Question MASSIVE Payment Increase, is it worth it to continue?

[OVERIT365247]

Hello all!

New to the forum and first post but I have seen so many helpful pieces of advice here I just wanted to get some more seasoned folks opinions. I'm 43 months in to a 60 month Chapter 13 plan. Payments have been around $129 per check so about $260 a month. In January 2020 I started working a new job with a significant pay increase. I went back and forth for so long about even taking the job because I knew that there was a possibility I would end up paying more to my plan, which is currently a 1% plan to all unsecured debtors except my over 10 year old car which is included and almost paid off. I called my attorney's office probably over 20 times before I even took the job to ask what needed to be provided, if I could get an estimate of a new payment amount, etc. and every time they just said to "wait and see what the trustee says when you file your taxes in 2021".

I reported both my new employment in Jan 2020 when I started working and then provided my tax return in February of this year, showing the significant increase from 2020. Received a letter from the Trustee in March that my taxes had been reviewed, no additional monies needed to be turned over or paid. Called my attorney a few times after receiving just to follow up and was told that nothing additional needed to be done and that this meant they would not be asking for a higher payment. Great news!...

Fast forward to today I receive a call from my attorney's office that the Trustee has reached out to them and has "zeroed in" on my return and they wanted to know if I had an increase in my income. UM YEAH! The increase that I called your office well over 20 times to discuss?? So I asked them what this meant and they said not to worry, just give them my paystubs from this year and they will calculate everything and see if a modification is needed. They call me back about 20 minutes later and tell me that they are going to propose to increase my payment to $1800 A MONTH! Over a $1600 increase monthly from my $260 payment. Very long story short they got extremely short with me on the phone and I was told that they've already maxed out all the expenses and if I don't appreciate what they are doing for me we can have a different conversation. Literally yelled at me on the phone. One of the most unprofessional experiences I've had in my life.

So my shaken and obviously hurt feelings aside, I understand that Chapter 13's are set up so that any disposable income goes to the trustee, but when the expense limits don't factor in my additional medical expenses, higher cost of living, etc., I just don't see the point of paying $1800 a month and still coming out with student loans that I'll have to pay on top of all this money going to my attorney and the trustee.

I know that voluntary dismissals aren't great and that my creditors can come after me, but all of my accounts were in good standing when I filed, I just needed to keep my head above water with the large amounts of monthly payments. But now that my income has increase so much I'm thinking that it may be better to voluntarily dismiss and then just make payment arrangements with the 4 creditors, which has to be less than $1800 additional a MONTH! My head is still reeling right now so I don't know if I supplied all the information or if this makes any sense at all, I'm just looking for any advice or words of wisdom here and I can answer any additional questions. Any info is greatly appreciated, thanks in advance!

[shipo]

Sorry this happened, it really stinks.

One thing to keep in mind if you ask for a dismissal is your creditors can (and most likely will) retroactively add outstanding interest and penalties to all of your accounts; so that $1,800 payment may well end up being significantly higher if you get the dismissal.

Question; did your net pay go up by at least $1,600 per month when you changed jobs?

[OVERIT365247]

Thanks shipo, it really does stink. I've thought about the interest that creditors can add but I'm curious if there's also limitation on the amount of interest they can apply? Even with interest I don't see how the payments would be over $1800 monthly. And yes my net income did increase. But I've also had expenses increase as well that are over the maximum allowable amount for 1 person. I realize they may think it's "enough" but some of these calculations just aren't realistic when it comes to actually living.

[shipo]

OVERIT365247, my understanding is your creditors are completely free to dial the clock back to the day you filed for bankruptcy, and then roll forward the interest and penalties from there. Said another way, given you are now 43 months into your Chapter 13, that means the amount you owe will most likely have doubled, possibly tripled, or more, since you filed.

[OVERIT365247]

Oh ok I understand, thanks. Does it make any difference that the majority of my debt is student loans with the Dept of Ed (not private)? These loans weren't dischargeable anyway and they will survive the bankruptcy even with the large increase in payment. My other debts were relatively small, two $500 loans, an $800 loan, and then I have 2 larger cc debts, around $9000 and $5000 respectively.

I just can't seem to see how the bankruptcy benefits me in my current situation with the increased income. I just feel like I'm taking a HUGE pay cut and will have nothing to show for it even when the bankruptcy is over. It feels like it would be better to try and work with the creditors than be under all these restrictions and not be able to afford any emergencies that may come up or additional expenses with an already very tight budget.

[dieselman]

I'm trying to wrap my brain around your situation.... Fed Student loans are very easy to work with on payment restructuring and forbearance. They also survive BK. Per your post you filed BK13 over $15000?

[OVERIT365247]

When I filed I had a refinanced car payment and about $25-$30k in unsecured and $50k in student loans. Car is almost paid off so the unsecured debt left after that would be about $25k-$30k total, then the student loans. When I first filed I was making half of what I make now and could not keep up with the payments.

