Filed Chapter 13 but changed my mind

[Anonymous]

Hi all, I'll try to keep this short.  I filed CH13 in March, but the thought of being stuck to this plan for 5 years is just not doable for me.  I now have a way to pay off a lot of my debt and just want to know if a voluntary dismissal is a good idea?  

100% of the payments I am making are going to back taxes, so my other creditors are getting nothing.  Considering this, do you think that would make them more amenable to settling?  Can I reach out to them before the dismissal is finalized?

My plan is to setup a payment arrangement with the IRS, maybe try to settle with them as well.  I don't know, just looking for some helpful suggestions as to how to start the dismissal and then contact my other creditors about possible settlements or payment arrangements.

[Anonymous]

The bankruptcy experts will come along and give some guidance, but some food for thought at first:

some things can't be completely rewound, and bankruptcy is one of them to the best of my knowledge. That filed/dismissed bankruptcy  would haunt your credit report just as a filed/discharged bankruptcy would. 

[despritfreya]

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@Anonymous wrote:

I filed CH13 in March, but the thought of being stuck to this plan for 5 years is just not doable for me.  I now have a way to pay off a lot of my debt and just want to know if a voluntary dismissal is a good idea?   100% of the payments I am making are going to back taxes, so my other creditors are getting nothing.   My plan is to setup a payment arrangement with the IRS, maybe try to settle with them as well. 

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1.  Once out of the Chapter 13 interest will be added to the tax claim and will continue to accrue at the rate of approximately 6% per annum.  If you are dealing with income tax (not 940/941) there is no interest on the tax as of the petition date - so staying in the Chapter 13 will save you interest on the tax claim.

2. You certainly can enter into an installment agreement with the taxing agency if you dismiss the Chapter 13, however, you may not like the payment required. 

3. It is highly unlikely that you will "settle" with the taxing agency for anything less than what is owed.  OICs are routinely denied.

4. As you indicate, your Chapter 13 pays virtually nothing to your general  unsecured creditors.  So, how much is owe?  $5,000, $10,000, $50,000, $100,000???  Do you really want to have to deal with this upon dismissal?

In the context of a Chapter 13, whether your like it or not, you have finality to the problems listed above.  You should be discussing whether or not it is in your best interest to dismiss the case with your attorney who knows the specifics of the case and your financial situation.

Des.

[krielly]

As has been mentioned, a BK on your credit report (active or dismissed) is already a big black mark.  Something else to consider is that a successfully completed Chapter 13 will be removed after 7 years. A non-completed Chapter 13 will remain on your report for 10 years.

[jmw1]

I don't want to pry and ask what is the sudden source of the extra money since your March 2020 filing, but if I had to guess due to timing it's a Coronavirus Related Distribution from a 401k or IRA retirement plan. If that's what it is, I think it's an absolutely terrible idea. Retirement funds are almost always exempt from creditors within a bankruptcy and outside of bankruptcy. Once the 401k money is cash in your checking account, it is exposed to unsecured creditors. If you get through the chapter 13 without touching the retirement, you have your back tax debt settled, the unsecured creditors get nothing, and your retirement is 100% protected from the creditors. Doing it outside of the 13, you unsecured creditors will get a huge payback, your retirement is shot, and you will pay extra to the tax authorities.  The tax authorities can be particularly ruthless when getting their back taxes. The JDBs are a pain in the neck too and any original creditors holding on to their debt will want no less than 100 cents. 

[Anonymous]

You know, I thought I had 100% decided to voluntarily dismiss the BK13, but reading your post has me rethinking this. The source of funding would come from a friend, not 401k. I would never touch that.

I don't know, it just feels so restrictive. I know that's by design, but I honestly don't think I can complete the 5 year program.

I will give it some more thought. Thank you for your insights, they are appreciated.