won't chapter 13 payment be increased by amount of modification??

[toughtimesin08]

Like many here I have come to the realization that a chapter 13 filing is my only choice to get back to a normal life and rebuild for the future.
However, after talking with a bk lawyer and thinking through my best options I have come to realize something that many people aren't thinking about. The idea of modifying your mortgage in bankruptcy sounds great, but in reality it will not help your monthly budget at the end of the chapter 13 filing.
For example, let's say after discussing your budget you and your attorney decide that you could afford an 800.00 chapter 13 payment to the trustee every month. That should leave you close to 0.00 left each month, because the trustee is going to make sure you don't have much if any left over at the end of each month after your expenses and chapter 13 payment (or else the trustee would want that money to pay to your creditors). Now, let's say that you also applied for a mortgae mod as part of the chapter 13 filing (like some lenders are offering) and they modify your mortgage and you save 300.00 each month based on the lowered mortgage payment. Sounds great right, you can save some money each month and rebuild......uh....not quite. All this means is that your chapter 13 payment just increased by 300.00 (so it is 1,100.00) now. This is because the trustee will want to capture that 300.00 savings and increase your payment into the payment plan. This is how it sounds like it is working to me, so can anyone who has been through this confirm that I am right? I think it would be better to wait unti after I file and the trustee has agreed to the payment before I even attempt to modify.

[jhn_plsn]

That is how I read it and how my lawyer has explained it but and depending on your situation it could be a big "but". The higher payment would yeild less paid and you would be free of the payment and debt after the BK payment period is over. The hardest thing to deal with is staying within your means and completting the BK payment plan, but from there on you should be in very good shape.
Heres another way to put it. I have a $480 dollar 401K loan payment that the BK attorney nor the judge can touch but when the 401K loan is paid in full mid BK payment plan, guess what, the BK payment plan will now go up that amount. Frastrating, yes, but knowing I will be free and clear at the end is what I am looking at. 3-5 years and the wife and I already have been living cash only for about 3 years so whats a few more.

I know its not what you wanted to hear but I hope this helped clarify some of your expecations.

[franklinco]

Originally Posted by toughtimesin08

Like many here I have come to the realization that a chapter 13 filing is my only choice to get back to a normal life and rebuild for the future.
However, after talking with a bk lawyer and thinking through my best options I have come to realize something that many people aren't thinking about. The idea of modifying your mortgage in bankruptcy sounds great, but in reality it will not help your monthly budget at the end of the chapter 13 filing.
For example, let's say after discussing your budget you and your attorney decide that you could afford an 800.00 chapter 13 payment to the trustee every month. That should leave you close to 0.00 left each month, because the trustee is going to make sure you don't have much if any left over at the end of each month after your expenses and chapter 13 payment (or else the trustee would want that money to pay to your creditors). Now, let's say that you also applied for a mortgae mod as part of the chapter 13 filing (like some lenders are offering) and they modify your mortgage and you save 300.00 each month based on the lowered mortgage payment. Sounds great right, you can save some money each month and rebuild......uh....not quite. All this means is that your chapter 13 payment just increased by 300.00 (so it is 1,100.00) now. This is because the trustee will want to capture that 300.00 savings and increase your payment into the payment plan. This is how it sounds like it is working to me, so can anyone who has been through this confirm that I am right? I think it would be better to wait unti after I file and the trustee has agreed to the payment before I even attempt to modify.

You are right that the reduced mortgage will make more money to pay off other creditors. It also will prevent plans from failing due to increases in mortgages, especially ones that are what is referred to as "Exploding ARMs" which can go up substantially. For instance our monthly payment went up $360 a month on the first adjustment, that means that with 50 months left in the plan, it would derail that much money from your plan to meet your current direction of repayment, therefore your plan will have to be modified to cover the $360 increase, maybe the percentage going to unsecured creditors can be reduced to keep the plan workable without an increase in payments. Maybe your plan is to the rail already so the increase of $360 a month may sink your intended repayment plan. You then may need to convert to chapter 13 since you cannot pay minimum obligations even if unsecured creditors would get zero percent payoff.
You will not get rich going into a chapter 13 plan since you must pay all income of allowances to your plan which is distributed to your creditors. however if you are running tight, keeping the home and paying off your other secured and priority claims will give you the desired financial recover so after you complete your plan successfully, you will leave your years after the discharge with a home with an affordable condition and relief from your unsecured creditors and fulfilling the repayment to the other secured creditors and priority claims which need fulfilled.
The best effect of passing this legislation would be to give homeowners a last option when dealing with lenders does not give solvent conditions. BK is not an escape but a commitment for wage earners to meet so they can move on. Chapter 7 which is liquidation does not have such modification of loans to my knowledge. It won't change liquidation if the legislation ever passes.
Good call on freeing up money. It would go to pay back other debt at higher percentages if it amounted to a great surplus. It will not be a free ride but a measure to allow your dedication to pay back debt to your best capability. If I could afford to pay my loan, I would not run to file ch 13. If you are insolvent from the loan increases or a change in your income, the legislation may be salvation from a loss of a home and probable deficiency claim which would lead to job loss, later filing anyway, minus a home.
If the law does not pass and the home is your major pitfall, you could file ch 13 and surrender the home in full satisfaction of debt. But as you mentioned you would still have to contribute your income in excess of toward your secured, unsecured and priority lenders or debt holders. You do get an allowance of around $966 for mortgage/rent and $360 or so for non-mortgage expenses without the house or any deficiency judgment. $360 a month allowance for gas, electric, phone, insurance? not a lot, but a home selling at auction for 60k when your original loan was for $180k would sink you. Granted the allowed expenses should be higher to cover utilities and a bit higher for rent/mortgage.
I am not a lawyer so as one in ch 13 I can only express what I have either read or seen in application to my case. Don't let the bankers, chamber of commerce, mortgage bankers association claim there will be a tidal wave of people flocking to ch 13 in order to get lower interest rates and a reduction of principal. If you make too much it would mean no credit cards you had with any balance being canceled and a full repayment of any debt. You lose your credit cards with balances on when you file even under having enough income to pay back creditors at 100% for all classes of debt.

[cahomeowner]

can anyone who is in a chapter 13 plan confirm the information on this thread? how much of a surplus does the trustee allow? what happens if you get a tax refund, inheritance or bonus check during your repayment period? are you suppose to let the trustee know so they can divide up the extra money to your creditors?

[franklinco]

Originally Posted by cahomeowner

can anyone who is in a chapter 13 plan confirm the information on this thread? how much of a surplus does the trustee allow? what happens if you get a tax refund, inheritance or bonus check during your repayment period? are you suppose to let the trustee know so they can divide up the extra money to your creditors?

The best approach is to not overpay your taxes enough to have a windfall refund. We owe come tax time for both state and national taxes. Bonus checks depend upon how big of a bonus check and running into an inheritance is limited by time my recollection. I believe it is 6 months from filing but am not too sure.
Most importantly is to notify your lawyer instead of the trustee directly. The trustee may not have your interest in mind. Your lawyer should know for sure.

Personally in my situation, when I got a profit check, it went to pay taxes. When I got a bonus, it was only a small bonus of little value. The trustees main concern is your meeting plan payments rather than individually scrutinizing each of the many cases assigned to them.

Each region is different as to their scrutiny and bias to creditor vs. debtor. Your lawyer should be up on all the region requirements.

Sorry for the side-step answer. More than likely you can chill and no major problems will be encountered. I do realize that the first three years is pretty dangerous for unsecured creditors if you met a great increase in income. The secured should be alright since they are what they are.