[justbroke]

It's a tough position to be single and in a Chapter 13. You may not believe that the expense values are reasonable, but they are based (actually are) the IRS Collection Financial Standards (CFS). The IRS uses data curated over years and years and has come up with these numbers. For the single person, they represent the bare minimum standard of living. No extras. No frills. No downtown apartment. I like to thing of the CFS -- for a single debtor with no family or mortgage -- as the IRS' equivalent of how a single person is taxed. That is to say not in the favor of the taxpayer or debtor.

If I were single and without a mortgage when I filed, I was probably looking at a monthly payment of over $7,000 of disposable income. I too wondered how anyone survived if they were single based on the CFS. When I filed, the allowed rent was $799 for a single person. Where I lived, the rent for a 1-bedroom was about $1,200 at the time. Today, that amount is $1,099 for a single person (1 bedroom), with rents being about $1,600 for an apartment today (1-bedroom). Yes, they don't expect you to live in the nicest accommodations. I don't even want to mention food and other living expense.

[Barbisi]

OVERIT365247, it sounds like your payment increase may be one designed to ensure you'll repay 100% of the original amount allowed and not just 100% seizure of your raise.
We faced a similar situation last year when the trustee decided to double our payment, but with paper evidence, we were able to demonstrate we had additional cost of living and mortgage payments ,so he settled on a $371 increase instead of more than $600. I husband was laid off in early 2019, but secured another immediately with a large bump up in salary of some 14K (before taxes and insurance benefits kicked in). We heard nothing from the attorney until our July 2020 confirmation anniversary (We filed initially in Feb.2017) when the trustee arbitrarily doubled the payment. Our lawyer fought the huge increase and we agreed to the above stated compromise .( We owed so much that we were never in a position to repay our claims at 100%, but it seems like that astronomical amount is meant to do that in your case because you owe much less to the CCs.)
It appears your lawyers should have done a new I&J form to reflect COL , medical,and other increased expenses to your budget - normally there is a cushion allowed and usually only a 10% and over increase is subject to plan collection.
As for dismissal, I agree with shipo above -you only have 17 payments left and then your entire salary is yours forever and hopefully you will never be a victim of CCs again!
Of course ,we only have 6 payments left, but I can well understand your frustration and anger,and I would advise you to redo your I&J form and see if you can get this modified payment lowered down to a sum you can better afford!
Best of luck on surviving the next seventeen months. Keep us posted!

[flashoflight]

I think your attorney is tired of having the same conversation everytime someone gets a better job or adds Uber. Other than insurance paycheck deductions, copay increases, and taxes, you can't change anything else just because you got a better paying job. You also seemed to have received 19 months of free disposable income increases without giving it to unsecured creditors without having to pay it back. Be glad the trustee took this long to figure out their mistake.

My attorney thinks it's always better to take a promotion or a better job. Even factoring in additional stress with greater job responsibilities, it will be better for you in the long run to take the new job even though 100% of the net raise will go to unsecured creditors until your plan is over. If things go south, there are more options if you have a bigger paycheck. In your case, it's just 17 more months of hell.

As shipo mentioned, you will get hosed badly on interest and fees if you dismiss. Settlements will be on the new inflated debt, not the amount from 43 months ago. There are folks who are on 100% plans and they are still way better off finishing the 13 rather than trying to negotiate a settlement on their own with a much inflated debt amount.

[OVERIT365247]

It's a tough position to be single and in a Chapter 13. You may not believe that the expense values are reasonable, but they are based (actually are) the IRS Collection Financial Standards (CFS). The IRS uses data curated over years and years and has come up with these numbers. For the single person, they represent the bare minimum standard of living. No extras. No frills. No downtown apartment. I like to thing of the CFS -- for a single debtor with no family or mortgage -- as the IRS' equivalent of how a single person is taxed. That is to say not in the favor of the taxpayer or debtor.

If I were single and without a mortgage when I filed, I was probably looking at a monthly payment of over $7,000 of disposable income. I too wondered how anyone survived if they were single based on the CFS. When I filed, the allowed rent was $799 for a single person. Where I lived, the rent for a 1-bedroom was about $1,200 at the time. Today, that amount is $1,099 for a single person (1 bedroom), with rents being about $1,600 for an apartment today (1-bedroom). Yes, they don't expect you to live in the nicest accommodations. I don't even want to mention food and other living expense.

Thanks for replying. Trust me I don't live in the nicest accommodations or a downtown apartment. You hit the nail on the head regarding the housing standard amounts not being close to the actual inflated costs. And yeah same for the other living expenses. Reasonable? Perhaps, just not realistic in my opinion.

[OVERIT365247]

OVERIT365247, it sounds like your payment increase may be one designed to ensure you'll repay 100% of the original amount allowed and not just 100% seizure of your raise.
We faced a similar situation last year when the trustee decided to double our payment, but with paper evidence, we were able to demonstrate we had additional cost of living and mortgage payments ,so he settled on a $371 increase instead of more than $600. I husband was laid off in early 2019, but secured another immediately with a large bump up in salary of some 14K (before taxes and insurance benefits kicked in). We heard nothing from the attorney until our July 2020 confirmation anniversary (We filed initially in Feb.2017) when the trustee arbitrarily doubled the payment. Our lawyer fought the huge increase and we agreed to the above stated compromise .( We owed so much that we were never in a position to repay our claims at 100%, but it seems like that astronomical amount is meant to do that in your case because you owe much less to the CCs.)
It appears your lawyers should have done a new I&J form to reflect COL , medical,and other increased expenses to your budget - normally there is a cushion allowed and usually only a 10% and over increase is subject to plan collection.
As for dismissal, I agree with shipo above -you only have 17 payments left and then your entire salary is yours forever and hopefully you will never be a victim of CCs again!
Of course ,we only have 6 payments left, but I can well understand your frustration and anger,and I would advise you to redo your I&J form and see if you can get this modified payment lowered down to a sum you can better afford!
Best of luck on surviving the next seventeen months. Keep us posted!

