Can I change my mind about filing BK

[iloveoliver]

I just filed BK last week. I found out the day after I filed that I was entitled to Social Security Disability. I had checked my checking acct and found it was $25,000 more that what I expected. I have told my lawyer and he said he believes that the disability is exempt as income. I have checked the means test and I found a statement that says yes, it is. BTW, I filed for Disability last Aug and never expected it to be approved. Can I change my mind about filing? Since I am now considered disabled and drained my 401K of $70K. I am receiving about $5000 for income tax. Can they take that? I will be living on a fixed income for the rest of my life and need all the cash I can get.

Any advise would be greatly appreciated.

[FreshLikeADaisy]

Iloveoliver (what a cute name ) I think you're still in a good position regarding a Chapter 7, because the bulk of the cash you want to protect is exempt: you'll still have to list it all, but the trustee can't claim it. Depending on what your personal circumstances are (like, what other assets you're trying to exempt, what state's exemptions you are using to file) you may very well be able to keep the $5000 as well by applying personal property and wildcard exemptions to that amount. Your attorney could advise you better, but I think that if there's a lot of debt and you've already filed, go ahead and see what happens. The worst that can happen is they dismiss you, and then you couldn't file again for six months.

Also, you should know it's not all that easy to get out of a Ch7 once you've filed; you have to petition the court for a voluntary dismissal and have a hearing before the judge, who may or may not rule in your favor. But that is also a possibility you could explore with your atty if you really really want out of the bk process. Good luck to you!!!

[epiphany]

I just filed BK last week. I found out the day after I filed that I was entitled to Social Security Disability. I had checked my checking acct and found it was $25,000 more that what I expected. I have told my lawyer and he said he believes that the disability is exempt as income. I have checked the means test and I found a statement that says yes, it is. BTW, I filed for Disability last Aug and never expected it to be approved. Can I change my mind about filing? Since I am now considered disabled and drained my 401K of $70K. I am receiving about $5000 for income tax. Can they take that? I will be living on a fixed income for the rest of my life and need all the cash I can get.

Any advise would be greatly appreciated.

My question is, since you are talking about the rest of your life, and not just the immediate future, why would you choose to save that 5K over salvation? What prompted you to file in the first place?

Without knowing more about your situation, it really is impossible for anyone to advise you. But from what little you've said...i.e fixed income, for the rest of your life and you need all the cash you can get, it doesn't sound like you are going to be able to maintain any reasonable payments to your creditors after your current windfall runs out.

You need to think big picture. Perhaps if you shared more details, what your debt is, etc...people here may be more able to help.

Very best of luck to you,
ep

[iloveoliver]

Okay a little more information. I lost my job June 06, some due to downsizing and I also have bipolar disorder and at that point had a hip replacement. It seems recovery is a 6 month to 1 year process. They said my performance didn't meet their standards. I was an engineer for a major auto company. I went through a good portion of my 401K supporting myself. In May 07 I had the other hip replacement. So when I say I'll be living on a fixed income, I mean that I probably won't work again. I know they do review your case from time to time but I don't see any improvement for either condition.

My life is rather complicated at the moment. I am having problems with my atty. It takes him several days to get back with re an answer. For instance, I called him last Mon to tell about the disability, he told me he would have to check on it. He said he he would be in court Tues and Wed and would get back to me when he got into the office. I didn't hear from him until the following Mon.

I owe about $48,000. Of which $30K is my 401K loan. The consequence of defaulting on that is it would be reported as income next year.

[iloveoliver]

When I asked last week he said he thought the lump sum payment would be exempt but he would have to check. Then yesterday, he told he wasn't quite sure. He mentioned that the court might view the lump sum as cash once it was deposited into my acct. They doesn't make much sense to me. Since you could argue the same thing about your monthly social security disability. This is such a mess.

[FreshLikeADaisy]

Iloveoliver, I don't know if you've given your heart and soul to this atty, but I kind of have to agree you can probably do better. I'm glad you're here learning about bk on your own.

My own trustee was involved in litigating just such a case as you mentioned: a lump sum from some sort of exempt acct was deposited into a debtor's bank acct, the debtor filed Ch7, and my trustee said that it was no longer exempt once it hit the bank account. The local court sided with the debtor, my trustee appealed, lather rinse repeat. My trustee appealed it as far as he could, but at every turn the court sided with the debtor, and found it ridiculous that a payout of exempt funds was no longer exempt for the mere fact of having been moved into a bank account. Keep in mind that this is the Middle District of Florida; there may be different case law where you are located, but I think it's a pretty good sign.

HOWEVER -- and this may be a much bigger deal -- I do not recall that 401k loans are a dischargeable debt. Seems to me that they are not, as best I can recall. Maybe one of our brighter minds can pipe up (and I'll look around too) but if that's the biggest piece of debt you have, then maybe it would be worth it to try to get out of your Ch7. Also, even if it is reported as income, because you are insolvent you may not have to pay taxes on it. That you have declared Ch7 is a good sign that you are insolvent for IRS purposes. If you search this site for "insolvent" and like terms, there are a number of posts with good info and the IRS publication #, etc.

