BK13 100% plan and preferential payments.

[rjl0206]

Hey everyone,

first and foremost I am an idiot for landing myself back into this situation. Had a Ch7 Discharge (home and all) back in early 2013. Life was good then went to crap around Covid. Back into debt with CC’s but was managing, thought the worst and prepped the possibility of wife losing job during covid and fell behind on mortgage (Not eligible for Mort. Mod since I already received on previously.) and here we are today.
Current CC/Loan debt around $40K & current.
mortgage arrears $60K rounded up.
Currently in FC process which I sent an answer and now pending pretrial etc starting end of June. (Filed answer mostly to delay)

So, in an attempt to save the house we will be filing BK13 Sometime in May. I know I will be in a 100% plan because our incomes are good. Ironically, if the house had no sentimental value to us we would just walk away but thats a different story.

We both have steady / Secure jobs (as you can get ) now with good incomes.
Me: $175k/yr ( can go higher with OT, maybe >$200k)
Spouse: $125K/yr Salaried
Rough estimate BK 100% payment : $1800-$2K dependent on interest rate since we will definitely be in a 100% plan with high DMI.
Family of 4 with 1 child still a minor.

Questions:

Still current on my Unsecured debts, this is pretty much a late minute decision to file for BK13. Will the trustee give us grief for preferential payments even though I will be in a 100% plan? Going to go with my previous attorney since he has been good to us before, but wanted to start doing my research so there aren’t many surprises if any.

Will the trustee make us pay more if he see’s we have a decent amount of DMI even with all expenses, mortgage and BK payment and will be in a 100% + interest?

We have 2 cars that the whole family shares, 1 is paid off and 1 is financed. We are positive in our home Value but exemption’s should not really matter if Im paying everyone back 100%, or am I being presumptuous?

Thanks all

[shipo]

Others more experienced with your situation will probably chime in, but my understanding is when one is in a 100% plan, you will pay some more for the Trustee's portion, but that is pretty much it, interest stops the moment the stay goes into effect.

[rjl0206]

Thanks for the response, but will I be subject to preferential payments because I am current or have paid down some unsecured debt up to filing even though I will be paying 100%?

[shipo]

I do not believe so given the 100% plan, but others more familiar with 100% plans will most likely offer up their opinion. My plan was far less than 100% and as such, different rules were applied when I filed.

[justbroke]

Remember that a Chapter 13 is different than a Chapter 7 in many ways. One is that the Chapter 13 trustee doesn't have as many powers as the Chapter 7 trustee. A Chapter 13 trustee doesn't deal with liquidation so doesn't have those types of powers.

I can't say whether or not a preference is counted in the "best interest of creditor's test" (a/k/a the chapter 7 liquidation test). That test is used to determine the "minimum" that you must pay in a Chapter 13. That minimum is based on your DMI. If your DMI covers that minimum to the unsecured creditors there wouldn't be any issue anyhow.

Bottom line is that Chapter 13s are much different than a Chapter 7 liquidation. Some things just don't happen in a Chapter 13 (the trustee is limited in power).

Worse case, and I don't think this applies to a Chapter 13, if the trustee were to get some preference action, it is against your creditors and not you. But if you are in a 100% plan it is all moot. The goal of preferences was to treat all unsecured creditors fairly. If they are all getting paid then there is no reason to even entertain a preference action.

But that's me.

[rjl0206]

Thank you!

[Barbisi]

rjl0206, it sounds like were it not for the mortgage arrears, you would have no need to file BK13 at all! 40k in CC debt is not much at all, given your combined income of more than 300K. (By contrast, our total household income at that time was less than 100k against 135K in CC debt and our mortgage was and always remained mercifully up to date. [ I.e. we never had arrears.])
We ended up selling our house immediately post-bk13 "as is" to an investor and actually came out with more money than we could have made in a conventional sale because the 1975 two story dwelling needed many pricey repairs and updates that we just couldn't afford pre- market listing.
My question is: apart from "sentimental value", what is the current condition, age and market value of your home and what are your plans post- bankruptcy - stay put and renovate or sell? That could determine if filing in May is really worth it to avoid foreclosure.
For us, because of the high CC debt, (I.e. Almost all incurred on badly needed renovations and code updates in a money pit fixer upper starter 1963 home we should never have bought in the first place.) even after we sold and lost money on the first house and were able to purchase a better house with the small down payment we came out with after paying off some 60k in previous CC debt, we just couldn't avoid BK13 because of the high-interest unsecured debt still left over . We only came out with a decent cash payout because were able to sell at the housing market peak in May 2022.
Were you even able to sell now, you probably couldn't recoup enough to make it worthwhile because of higher interest rates and moving costs, so remaining where you may be best as long as your home will be worth enough after five years.
Good luck and I wish only the best as you navigate this treacherous path to financial sobriety!

[rjl0206]

Hey Barbisi,

This was our first house, second owners apart from the original. Small split level in a nice quiet part of town that a few relatives as well as my parents live in. Its the house our kids grew up in, had first birthdays etc. Everything works fine, we only reno’d the backyard and bathroom the past few years because raising teens can be expensive, especially with college.
Financially we would be light years ahead if we just walked away because the house was discharged in our original BK7. But the sentimental value and my own personal guilt of us landing back into this situation, I can’t ignore that and feel the need to make it right again through BK13 once and for all; especially since we make a good income. Plus the thought of uprooting my kids in their young adulthood from all they know growing up will tear me apart. I take full responsibility for all that has happened again and will work my ass off for the next 5 years while I still can. Thank you for the encouragement, Im just prepping and hoping the trustee will not give use much of a hard time and/or dick us over by making our payments way more than what a 100% will allow because we make decent income.

[Zombie13]

Financially we would be light years ahead if we just walked away because the house was discharged in our original BK7. B

Hey rjl0206! So yeah, I'm Catholic so I get the whole guilt thing Lol! Seriously though. My suggestion, for you to consider, is this: set aside for the moment, thoughts and considerations pertaining to penance and personal guilt, and how you personally got your family back into this situation. Once you do that, then invest time in evaluating the options available to you, which will maximize the future financial picture for you, your wife, and kids. In other words, set aside all the emotions, and view this situation from a purely math/numbers/business perspective. I understand the attachment to a home but frankly, and please note, this is not a personal attack - no other entity involved in this dilemma cares about your perceived personal guilt: the trustee, the court, the mortgage company, lenders, credit bureaus, etc. - this is a business process. So, look at this the way they do. I say this due to this comment: "Financially we would be light years ahead if we just walked away because the house was discharged in our original BK7. " The option, walking away fromn the house, may be worth considering. But, you'll need to calculate costs of moving to a rental, etc. I wish you best of success in all this.