Thanks so much Barbisi for the encouragement and real life example. I wish that the payment would have only doubled, I was fine with even a 400% increase. It's just jarring to have that much of a payment increase so quickly when I just got the significant raise last month. It's hard when not all your expenses can be accounted for and to work at the same stress level for half the pay...and still come out with student loans to pay is disheartening to say the least. But I did go ahead and sign the modification documents and send them to my attorney so we'll see what happens from here. I'll be sure to post updates!

[OVERIT365247]

I think your attorney is tired of having the same conversation everytime someone gets a better job or adds Uber. Other than insurance paycheck deductions, copay increases, and taxes, you can't change anything else just because you got a better paying job. You also seemed to have received 19 months of free disposable income increases without giving it to unsecured creditors without having to pay it back. Be glad the trustee took this long to figure out their mistake.

My attorney thinks it's always better to take a promotion or a better job. Even factoring in additional stress with greater job responsibilities, it will be better for you in the long run to take the new job even though 100% of the net raise will go to unsecured creditors until your plan is over. If things go south, there are more options if you have a bigger paycheck. In your case, it's just 17 more months of hell.

As shipo mentioned, you will get hosed badly on interest and fees if you dismiss. Settlements will be on the new inflated debt, not the amount from 43 months ago. There are folks who are on 100% plans and they are still way better off finishing the 13 rather than trying to negotiate a settlement on their own with a much inflated debt amount.

Thanks for your input. While I can appreciate the potential pov of my attorney I actually brought it to the their attention severaltimes before and after I took the job because I knew that it might be better to hop out ahead of it and propose a modification at a lower amount because my pay rate was not as high when I started working. As a matter of fact the most recent significant increase came just last month, so no time to really even enjoy it. So there was definitely not 19 months of large amounts of free disposable income, but I was able to move to a safer neighborhood and adopt 2 kittens so I am appreciative of the increased cushion.

I understand that a 13 is set up for all my DMI to go to my creditors and that a payment increase was unavoidable, it's just staring down the barrel of 17 more months of this, taking a 50% pay cut, and coming out with just a 12 year old car with a clean title and student loans that I'll still have to pay was a hard pill to swallow and had me questioning whether it would be better to take my chances with the creditors. But after further research and considering everyone's helpful advice here I understand your and shipo's point that the amounts with interest may be much worse. So I'll just keep trucking for now.

[flashoflight]

Congrats on the two kittens. I have two dogs and two cats pre-petition as well. I added them to my initial J and spoiled them rotten on food, toys, training, and vet so creditors like Amex, Chase, Citibank, and Discover would pay for the furbabies with a decreased dividend. It's impossible to increase pet expenses once the 13 starts. I ended up getting a 3rd dog but I knew the creditor ain't paying for her. Knowing that, I kept everything the same for my plan modification on mortgage refi and the trustee still challenged me on pet expenses but I have my receipts Mr. Trustee, so no soup for you. Sadly, one of my dogs died from old age and now I'm back down to two dogs.

[shipo]

Thanks for your input. While I can appreciate the potential pov of my attorney I actually brought it to the their attention severaltimes before and after I took the job because I knew that it might be better to hop out ahead of it and propose a modification at a lower amount because my pay rate was not as high when I started working. As a matter of fact the most recent significant increase came just last month, so no time to really even enjoy it. So there was definitely not 19 months of large amounts of free disposable income, but I was able to move to a safer neighborhood and adopt 2 kittens so I am appreciative of the increased cushion.

I understand that a 13 is set up for all my DMI to go to my creditors and that a payment increase was unavoidable, it's just staring down the barrel of 17 more months of this, taking a 50% pay cut, and coming out with just a 12 year old car with a clean title and student loans that I'll still have to pay was a hard pill to swallow and had me questioning whether it would be better to take my chances with the creditors. But after further research and considering everyone's helpful advice here I understand your and shipo's point that the amounts with interest may be much worse. So I'll just keep trucking for now.

Had the car I entered my Chapter 13 with survived the 60 months, I would have had a 19 year old car with well over 250,000 miles on it upon my discharge. As it turned out, that car succumbed to all manner of corrosion during my 4th year and I was forced to drain my meager piggy-bank and eat beans and franks for a few months to buy something new(er); when my discharge happened, my car was only 14 years old and only had 170,000 miles on it. Funny thing, here I am a year and a half after discharge, and I'm still rockin' that old car, and plan to do so until maybe next year when a Golf-R 6MT may replace the old girl.