How possible coming tax increases could affect Plan

[alorth]

Quick question....there is a lot of talk in the National news about this upcoming "Fiscal Cliff" the country faces in early 2013, and how the average household could see a Federal tax increase of roughly $2000/year or more.

I don't want this to turn into a political discussion/argument about who is to blame, or this and that, but I do want to ask how that might affect us in a Chapter 13?

That $2000 is nothing to sneeze at when on a tight budget. It works out to about $167/month....or could be even more as we make just over 100k.

So do we ask our attorney about making an amendment to the Plan?

And we would have to wait until the actual impact of the tax increase becomes clear, right? So we would have to go through several months paying the higher taxes, squeezing us tighter, if not making things unworkable, before we could amend?

Its things like this that are completely beyond OUR control that have the potential to make CH 13 an ongoing headache.

[AngelinaCatHub]

Without going Political et al, I will simply state, that, what if you had a paying job that reduced your wages that much? Due to a reduction in force, or bad times. You would petition the Court for relief, or go C7 if you could. I recently begged IRS to reduce my monthly payments to them to 100. It was 450, then 250, but we are not doing 'oh so well' either. They did.

Not happening yet so please don't fret about it at this time. There is worry enough in our World. 'Hub

[kornellred]

I have the feeling that the moderators will move this thread if it gets a lot of responses because of it's speculative nature. 'Hub's assessment of what is possible in such a scenario is correct.

I also have the feeling that it will simply be "business as usual" come the new year. Nothing will change in the United States unless it is radical, devastating, and permanent. The next step is the end of the world as we have known it, and bankruptcy will not matter.

[ld2366eh]

Were you also addressing the FICA tax holiday that is set to expire at the end of this year? That will be another 2% to worry about...

[frogger]

I have the feeling that the moderators will move this thread if it gets a lot of responses because of it's speculative nature..

It's being watched very close..........

[justbroke]

As stated, you deal with it as a Modification to Confirmed Chapter 13 Plan. Hopefully, though, your plan can still "afford" the changes and the plan remains "feasible". Feasibility is the largest hurdle, I believe, when modifying or attempting to modify a plan where there is a change in circumstances.

As an aside, you should be building your "emergency fund" and general savings while you're in a Chapter 13. Do not allow yourself to overspend in any budget category. If you have a surplus for that month, bank it... don't spend it. I don't know anyone that can survive a Chapter 13 without a savings and learning to budget.

[alorth]

My case is unusual to say the least. Back when I was posting more regularly, I went into a lot of detail about it.

In short, we were "allowed" about $300 per month for our daughter to finish this last year at Montessori, but then our payment steps up that $300 starting next year and going for the rest of the 5 years.

Also, the Judge actually specified as a condition for confirmation that we would have to pay "at least" $70,000 over the course of the Plan to our Unsecured Creditors....He (the Judge) actually named the figure, not the TT, and more or less ignored the whole "DMI" thing.....and that doesn't count our secured creditors (cars), our higher than average house pmt for this area (we are still paying 5.5% interest, but we did not want to add a foreclosure to our record, especially being that we can afford the pmt in the budget, there just isn't any extra), nor the attorney fees in the Plan and the administration and trustee costs.....which total about ANOTHER $25,000.

Even if we make all payments as spelled out in the Plan, and surrender our tax returns which have averaged $5500/yr the last 10 years, it is estimated that we will fall $5-10,000 short of that $70k at the end of the Plan, and we are to take out a 401k loan to make up the final difference at the end....which was agreed to by the Trustee.

And we are NOT able to put anything away in this Plan...we only have the cushion we had that was exempted when going through the process, so suffice to say that an extra $167/month taken out in taxes is going to put the screws to us....plain and simple.

Not to mention that doing a modification is going to cost us attorney fees we don't have.....so I was hoping to avoid that if possible.

[justbroke]

I'm not trying to be negative, but that's almost a plan that will fail, by design. Any plan that has any "balloon" payment at the end, is one that it dangerous. I have read where some Judges don't like them because they are too dependent on economic conditions, such as refinancing the home towards the end of the commitment period.

God bless you alorth, because I don't know how one can survive a Chapter 13 with only $167/month in savings and a plan base which appears to be over $100K (based on speculative math on my part). If you don't mind me asking, what's your percent payback (not that it matters in the grand scheme)? I'm wondering if you're in a 70%+ plan.

[ld2366eh]

Perhaps it doesn't matter in the grand scheme of things since they are requiring a fixed dollar amount rather than "DMI" at the end of the plan, but could you possibly change your Federal Exemptions so that a bit more $ is put into your paychecks each month and less is refunded from the IRS (and turned over to the trustee) when your tax returns are done each year?

