What Can I Do If I Can’t Afford My Chapter 13?

by Peter Orville of Bankruptcy Law Network
You always have options if there are significant changes in your life during your Chapter 13. If you’ve been laid off, become sick, split up with your spouse or just can’t keep up with the rising price of gas, don’t give up hope. Your Chapter 13 is flexible…it can be modified to Full Article…
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13 Reasons Chapter 13 Bankruptcy Ends Your Bill Problems

Chapter 13 bankruptcy is a powerful tool that may be able to help you end your bill problems. Here are 13 reasons Chapter 13 bankruptcy makes sense written by my Bankruptcy Law Network colleague, Doug Jacobs.

  1. Flexibility: you can dismiss the case at any time or even convert it to a Chapter 7. You can modify a plan if income changes or you decide to give up a house or a car. You can refinance or sell a house during the plan.View Post
  2. A Chapter 13 will save a house from foreclosure as long as you can make the payments.
  3. You can strip a wholly unsecured second mortgage; or value a car if you’ve had it more than 910 days.
  4. You can challenge the costs added to your mortgage by the lender.
  5. Trustees want the plan to succeed and will work with you to get it confirmed.
  6. There are more debts that can be discharged including some divorce payments and damages for malicious and willful acts.
  7. Your attorney’s fees can be spread out rather than all due before filing.
  8. A Chapter 13 can be filed for one spouse even when married. (This is true of Chapter 7s also, but there are more advantages to having one spouse in a Chapter 13 plan.)
  9. You can avoid having to reaffirm a car in order to keep it.
  10. You can cure a tax problem or a Domestic Support Obligation (child support or alimony) over 60 months.
  11. You can stretch out your payments for a car or other secured debt.
  12. You won’t lose non-exempt property.
  13. Depending upon your income a Chapter 7 case can be challenged by the US Trustee, but not a Chapter 13.

 

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Topeka Attorneys Observe U.S. Supreme Court Bankruptcy Argument in Lanning

We watched the arguments before the U.S. Supreme Court in Washington, D.C., yesterday in the bankruptcy case of Hamilton v. Lanning.

We are not involved in this case.  We attended as observers.  The case deals with the formula for determining how much a debtor has to pay her general creditors in a chapter 13 bankruptcy payment plan.  You can read the transcript or listen to the recording of the 60 minute hearing.

Jan Hamilton is the chapter 13 bankruptcy trustee in Topeka.  He objected to confirmation of Stephanie Lanning’s chapter 13 plan because she is not proposing to pay the disposable income determined by the means test.  Her previous six months’ income average was extraordinarily high due to two job lump sum severance payments she received in the fifth and sixth months prior to filing her bankruptcy.  She then lost her job and got a new job for less wages.  She cannot afford to pay the amount the means test dictates and proposed to pay less.

The bankruptcy court denied the trustee’s objection and said the means test is a presumption, a starting point, that the court has the discretion to look forward to determine a debtor’s projected disposable income.  The trustee appealed to the U.S. Court of Appeals for the Tenth Circuit, which affirmed.  The U.S. Supreme Court accepted the trustee’s appeal based upon opposing circuit court opinions between the mechanical approach and the forward looking approach.

At the argument, we saw Chief Justice Roberts and Justice Scalia vs. Justice Ginsberg and Justice Sotomayor–strict construction of the means test statute vs. finding an “escape” for this debtor who did not pass the means test because of job buyout and could not afford to pay the means test result.  Justice Alito seemed to share concerns with Justices Ginsberg and Sotomayor.  Justice Thomas, Justice Breyer and Justice Stevens did not ask any questions or make comments.  Justice Kennedy made a brief comment or two.  Justice Scalia evoked laughter a few times.

I was surprised and impressed by the Court’s command of bankruptcy law.  I did not expect that.  (I did not know yesterday that the Espinosa bankruptcy decision would be issued today.)  I am told the Court is hot for argument, meaning they have already read the briefs and taken a preliminary vote, prior to argument.  The Court peppered both sides with questions in a respectful way.  The trustee spoke about 90 seconds before Justice Ginsberg asked the first question.  He got several other minutes of his prepared speech made in spurts here and there and did a two minute rebuttal at the end. The trustee was a better advocate, in my view, but there was sympathy for the debtor’s plight. There also was deference to the government position.