Also, start putting your questions to your atty in writing, and send it certified. I'm not saying threaten or anything like that! I'm saying, write them out clearly, add that you really need a straight answer on these issues, mention the slow response and non-answers you've gotten so far (very politely) and send it certified, return receipt requested. You should get a better response. If you don't, you can use this as a basis for a Bar complaint. But I don't think you're quite at that point yet. Just... send your certified letter and see what happens.

I will try to look up more info about the 401k loan business... good luck!!!

[HHM]

ANY loan FROM your 401K CANNOT be discharged. You cannot discharge a loan that you made to yourself.

[FreshLikeADaisy]

(18) owed to a pension, profit-sharing, stock bonus, or other plan established under section 401, 403, 408, 408A, 414, 457, or 501(c) of the Internal Revenue Code of 1986, under—

(A) a loan permitted under section 408(b)(1) of the Employee Retirement Income Security Act of 1974, or subject to section 72(p) of the Internal Revenue Code of 1986; or

(B) a loan from a thrift savings plan permitted under subchapter III of chapter 84 of title 5, that satisfies the requirements of section 8433(g) of such title;

http://www4.law.cornell.edu/uscode/html/uscode11//usc_sec_11_00000523----000-.html

If the worst that happens at default is that it is taxed, that may not even be an issue because of the IRS rules regarding insolvency, as I mentioned, but it is not a dischargeable debt as far as I know because of the section above.

Yeah, you definitely need a heart to heart with this attorney. Good luck!!!

[FreshLikeADaisy]

Oh! I see HHM beat me to it. Glad to have that confirmation!

[iloveoliver]

This atty told me to keep one credit card and he also told I needed to include the 401K loan as debt. I've read in some other messages that all debt needs to be reported. Does this vary from state to state?

I really would like to just not do this. Can I change my mind now? It's become very complicated now with SS. I really need the 27k lump sum as I still will be $300 short of just paying basic necessaties(sp). I'm am so stressed

[HHM]

Listing a debt on your BK and having it discharged are different things.

You must list ALL you debts, however, only those debts not listed in section 523 of the BK code (and some other sections) are actually discharged.

[JRScott]

Listing a debt on your BK and having it discharged are different things.

You must list ALL you debts, however, only those debts not listed in section 523 of the BK code (and some other sections) are actually discharged.

HHMs correct.

The 401k loan has to be listed and can be included in expense sheet, however it cannot be discharged.

So that means in the bk you at most will get rid of 18k of debt, leaving 30k debt. I have to ask, what is the other 18k of debt?

It's also not easy to get a bk case dismissed once its filed. It's not impossible but not easy.

[iloveoliver]

I spoke with my atty this am and he is still researching whether he can protect this lump sum payment from Social Security or not. He says he can protect future payments from the trustee. He also said that if I did not show up for the hearing, the case would be dismissed. It could just be terminology. This is just a extremely stressful time. I have to rely on my atty and his advise at this time. and hope to God he knows what he is doing.

[FreshLikeADaisy]

Iloveoliver, it's true that if you don't show up for your 341 your case will be dismissed, but it's not a voluntary dismissal and so you are barred from refiling for another six months. While it is certainly an option, keep in mind that your failure to attend will be on record now.

Even if you get a voluntary dismissal (i.e. you petition the court to release you from your filed Ch7) it will still be on record, but it won't have any negative connotations (that I know of). The only thing is that if for whatever reason that SS payment is non-exempt (which I highly doubt, but let's say it is) and then you file for voluntary dismissal, chances are small that you will get one: the trustee gets a chunk of whatever assets are recovered and he will want his part of that pie.

The other thing you could do is convert to a 13 (if that would protect your lump sum payout) and then in six months to a year, convert back to 7. I do not know if that would help or not, but it may be an option for you. I *STILL* think you will find that SS payment to be exempt.

Protecting *future* payments in a Ch7 is a non-issue: Chapter 7 deals almost entirely with income received before or during the Chapter 7. So him being able to protect your future SS payments is right up there with mayonnaise being able to sit in a jar. He doesn't have to do anything. They're not threatened in a Ch7.

I truly wish your atty had spotted these issues for you *prior* to filing, but you have to do the best you can with what you have. When is your 341? Because if it is soon, and your atty still doesn't have a straight answer for you, then... maybe not showing up is the right thing to do. You may also want to go to a couple other attys (free consults ) and get a second opinion on all this, if you have time before the 341. Good luck!!!

[iloveoliver]

FreshLikeADaisy

Olive is my dog...cocker spaniel. My 341 is April 28. So there is still time. The bk was filed on Mar 21 and the money was deposited into my checking acct the day before (Mar 20) REALLY BAD TIMING. I had no idea i had been approved for SS until that day. My brother-in-law and I discussed possible solutions, getting a second opinion. I called one atty and she wouldn't talk to me once she found out I had an atty. I should follow up on getting a second opinion. There are 10 lawyers in his firm. Seems like someone in there office would have an answer. He could use someone as leverage.