In Chapter 13, must the $20,000 in savings that came from pension cash-out 7 months ago be used to pay unsecured creditor?

I appreciate that you would like an iron clad guarantee from the volunteer lawyers on this site, but the best we can do is look at potential problems and point out the risks. We do not have all the facts and what a judge might do in this situation is not certain. Planning before a person jumps off a cliff and files a bankruptcy is the best choice for your sister. Consult an experienced bankruptcy attorney and be prepared to pay for advice because it will be worth it.

Without knowing who the judge and trustee ares for her chapter 13, I can't give you an answer to whether her plan will be approved. However, with her schedules showing that her income is $1300 less than her expenses, an objection could arise that the plan is not feasible. How much of the $20,000 was claimed exempt on Schedule C? If the full $20,000 is exempt, then none would be required to be paid to creditors. However, funds from that savings may be needed to make the plan payment feasible. If any part of it is not exempt, the plan would have to provide for payments equal to that part.

If the expenses exceed the income, if I read that correctly, where else can the $100 come from? I'm assuming that she, as you say, has no other assets, so this $20,000 can be exempted using the CA wildcard exemption. From what you say, Debtor has no disposable income (disposable income would be money left over after deducting all the reasonable and necessary expenses from her gross income) and therefore she's CHOOSING to voluntarily enter into a chapter 13 & pay $100 a month (a total of $3,600: assuming under median debtor so plan is for 3 years = 12 x 3 = 36) from the exempted property, her savings. Paying $3,600 on $40,000 in debt, is a very good deal, don't you think? Doubt she can get a settlement like that. We can only hope that such a Plan will be confirmed. She would be finished with her chapter 13 in 3 years, rather than waiting another year (8 years from her previous chapter 7) to file another chapter 7. If this chapter 13 is confirmed and she completes it successfully, she'll already be on her way to rebuilding her credit in less time it will take to file another chapter 7. Her other option, is to wait 8 years from the previous chapter 7 and file a chapter 7 at that time, assuming 1) she still qualifies for chapter 7 discharge and 2) she's willing to wait that long understanding that this comes with the risk that the creditor meanwhile will file a lawsuit, get a judgment, and start garnishing wages and levying bank accounts (I assume she has wages & that the $20K is sitting in the bank). If she wants a second opinion, get another consult with a different attorney, asking online whether to file, when to file, which chapter to file, is dangerous as there may be relevant details/facts to consider in dealing with these broad questions that are undisclosed.

Your question all depends on whether or not there is an exemption for the $20,000 in her state. In Idaho, there is an exemption that covers the proceeds of a cash-out, but it is not so clear cut. In theory, in Idaho, the $20,000 would be exempt and would not have to be paid to unsecured creditors. But her state might not be so generous in exemptions.

Wow. Cash on hand, regardless if its source, is an asset. How much of it, if any, is exempt from creditors' claims depends upon the exemption laws of the state in which she lives. Did she tell her lawyer she had all that cash before the case was filed? Did the lawyer review bank statements? Did she claim all the exemptions to which she is entitled? If the cash is not exempt then she will have to use it to pay her creditors. She could speak to her lawyer about whether dismissing the chapter 13 case makes sense, but I creditors know about the funds then they may choose to sue her for their debt and garnish the bank account I the case gets dismissed.

When she took that money out of her retirement, she lost that exemption, and it is now unprotected and may be available to unsecured based on the liquidation test. Unless she has a house with equity, her 20k or much of it should be able to be protected under the 703 exemption scheme. She should see an experienced attorney to make sure all of her assets are protected. Exemptions are somewhat complicated.

Depends on the exemptions available to her when and where she files. In Indiana she would have to pay the bulk of that money to creditors.