. Pay more in each paycheck by claiming fewer exemptions thru out the year. In the $20K liability situation, if you are married, you can have taxes withheld at the higher single rate. That could probably result in having to apply for a plan payment ammendment to adjust for the new, reduced net income base.

You filed Old Law, GT, so if your original total pay back is less than 100%, you'll need to wait until after 36 months to pay off your Ch 13. If you're already at a 100% payback level, then go ahead and sell the house in Texas, pay off the Ch 13 plan, and move on with your life.

Another way to proceed would be to go ahead and sell the house in Texas. Being Old Law, your homestead exemption was unlimited. So all proceeds could be covered by your homestead exemption when you filed BK. The proceeds might not be considered a windfall if you were to reinvest by purchasing a new home in the new location. And, you could possibly get a plan payment adjustment due to higher property values and higher costs of living in the new area. You'd have to get Trustee approval for that, but it would seem reasonable due to the relocation for job.

Just a thought for you.

[aa06a47]

I am not sure about that advice sinkingfast...yes, I have read there is an unlimited homested exemption in TX, but 401k's are also unlimited exemption (up to a million I think)..until you cash it out!!! Once you cash out, it is money to the trustee.

My advice is to not sell your home unless your at 100% payback already to your unsecured creditors and/or unless the trustee approves your plans and everything is black and white and you understand exactly what your doing before you do it.

[AnnieG]

I am not sure about that advice sinkingfast...yes, I have read there is an unlimited homested exemption in TX, but 401k's are also unlimited exemption (up to a million I think)..until you cash it out!!! Once you cash out, it is money to the trustee.

My advice is to not sell your home unless your at 100% payback already to your unsecured creditors and/or unless the trustee approves your plans and everything is black and white and you understand exactly what your doing before you do it.

Can anyone clarify what is "100%" of plan? For instance, if I had $50,000 of unsecured debt, but not all creditors had filed claims, and the claims submitted to the Trustee amounted to $30,000 -- then is 100% of my plan now $30,000? And $30,00 would be the amount to be able to come up with if I wanted to buy out a CH13 before 36-months in the plan?
I ask this because we have had only about 1/3 of the creditors come forward with a claim. We already have our case confirmed by the trustees and the final day for claims is 3/19. Our case has been lingering since July, 2005, when we had first went the CH7 route. We converted to CH13 in December due to having just over the $100 disposable income (after assuming a cram-down on our cars).
What is the advantage to the creditor to NOT submit a claim? On my credit report, the majority of the creditors show chargeoff. Is there more of an advantage (maybe taxes?) for the creditor to NOT go after what may be pennies in a CH13 case?
Still trying to understand how this all works! I had the unfortunate drama to have the US Trustee contest our CH7 one day before dismissal, so I am bracing myself for any news that comes!! We are confirmed in a 36-month plan, but I, too, am facing relocation for my job in ~a year (when my company closes my location), so I am looking for options to be proactive during this year prior to moving.
Thanks!

[therock48881]

Can anyone clarify what is "100%" of plan? For instance, if I had $50,000 of unsecured debt, but not all creditors had filed claims, and the claims submitted to the Trustee amounted to $30,000 -- then is 100% of my plan now $30,000? And $30,00 would be the amount to be able to come up with if I wanted to buy out a CH13 before 36-months in the plan?
I ask this because we have had only about 1/3 of the creditors come forward with a claim. We already have our case confirmed by the trustees and the final day for claims is 3/19. Our case has been lingering since July, 2005, when we had first went the CH7 route. We converted to CH13 in December due to having just over the $100 disposable income (after assuming a cram-down on our cars).
What is the advantage to the creditor to NOT submit a claim? On my credit report, the majority of the creditors show chargeoff. Is there more of an advantage (maybe taxes?) for the creditor to NOT go after what may be pennies in a CH13 case?
Still trying to understand how this all works! I had the unfortunate drama to have the US Trustee contest our CH7 one day before dismissal, so I am bracing myself for any news that comes!! We are confirmed in a 36-month plan, but I, too, am facing relocation for my job in ~a year (when my company closes my location), so I am looking for options to be proactive during this year prior to moving.
Thanks!

i asked the exact same question to our attorney since very few creditors filed claims. his answer was that they will not receive any money from the trustee but if the case ever gets thrown out or dismissed, then all creditors, even those that didn't file a claim, can come back and get their money. we paid off our 13 early and those that didn't file a claim got nothing. i can't really understand why creditors wouldn't file a claim but it worked out to our advantage that most of them didn't since more money went to those that did.