[justbroke]

Id2366eh, the problem I see with just adjusting tax refunds is 2 things. First, if you do this wrong, you end up with more in your pocket and could overspend... thereby causing more money in the balloon payment. Which leads me to my second concern, the balloon payment itself. The plan already requires either refinancing or a loan or withdrawal from a 401(k) which I don't like at all.

But that's me.

[alorth]

I'm not trying to be negative, but that's almost a plan that will fail, by design. Any plan that has any "balloon" payment at the end, is one that it dangerous. I have read where some Judges don't like them because they are too dependent on economic conditions, such as refinancing the home towards the end of the commitment period.

God bless you alorth, because I don't know how one can survive a Chapter 13 with only $167/month in savings and a plan base which appears to be over $100K (based on speculative math on my part). If you don't mind me asking, what's your percent payback (not that it matters in the grand scheme)? I'm wondering if you're in a 70%+ plan.

@ JustBroke....Our plan is about 65% payback.

And I'm not saying we have $167/month in savings.....Boy I WISH we did. I was trying to say that if our yearly Fed. taxes do rise by the hypothetical $2000 next year, that will come to about $167/month increase taken out of our checks, and seeing as how we're operating on a balanced budget right now, and NOT putting anything away, that will leave us in a deficit....essentially short that $167/month....necessitating a Plan mod that I don't really want to pay to have done, but might not have a choice. Our only savings are the $4000 in exempt funds we had in the bank at our filing. That cushion has to last us 5 years, through whatever emergencies, repairs, or whatever else may come.

Our course of action just depends upon what happens with those taxes, and if they really do increase or not.

Also....I understand your point about Balloon Payments at the end and their risk, and also how the economy's health is vital to our plan working. Its so true. Just going to pray the stock market doesn't crash again and take out our 401k, which has rebounded nicely since 2008, BUT needs to stay in good shape for our Plan to work properly, especially since we are no longer contributing to it because of the BK. I'm telling you....our Judge just has his own way of doing things, and isn't too debtor-friendly. But this is what we have to work with.

[alorth]

Perhaps it doesn't matter in the grand scheme of things since they are requiring a fixed dollar amount rather than "DMI" at the end of the plan, but could you possibly change your Federal Exemptions so that a bit more $ is put into your paychecks each month and less is refunded from the IRS (and turned over to the trustee) when your tax returns are done each year?

@ ld2366eh....We want to keep our tax return at about the level it has been, as our Plan was formulated (and confirmed) with the $5500/year figure in mind (which is all being turned over to the Trustee), and if it would be significantly lower, that is only going to make the total we owe at the end much higher....and we're hoping to keep that Balloon Payment as low as possible. So it doesn't really help us to take more out per check....I mean, perhaps it would in certain short term circumstances, but would hurt us in the long term as related to completing the Plan successfully.

[justbroke]

I wish the best for you under these circumstances. I certainly do not doubt that this is tough on you and your family. If you don't even have $150/month to put towards savings, then I am concerned. If you have opted, instead, to save by putting money into a 401(k) AND that 401(k) would allow you to "borrow" (not withdraw) in an emergency, then you may actually have "some" savings available.

[TheBajan]

Alorth,
I'm also wishing you all the best. My heart truly goes out to you as I think you case is the most difficult I've read about. Being from Michigan myself, I feel a certain amount of irrational guilt because my case was pretty smooth and I know your's has been very difficult even getting to confirmation. Sort of the way a soldier feels guilt when his buddy gets killed and he makes it home safely. Please stay in touch here with us. This community has been the most caring I've had the pleasure to be a part of (as related to the internet world). I want to be here when you have your hamster dance.

Blessings,
The Bajan

[alorth]

I wish the best for you under these circumstances. I certainly do not doubt that this is tough on you and your family. If you don't even have $150/month to put towards savings, then I am concerned. If you have opted, instead, to save by putting money into a 401(k) AND that 401(k) would allow you to "borrow" (not withdraw) in an emergency, then you may actually have "some" savings available.

I guess I don't understand how you can think we would have ANYTHING to put towards savings in a Chapter 13 Plan?

I mean, IF we did, wouldn't that be considered DMI that would have to be turned over to the TT? That is exactly what we were told.....by our ATTY, the TT, and the Judge....that anything not going towards allowed expenses was DMI, and we are using ALL of our "DMI" to pay this Plan payment they confirmed, and we will still come up short of the required $70k at the end by our best estimation.....thus the balloon payment.

Another thing....we were told by our ATTY and the TT that we CANNOT contribute to our 401K while in a CH. 13. We were ordered to stop our contributions, and so we have.

In other words, we are putting exactly NOTHING aside right now. And we were told that's the way it had to be for the duration of this 5 years, unless the Plan payed 100%, which of course ours does not as we are at 65% payback to the unsecured creditors.