All of the justices who spoke accepted the reset of current monthly income (CMI) period in 11 U.S.C. 101(10) though Justice Ginsberg thought it “odd” and Justice Sotomayor was concerned that debtor could reset CMI by failing to do something she was supposed to do (file I and J).  There was a discussion of judicial discretion.  The questioning Justices were not very interested in the debtor’s options in this case (delaying filing, filing a 7, converting to 7, dismissing and refiling).  Justice Ginsberg said conversion resulted in less money to creditors.  She also said dismissing and refiling was a waste of time and resources.

This case boils down to does the means test statute control or is there an “escape” for a debtor who is victim to a harsh result if the statute controls? Who knows what the result will be.  It is very difficult to tell from the argument.  I left the room thinking the debtor might win, but I know there is strong strict construction sentiment on the Court.

The juxtaposition of the parties was very odd.  It was strange having the government on the side of the debtor against the 13 trustee.  The government position was quite the opposite of the position the U.S. Trustee has taken on many other means test issues.  One has to wonder what would happen if the government was on the trustee side of the case.

Stephanie Lanning was present at the argument of her case.  She was represented by Tom Goldstein of Akin Gump, a veteran Supreme Court litigator. He runs a pro bono project with law students for unrepresented Supreme Court litigants and also publishes the SCOTUS blog.

Mr. Souter, the clerk of the court, also wore a morning coat with the traditional vest and pants.  The court marshal, the first female to hold the office, also wears a morning coat, although she was seated and I did not notice.  The solicitor general was represented by Sarah Harrington.  She wore a morning coat with tails over a skirt.  I am told all participants in SCOTUS arguments used to wear formal attire.  I read today that Elena Kagan, the newly appointed solicitor general and first woman to hold that office, and rumored to be on the short list for appointment to the U.S. Supreme Court, has broken with tradition and appeared before the Court in a dark pants suit.  Other women in her office wear a morning coat at their option.  None of the attorneys in the Lanning case wore formal attire, all were dressed in dark, business suits.

Each side had 30 minutes for argument.  The debtor and government split the time.  I thought the time would go very fast, but it felt like an eternity.  Everyone in the room was excited to be present but the tension was thick.

Clifford White, EOUST executive director, was present as were numerous chapter 13 trustees and other UST personnel.

A larger than normal number of members of the SCOTUS bar were present, I don’t know why.  I would think bankruptcy and tax, the topics of the day, would not be that popular.  Any member of the SCOTUS bar is allowed to come to argument and sit with the bar on a space available basis. NACBA member Dan Press  of Virginia was present.  Mark Neis sat with the bar as did the chapter 13 trustee from Wichita, KS and Gil Weisman of Becket & Lee (eCast attorney).  My daughter and I sat with invited guests right behind the bronze rail.  Each side is allowed six guests.  Hamilton graciously offered us two of his six seats.  He also invited his wife and step-son, Will Griffin, the chapter 13 trustee from Kansas City, Kansas, and the chapter 13 trustee from Maine.  Many people stood in line outside in the rain for the chance to be admitted to observe the argument.

The Courtroom was completely full.  You sit amazingly close to the Justices.  We were on the center aisle about six rows of chairs and two aisles back from the chief justice. Security was very tight and our movement was controlled every step.  We were commanded to remain seated and silent several times.  Hamilton was so close to the justices, he had to physically turn to address the each of them as he was questioned.

Hamilton had a moot court last week at Georgetown Law School before a group of law professors and others from around the area.

Win or lose, Hamilton and his staff attorney, Teresa Rhodd, did a fine job, for which all of us in Kansas can be proud.  They have spent hundreds of hours these past several months preparing.  We were able to find only a half dozen cases from Kansas in the Supreme Court since Brown v. Board of Education in the 1950s.  The Court accepts less than 100 cases per year out of ten thousand or more applications. The odds of a Topeka bankruptcy case before the Supreme Court of the United States is extremely small.

It was a fantastic experience to see an U.S. Supreme Court argument live.   I would recommend it to all of you.

How Much Are Chapter 13 Bankruptcy Fees in Wichita?

