Very confused over this Chapter 13 twist.

[bamabigjohn]

We filed Chapter 13 in Indiana about 9 months ago under the old laws. We have made payments as instructed. The court ordered amount of payments to the creditors was a little over 20,000. My job is a salary plus commision position. We specifically asked our attorney and the trustee while we were being recorded if the extra money from commisions etc would go toward paying down the court ordered balance and were told yes. Now they are taking the extra money and dispersing it and it is NOT taking from the balance but adding to the total amount paid back. This to me means you are now trapped in a madatory 5 year plan and can end up paying 3-5 times more than what the court has ordered. My questions are, is this really how it works? Can I change to a chapter 7 and still be under the old laws? Thanks for any advice.

[bkfiler]

yes and here is some information on it that i found.
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Yes, you can convert a Chapter 13 bankruptcy case to Chapter 7 bankruptcy at any time, for any reason. The typical reason for converting is that you cannot meet the obligations of your payment plan due to changed circumstances. You should be aware that in doing so you will lose some of your property. Furthermore, if you received a discharge in a Chapter 7 case filed within the six years preceding the filing date of the chapter 13 petition, you cannot receive a discharge in the converted case. There would not be much point in converting in that situation. In addition, be aware that any property you own at the date of the conversion belongs to your Chapter 7 estate; unless that property is exempt, the trustee will be able to take it and sell it for the benefit of your creditors.

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How To Convert Chapter 13 Personal Bankruptcy To Chapter 7

Under 11 U.S.C. 1307(a), "The debtor may convert a case under this chapter to a case under chapter 7 of this title at any time. Any waiver of the right to convert under this subsection is unenforceable." Conversion transforms a personal bankruptcy case under Ch. 13 repayment to Ch. 7 liquidation.

Further, the trustee or the court may initiate a conversion of personal bankruptcy from 13 to 7. Personal bankruptcy laws are specific: for a trustee's or court's motion to be granted, the court must find based on credible evidence:

-unreasonable delay by the debtor caused prejudice to creditors;
-nonpayment of any required fee;
-failure to file a plan timely;
-failure to commence making timely payments;
-material default by the debtor; or
-failure to file schedules.

Debtors may also dismiss a personal bankruptcy case under Ch. 13 at any time, unless previously converted. This right to dismissal can not be waived, and any attempt by creditors to impose punitive clauses in agreements are unenforceable.

[FoolAndHisMoney]

You try to do the right thing by them and make your best efforts to pay back what you can and they still make it difficult. I know chapter 13 plans weren't meant to be easy, but it just seems like they make it harder then it has to be. No wonder why everyone is afraid to get into a chapter 13 and most of them have failed.

[StaciMM]

A ch. 13 requires you pay your extra income into the plan. If your income goes up, you end up paying more-not paying it off sooner. It should not be confused with a consolidation loan.

[bamabigjohn]

Chapter 13 twist

Under our 13 plan, we already surrendered the house. We have a car that we could care less that they have back. We don't own anything other than what we sleep on, sit on, and watch. Our attorney did not explain it in this way at all. In fact, he and the trustee said my extra payments WOULD count toward the balance. The only reason we filed was due to our outrageous medical bills. We felt so bad in doing so that we chose to file 13 just so we could give some of the creditors some money back. I am kicking myself now. If I would have understood it to work this way, I never would have considered 13. My wife is dealing with cancer and the extra money they take we need.

[bkfiler]

look into converting to a chapter 7. speak to your attorney and see what he says.

did you tell him what you just told us about feeling bad and wanting to pay some back? what did he say?

if you did and he didnt discuss why you should still file a chapter 7 and just said "ok then its a chapter 13 we go, its more expensive but ill do it" then please private me his phone number and name so i can speak to him. thanks.

[bamabigjohn]

Here's how it went.

We met with our attorney and went over everything as is the norm. We told him how we felt about owing money and we felt we should pay at least something back. He said that was admirable and started crunching numbers. He said we could keep both cars (1 has 130,00 and is 12 years old, the other has 187,000 and is 8 years old) surrender the house and owe 345.00 month. That's when I asked if extra payments could be made to pay the balance dow faster and he said yes. I asked again in the 341 meeting while on tape and both he and the trustee said yes. Now I guess the rules have changed. And to top it off, in the trustees letter we received 3 days ago letting us now he was not applying the money toward the balance, the trustee also states he has not decided whether or not to ban future claims of creditors! We filed in April and it was all said and done by October. And people can still claim against us if he sees fit? I did alot of reading and saw 3 attorneys before filing and none of them ever explained this stuff.

[bkfiler]

i didnt do a chapter 13 so not sure, but creditors you owe are creditors you owe. its all just taking what you give the trustee and he divides it up in equal amounts or so. adding a creditor doesnt mean changing the terms that i know of.

if you want to switch to a chap 7 and and qualify then talk with your attorney.

[bamabigjohn]

Extra funds

No. Any additional funds I put in will NOT go toward paying off the balance. The funds will be dispersed to the creditors as extra. You can never pay off the plan early. I now firmly believe that the lawyers and trustees know this full well and have no intention of informing the client.

