Question on Tax Refund before filing Ch 13 and other strategies for dealing with Ch13

[njguy1972]

General

I have posted a few times with ideas. Here is a long winded breakdown of my situation and questions / scenarios. I am in NJ and will be filing in Trenton probably in March. Holding off till late March since I will be out of town visiting a family member in early April (using free miles and staying with family so it is not a true vacation expense that will raise a red flag).

Please feel free to comment with your experience / suggestions. I have already received a lot of good feedback on other posts from Flamingo and HHM. I welcome you on this one as well.

Debts

Here is my story again:
CC #1: 26k
CC #2: 21k
CC #3: 8.5k
CC #4: 5.2k
CC #5: 4.6k

Mortgage: 163k (ARM resets in July 2011)
HELOC: 105k (have about 8 or 9 years on the balloon)
Home value: 230k

Student Loan: 29k
Car Loan: $8.8 k with 22 months left of payments
Furniture loan: $1.7k

Additional info on my situation
Stopped paying credit cards in November after the credit tightening in October (2 cards eliminated my available credit and 2 others moved my interest rate up 250% to a point where I could not make minimum payments)

Tax Refund and Annual Bonus

Have a tax refund and bonus from work received in January / February of around 10k in my bank account. The refund is from mortgage interest mostly. By changing my withholding I can add about $300 a month to my paychecks which I may do after filing.


Income for last 6 months

Income last 6 months is: $48k in salary and $8.1k in an annual bonus
For monthly income I am doing the following: (48k/6 months)+(8.1k/12 months) = $8600

Is it an issue to tell the trustee that the bonus is a once a year annual incentive and should not be multiplied by 2 for deterring annual income?

Means Test, I , J, and 22C

Based on Means test and lawyer #1 that I spoke to: I would pay back 100% or about $1150
Based on Schedule I/J (including Student Loan payments): $446 a month
Based on 22C (including paying student loan and still contributing to 401k at 6%): $315 a month
Lawyer 2 is willing to work with my I, J, and 22C to minimize my monthly payment.

401K and Student loan

If the Trustee forces me to defer the student loan and stop contributing to the 401k the following will happen:

-401k - extra $350 a month in disposable income
-Student loan- extra $230 a month in disposable income but the loan will grow from 29k to 35k in 5 years because of the interest accruing.

Settlement, other possible strategies, an spending of bonus / tax refund

I was thinking of settling some debts with the money from the tax refund and bonus and then filing 90 days later but not sure that is the best strategy. I would only be able to settle maybe 50% of the debts and then have a tax burden next year. Plus the card I cannot settle may grow another 2k in the 90 days because of interest and late fees. The only advantage will be that I can base my plan on 100% payback of that card which should be less than the $500 a month I can budget right now.

The lawyer said I should pay off the furniture since it is 0% until May and can avoid an extra $500 of accrued interest that needs to be paid back if I go past that date. His rational was that you need the furniture (bed, dresser, etc...) or you have no place to sleep.

I already made repairs to my car with a few hundred dollars, renewed AAA, and my drivers license.

I am planning to stock up on home supplies like canned food, toilet paper, paper towels, cleaning supplies, etc...

Buy a couple of pairs of shoes for work and other needed work clothes.

I will still have like $6000-7500 to spend.

Can I pay off a portion of the car or will that work against me? Pay it down from $8800 to $5000 and only have about 12 payments left.

If I use the money to pay down my student loan will that be considered a preferential payment to a non-secured?

Since my home is upside down, does it make sense to pay down the mortgage or HELOC so that I will hopefully have equity in it by the time the ARM resets? With a ch13 and low credit score will the mortgage company even let me refinance in 2 years for a rate that makes sense?

Or should I just turn the money over to the trustee to pay down the total amount owed.

Potential scenario to pay off 100% of unsecureds

With my plan I am looking to keep my payments below $500 a month and then turn over my tax refunds and bonuses (if I get them). If I continue to get a $5-6k tax refund each year and a bonus in the $3-4k range each year I have a chance of actually paying off the ch 13 at 100% with a potential for an early payoff to put this behind me sooner than 5 years.

Owe about $65k
apprx trustee fee (5%) = $3250
Total owed for 100%= approx $68-69k

60 months at $500 per month = 30k
5 years of tax refunds of 5k = 25k
3 years of bonuses at 3k = 12k (a bonus is not guaranteed but I have received 7 of the past 10 years)
Total of potential payments: 67k which is around 97% of the 100% payoff.

If I turn over 5k to the trustee now I will probably be at 100% if my scenario plays out because the 65k owed today becomes 60k (63k with 5% trustee fee).

[njguy1972]

some additional info:

I am current with my mortgage, HELOC, furniture, and car payments

My lawyer thinks we can pay these and the student loan outside the plan

[lrprn]

Income last 6 months is: $48k in salary and $8.1k in an annual bonus
For monthly income I am doing the following: (48k/6 months)+(8.1k/12 months) = $8600

Is it an issue to tell the trustee that the bonus is a once a year annual incentive and should not be multiplied by 2 for deterring annual income?

The bk law doesn't differentiate between regularly occuring income and one-time income (thanks, 2005 Congress ). The only option you have to get the bonus out of your total income calculation is to wait until the date you received it is outside the six calendar month look-back before filing.


401K and Student loan

If the Trustee forces me to defer the student loan...

It's your student loan lender that will force you into deferment. However, if you do have sufficient income left over each month, you can continue to pay on your student loans. It's up to you to decide how to spend any extra cash you have (although I would strongly recommend building up an emergency fund to cover the unexpected that always occurs before doing that).

...and stop contributing to the 401k

You cannot be forced to stop contributing to your 401K, but the amount you are allowed to contribute during your Ch 13 can be limited to a % agreed on by local court custom.

Settlement, other possible strategies, an spending of bonus / tax refund

I was thinking of settling some debts with the money from the tax refund and bonus and then filing 90 days later but not sure that is the best strategy.

If the debts you are intending to pay back are unsecured, you might as well throw the money into the street. If you can't protect the tax refund with exemptions, then spend the excess on normal living expenses or other acceptable ways to pare down the cash before filing.

Can I pay off a portion of the car or will that work against me? Pay it down from $8800 to $5000 and only have about 12 payments left.

Depends on how much your state bk exemptions allow. Paying off a portion of the car could definitely hurt you - run this one past your lawyer first.

If I use the money to pay down my student loan will that be considered a preferential payment to a non-secured?

Yes, if you pay more than $600 total during the 90 days before filing. After 90 days....depends on your trustee. Again, talk to your lawyer before doing anything.

Since my home is upside down, does it make sense to pay down the mortgage or HELOC so that I will hopefully have equity in it by the time the ARM resets? With a ch13 and low credit score will the mortgage company even let me refinance in 2 years for a rate that makes sense?

AGain, a good question for your lawyer who knows what's going to fly in your local court and what's not.

Forgive me for my bluntness, but you are assuming that Ch 13 is always black and white in these situations - far from it. There are tremendous differences between states, even between courts in the same state, as to how the Ch 13 statutes are interpreted and what is allowed from trustee to trustee. Sit down with your lawyer (or if you haven't retained one yet, 3-4 experienced Ch 13 lawyers in your area) and run all this by them. New Jersey is not a particularly friendly bk state, so you need to proceed with caution to not find yourself in hot water with too much manipulation before filing.