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  1. #1
    Join Date
    Jan 2012
    Posts
    10

    Default Early Payoff Debacle in Chapter 13 Bankruptcy

    My question involves bankruptcy in the state of:Illinois . We have been faithfully paying our chapter 13 payments for 41 months. We are paying 32% back to the unsecured creditors. We called our attorney prior to my husband getting a job offer because He had a employment deduction balance that was incurred before we filed bankruptcy that his employer gave him so we would not have to pay interest on our car and was a condition of his employment. That was verified thru the pay stubs that were included with our filing papers. My husband would have to pay back $1900 last week on his final pay check. That chunk out of his check would hit us hard so we contacted him to find out what to do and also possibly pay off the Bankruptcy if we didn't owe 100% because we would have access to our 401K money and be able to pay the Trustee if it was what we currently owe which is $7400. We specifically told our attorney that we would be only getting around 17000.00 after the tax hit and could not pay off 100% . we figured if we could do that we could pay the trustee of settle with his employer be able to pay our rent etc and not be behind because of the hit on our paycheck. Our attorney told us that the loan was not a problem becuse it was a condition of his employment and we would NOT have to pay off at a 100% because we have been in the plan for more than 36 months as long as we paid the Trustee in full there would be no issues with taking our 401K.. So when he got the job offer we contacted her by email and told her per our conversation we want to go ahead and ask the trustee for a payoff and we will not roll over our 401K. She said it would take a few weeks we waited and got a devastating letter in the mail from the trustte stating that her recoreds indicate $21,315.59 is needed to pay off the case and is being given at 100% and they are advising the debtors attorneys that they have provided 100% payoff figure. We ripped our attorneys heads off on an email, no resopnse yet. But now we have our 401k money out and have about 15000.00 . What is going to happen will they throw us out of the plan .I am really worried. We just wanted to pay our debts and be free. Sometimes I feel like they dont want to you to payoff anyone they make it so hard. I think jail would have been easier. We go 10 steps forward and 20 backwards. I feel like this mistake we will never be free of no matter how hard we try.

  2. #2
    Join Date
    Sep 2010
    Posts
    478

    Default Re: Early Payoff Debacle Now What

    One question must be answered before I could venture an opinion. . .

    Were you "over median income" filers or "under median income" filers when you intially filed the case?

    Des.

  3. #3
    Join Date
    Jan 2012
    Posts
    10

    Default Re: Early Payoff Debacle in Chapter 13 Bankruptcy

    I think we were over the median when we filed and the debt was about 32,000.00 (8000.00 car secured 23,00.00 unsecured )The car/interest, Lawyer 3500.00 has been paid and about 1500.00 on the unsecured so far. When we started our base amount was 22,200.00 we have paid 14,000.00 . the creditors are being paid at 32% in the chapter 13. The letter we just received from the trustee states "Bankruptcy code requires the debtors to either pay 60 months of disposable income or pay all creditors 100%" Our question to our attorney was because he was switching jobs we would have access to our 401K we owed a little over 7000 could we pay it off early at that amount or would we have to pay off the full amount at 100% . The reason we were specific with her because our 401K was on 17000.00 and we knew we could not pay the original amount it would be over our 401K. She told us we would not have to pay at 100% because we have been in the plan over 36 months and the only repercussions would be the tax hit. If the trustee was paid off first we were done if we took it out and didnt pay the trustee that would be a problem. This is not a generic lawyer either they are a respectable firm in IL. Wouldnt she know a basic bankruptcy code question. what do I do now if she messed up should we plead our case to the trustee so we can stay in the plan. I am afraid if they tell us to give all our 401K money to the trustee and then kick us out thats all the money we have . We wont be able to pay any creditors and will probably owe more because of interest Leaving messages but we still have not heard from our Lawyers secretary said they are back in from out of town tomorrow. thanks for your help

  4. #4
    Join Date
    Sep 2010
    Posts
    478

    Default Re: Early Payoff Debacle in Chapter 13 Bankruptcy

    I think we were over the median when we filed. . .the creditors are being paid at 32%. . . The letter we just received from the trustee states "Bankruptcy code requires the debtors to either pay 60 months of disposable income or pay all creditors 100%". . . (O)ur attorney. . . told us we would not have to pay at 100% because we have been in the plan over 36 months.
    Sorry, but your attny is wrong and, yes, this issue is "bk 101".

    If you were over median income when you filed your “commitment period” is 60 months. This is why I asked my initial question. Your attorney’s reference to staying in for 36 months does not apply if you were over median income. The only way for you to obtain a Chapter 13 Discharge in less than 60 months is to pay all allowed claims in full as stated by the Trustee.

    It does not sound like you are in a pickle - your posts are a bit tough to follow since there are no paragraphs. Are your payments current? If so, just continue to make the regular monthly Plan payment and live with the 13 for the balance of the 60 months.

    If there has been a drop in income such that you cannot afford the payment, you may need to file a Modified Plan to reduce the payout to the general unsecured creditors. This you need to discuss with your attny, but only after you regain confidence that she understands basic bk law. If not, it is time to find a new attny.

    Des.

  5. #5
    Join Date
    Jan 2012
    Posts
    10

    Default Re: Early Payoff Debacle in Chapter 13 Bankruptcy

    Thanks for your help. Our problem now is we have already taken out our 401(k) money while we were waiting for the payoff amount. We thought we would only have to pay $7,400.00 We don't have enough to pay the plan in full ($21,000.00). Should I put the money into my new 401(k) plan? Do we have to hand it over to the trustee? What do we tell the trustee? Should we have our atty write a letter to the Trustee explaining her mistake? The trustee thinks that we are going to pay off the plan and has notified our creditors. Is there a possibility that we could get kicked out of our plan? Can I show the Trustee my e-mails with my attorney proving we got wrong advice and we were trying to do the right thing by paying off our debts? If we do get kicked out, will our creditors be able to charge back interest with the new credit laws?

  6. #6
    Join Date
    Sep 2010
    Posts
    478

    Default Re: Early Payoff Debacle in Chapter 13 Bankruptcy

    Slow down. You are panicking over nothing.

    Your Trustee has not notified anyone that you are paying off the Plan. All she did was issue to you a payoff quote. Unless the Trustee has filed a Motion to Modify the Plan (doubtful) you are still operating under a Confirmed Plan and the Trustee is bound by the Order signed by the judge approving your Plan, nothing more, nothing less.

    As to what to do with the 401k money, I am not sure.

    1. I doubt you have to turn it over for 2 reasons. 1) the 401k is exempt and you are free to use it as you choose. 2) Unless the Order confirming your Plan states otherwise, upon confirmation of the Plan all property of the estate vested back to you.

    2. Nor am I sure you can put it back if it was not a loan from the retirement plan. Someone else will have to chime in on this issue.

    Des.

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