[SinkingFast]

Two attny's we've chatted with so far, with some basic info given by us, have said we are borderline 7/13. Will take further investigation to determine which way we can/is best for us to go.

In a Consult last night, that attny crunched some numbers, and I am not talking the "Means Test", and said we should go 13. He never showed us his magic numbers for how he got there. He just said, the good news is, our plan will only cost us $197/month. We'd pay $450/month which would include our $253/mo car payment. That would put us repaying about 10% of the total debt we owe.

On the way home we were chatting in the car. I said I wonder if our payments go up if I go out and get a job? Hubby felt that was the case. What about when he get's raises. Will the payment go up then too?? If their increases are like every other cost in life, 13 payment hikes will be more than Hubby's raises.

The attny didn't say anything about adjustments in payments. We didn't think to ask at the time, in the office. He just seemed like he was trying to WOW us with the low, low payment we'd be making.

I agree that it is a heck of a trade off. $120K debt for $12K, but still, what if something happens?? While you are in the plan, you can't buy anything on credit, except a home, and that's with permission of the Trustee. What if a car needs a repair, or somebody has an accident and we have to go to the hospital, or???

[StaciMM]

I think the confusion is this:

In a 13, you do NOT make a deal with the court to pay back x% to your creditors. Instead, you make a deal with the court to pay your extra income into the plan. So x is a variable-if your income changes, x will change.

The only exception is that some people have a minimum x to go to unsecured creditors, due to non-exempt assets.

Your attorney most likely misunderstood what you were asking. Extra income taken will go to paying your creditors, it is just that the amount they get is not set in stone when your plan is filed.


Edited to add-plans can adjust if expenses change, also. If a non-working spouse gets a job, there will be work related expenses to account for. (Gas to & from, meals, and possibly clothing/dry cleaning. Not to mention daycare if there are small children involved.)

[bkfiler]

thats exactly why most chap 13 fail. those are the exact reasons right there.

and yes if you get a job then that money goes straight into paying more above and beyond what is already planned. so 10% turns into 20% very easy.


what is your current expense amount monthly?

how much extra do you guys figure you have after you pay that?

[SinkingFast]

One of the attnys, with only basic info, said 13 may be the best way for us to go. Since we have significant equity, approx $7500, in a newer vehicle that we have newer loan on, we'd get to keep the vehicle without a problem.

If we went 7, they'd def take the truck, sell it, and give the proceeds to creditors. Keep in mind, we are giving up the house outa state either way so we loose on that end too. Any proceeds we may have made from the sale are lost to us. We prolly will owe taxes this year as well due to cashing out Hubby's 401K that rolled over to an IRA. We needed all the money to pay off the 2nd on the house so we didn't have any tax withheld from it. Didn't remember how we handled that and only found out yesterday after calling the investment firm.

Ugh! Just another kick in the teeth!

I'm thinking if the truck is the only consideration between 7 and 13, I'd rather go 7 and be done with it. Not have some Trustee messing with my life for 5 years more.

[bkfiler]

in general, you always want a chapter 7. if you need to reaffirm then you do so depending. this is the goal.

if you dont meet the qualifications then its time to go to chapter 13 and hope for the best.

make super sure your expenses are really listed to the hilt and let your attorney wittle it down. do not lie but dont leave anything out.

mine expenses were in excess of my income by over $400. all verifyable or explainable. i even missed two major things on it as well. if you are caught short expenses becuase the trustee wants to through a cable and cell phone bill off or deny smoking or who knows what and you then have spare income you cant add later.

i repeat. you cant add later. if you do then you will lose your credibility with the case on all levels and with all people.

[SinkingFast]

The attny last night did that too us already. He summarily lopped off amounts here and there.

Our cell phone bill runs $130/month. It's $80 for the first 2 phones, extra charge for anytime minutes, and $10/line for 3 more lines. We have 5 total on the bill 'cause each kid carries one for emergency purposes. Poof, you have $130/month. The attny looked at that and said, "The Court isn't used to seeing $130 for phone. We can't enter $130 for phone. The Court is used to seeing $95. We'll enter $95."

Hubby and I both smoke. I wouldn't have listed cigs as an expense for BK, but knowing other people have successfully expensed what they pay for cigs, I put it on our itemized list. The attny said, "You can't list cigarettes. You can smoke, of course. It is legal. But you cannot list cigarettes as an expense." Kah ching. More expenses gone.

We pay a minor fortune for auto insurance. 4 vehicles, 2 teenage drivers. The attny saw $250/mo for auto insurance and said, "That's way too high. You aren't legally required to provide vehicles for your children to drive, so you can't count the cost to insure them. The Court won't accept it. We'll have to adjust that." There went another $100 in expenses.

I don't know how much we lost in exemptions with him figuring things "his" way last night. If we'd had those costs figured in, would we have been an obvious 7?? And why did he keep saying, "We can't show that. The Court isn't used to that. The Court doesn't like that." when I was sitting there with receipts to back up the number's I'd put down????