13 ATTORNEY FEES IN WICHITA
In re Mayer, Case No. 06-10013
October 2006, Judge Nugent

This is Judge Nugent’s fee decision. The “presumptive” fee in Wichita is $2500, without prejudice to fee applications, based upon the language of 330, testimony and the various factors recited.

Digest by:  Jan Hamilton, Trustee

Reconversion Fails, No Discharge Bankruptcy Dismissed

CONVERSION CONFUSION
In re Fry, Case No. 04-16887
October 2008 Judge Nugent

Debtor converted from 13 to 7 and then learned she was not eligible for a 7 and attempted to converted back to 13. Case dismissed as an “end run” around 7 discharge.

Digest by:  Jan Hamilton, Trustee

Debtor May Be Converted to 7 with No Discharge

DEBTORS MAY BE CONVERTED TO 7 EVEN THOUGH NOT ELIGIBLE FOR
7 DISCHARGE
In re Rogers, Case No. 08-21487
January 2009, Judge Somers

In a case in which assets may be liquidated, a 13 may be converted to a 7 even though debtors may not be eligible for a 7 discharge.

Digest by:  Jan Hamilton, Trustee

Surrendered Collateral Doesn’t Count on Bankruptcy Means Test?

22C EXPENSE NOT PERMITTED ON SURRENDERED COLLATERAL
In re Miller, Case No. 07-22927
December 2008, Judge Somers
This decision ties to the concepts enunciated in the various Lanning decisions, i.e., to
what extent may post petition changes in circumstances be considered in determining
what is to be paid by an above the line debtor.  Digest by Jan Hamilton, Trustee.

Chapter 13 Bankruptcy Payments

Chapter 13 bankruptcy debtors are responsible for making their plan payments to the trustee.   No excuses.

This is true even if your payments are supposed to be deducted from your paycheck.  If no deduction is taken out of your check or if your employer does not remit the money to the trustee, you are still responsible for the payment.

Watch your pay stubs to make sure the payments are being deducted.  If not, make the payment yourself and call your attorney to troubleshoot.  Your case will be dismissed if payments are not made and you will lose the benefits of chapter 13 bankruptcy.

You can check whether the trustee has received payments by setting up an account with the National Data Center.

Neither Topeka nor Kansas City, Kansas, chapter 13 bankruptcy trustees accept cash nor any kind of electronic bank transfer (ACH transactions).  You can set up bill payer service at your bank and arrange for your bank to send the trustee a check if you don’t have employer pay. The Topeka trustee has an electronic payment service provided by a third party.

What Happens to Divorce Debts in Bankruptcy?

Debts in the nature of support of child or former spouse are not discharged in either chapter 7 or 13 bankruptcy.

What about property settlement debts?  If the divorce decree contains a hold harmless obligation that makes one spouse indemnify the other spouse, then the hold harmess oglibation is a separate debt to the spouse and is not dischargeable in chapter 7 bankruptcy 523(a)(5) or 523(a)(15).

The hold harmless obligations can be discharged in chapter 13 bankruptcy as long as the debt to the former spouse not a Domestic Support Obligation (DSO).  This is possible because property settlement debts under 523(a)(15) are not excepted from discharge in chapter 13 cases.  See Schuett v. Finkey, 2008 Bankr. Lexis 1555 (Bankr. D. Neb. May 21, 2008).

What Is Required to Confirm My Chapter 13 Bankruptcy Plan?

11 U.S.C. § 1325. Confirmation of plan

(a) Except as provided in subsection (b), the court shall confirm a plan if—

(1) The plan complies with the provisions of this chapter and with the other applicable provisions of this title;
(2) any fee, charge, or amount required under chapter 123 of title 28, or by the plan, to be paid before confirmation, has been paid;
(3) the plan has been proposed in good faith and not by any means forbidden by law;
(4) the value, as of the effective date of the plan, of property to be distributed under the plan on account of each allowed unsecured claim is not less than the amount that would be paid on such claim if the estate of the debtor were liquidated under chapter 7 of this title on such date;
(5) with respect to each allowed secured claim provided for by the plan— [Read more…]

Don’t Be Fooled by False Letter that Says Your Bankruptcy is Dismissed – Your Stay Still in Effect

A Florida debt adjuster sent letters to Chapter 13 bankruptcy debtors in Kansas falsely telling them that their bankruptcy cases were dismissed and to call right away “to discuss the terms of your dismissal.”  What a scam!