[aa06a47]

Can anyone clarify what is "100%" of plan? For instance, if I had $50,000 of unsecured debt, but not all creditors had filed claims, and the claims submitted to the Trustee amounted to $30,000 -- then is 100% of my plan now $30,000? And $30,00 would be the amount to be able to come up with if I wanted to buy out a CH13 before 36-months in the plan?
I ask this because we have had only about 1/3 of the creditors come forward with a claim. We already have our case confirmed by the trustees and the final day for claims is 3/19. Our case has been lingering since July, 2005, when we had first went the CH7 route. We converted to CH13 in December due to having just over the $100 disposable income (after assuming a cram-down on our cars).
What is the advantage to the creditor to NOT submit a claim? On my credit report, the majority of the creditors show chargeoff. Is there more of an advantage (maybe taxes?) for the creditor to NOT go after what may be pennies in a CH13 case?
Still trying to understand how this all works! I had the unfortunate drama to have the US Trustee contest our CH7 one day before dismissal, so I am bracing myself for any news that comes!! We are confirmed in a 36-month plan, but I, too, am facing relocation for my job in ~a year (when my company closes my location), so I am looking for options to be proactive during this year prior to moving.
Thanks!

AnnieG....The things I have read in my research is that a 100% payback is if you owe 50k, you pay 50k. I do not know about the money if the creditors didn't file a claim. That may work to your benifit, or since you "claimed" them in your bankruptcy, they may have not had to file a claim. ??? In your case, based upon what you have said, I would "assume" your paying a little over 100/month for 36 months = $3600, however you owed in the neighborhood of 50K. Believe me, you don't want to pay off early or anything like that. Just pay the 100/month and be happy. Enjoy your fresh start 3 years from now.!!!

Also, from what I understand, the minimum payment is all "disposable" income in the first 36 month period and then paying all your disposable income becomes irrelevant (old laws and this is for those with greater than 36 month payment plans). I don't think no matter what you do, that your case will be closed until a min of 36 months have passed. (They will want any inheritance, ect that you might receive in that period)

As to moving to another state, changing jobs, I believe those questions cannot be answered by most posters in here. Some have experience in it, but I believe it is handled on a case by case basis. You should really consult an attorney and get an iron clad arrangement made prior to doing anything.

[SinkingFast]

I am not sure about that advice sinkingfast...yes, I have read there is an unlimited homested exemption in TX, but 401k's are also unlimited exemption (up to a million I think)..until you cash it out!!! Once you cash out, it is money to the trustee.

My advice is to not sell your home unless your at 100% payback already to your unsecured creditors and/or unless the trustee approves your plans and everything is black and white and you understand exactly what your doing before you do it.

In a normal situation, I'd agree about the homestead exemption rule not applying. If it was a case of "we want to buy another house" I don't think the Trustee would allow that. But their house is in Texas and they now live in Washington DC. It's not as simple as a little bit longer drive to get to work. I'd think, in that situation, the Court would allow for a debtor to sell their home to purchase another in the new state.

Selling and moving expenses are allowable under IRS regs in that situation. There's a distance requirement that must be met, but Texas to DC is way beyond that. BK court uses/refers to IRS rules for many things. Seems like selling a house due to relocation for a job would qualify as well.

Definitely an issue for an attny to look into. We live in a mobile society. People move, on average, every 4 years. There is no rule that I know of that requires BK filers to remain in the same district for the duration of their plan. Even parolees can move as long they keep the Court informed of their where abouts.