These letters from First American Debt Solutions are absolutely FALSE! The bankruptcy cases are NOT DISMISSED! These letters are outrageous!  They frighten vulnerable consumer debtors and cause panic.  Debtors are tricked into thinking they are no longer protected by the bankruptcy stay against collection.

If you receive one of these outrageous letters, call your bankruptcy attorney right away.  She can assure you the letter is false, your case is active and you are still protected by the automatic stay.  She will want the letter and mailer to save as evidence against this company.  This fraudulent activity have been reported to the Chapter 13 Bankruptcy Trustee, the U.S. Trustee and the Office of the Kansas Bank Commissioner.

Here is part of  one letter two clients got this week: [Read more…]

No Early Payoff, But Chapter 13 Bankruptcy Plan Modification Possible

PLAN MAY NOT PROPOSE EARLY PAYOFF BUT 1329 MAY ALLOW POST
CONFIRMATION MODIFICATION
In re Kidd, et al, Case No. 06-41232
August 2007, Judge Karlin

The Court recognized changes in 1324(b)(4) and held that debtors may not propose an early pay off but may obtain the same in the right circumstances via 1329.

Digest by:  Jan Hamilton, Trustee

My Income Is Above Median, How Long Will My Chapter 13 Plan Run?

B22C CONTROLS, OR IF DEBTOR USES I AND J, MUST HAVE A FIVE YEAR PLAN
In re Beckerle, Case No.06-20572
April 2007, Judge Berger

ACP is a time frame of either 3 or 5 years and not a multiplier. B22C is a starting place in determining projected disposable income to be received in the 5-year period. A negative number on B22C indicates the plan is not feasible. Debtor can’t have it both ways. If the debtor relies upon I and J to prove feasibility, then the debtor must commit to a 5-year program.

Digest by:  Jan Hamilton, Trustee

Chapter 13 Payment Amount Can Change, But Not Plan Length

APPLICABLE COMMITMENT PERIOD IS FIXED AS DATE OF FILING
In re Moore, Case No. 06-20031
April 2007, Judge Berger

Debtors’ circumstances changed post petition pre confirmation. Although this does not change the ACP, it can change the amount to be paid to creditors. The ACP is locked in as of the date of filing. The Court noted that 1325(b)(1) only comes into play if the trustee objects, and the trustee has the discretion to object or not.

Digest by:  Jan Hamilton, Trustee

GAP Insurance Not In Car Lender's PMSI

GAP insurance, service contracts, administrative fees and the traded-in car payoff are not part of a car lender’s purchase-money secured claim in chapter 13 bankruptcy and can be crammed-down if the car is worth less than the loan balance, Judge Janice Miller Karlin ruled this week in In Re Miller, Case No. 08-40935, (Bankr. D.Kan. December 2, 2008).

Judge Karlin suggested the ruling may be different for service contracts in a future case if the creditor convinces her the contract enhances the value of the vehicle.  Creditors have the burden of proof to establish their purchase money security interest (PMSI) claim, she said.

Non-PMSI charges are still part of the creditor’s secured claim and must be paid in chapter 13 bankruptcy up to the value of the car. A debtor must pay the entire PMSI to retain a car even if the amount is greater than the car’s value if the loan was incurred within 910 days of bankruptcy. [Read more…]

New Kansas Chapter 13 Bankruptcy Discharge Procedure Proposed

A new procedure for issuing chapter 13 bankruptcy discharges and administratively closing the cases is being considered in the U.S. Bankruptcy Court for the District of Kansas.  Here is a summary of the procedure from the minutes of the September 17, 2008, Bench and Bar Committee:

  • About six months before anticipated plan completion the Chapter 13 Trustees will file a Notice of Plan Approaching Completion.
  • If no Financial Management Certificate has been filed by Debtors, the Court’s case management computer software (CM/ECF) will send a notice to Debtor and Debtor(s)’ counsel reminding them that the Financial Management Certificate must be filed prior to making the last payment in a Chapter 13 plan. [Read more…]
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