November 25, 2017

Should I Oppose the Chapter 13 Trustee’s Motion to Dismiss

As you may know, Chapter 13 cases function as payment plans whereby you send your Chapter 13 trustee a monthly payment and the trustee disburses those funds to creditors.   Since Chapter 13 cases usually last five years it is not surprising that sometimes a debtor may fall behind on payments, even if the payments are made through an automatic payroll deduction.

A certain percentage of my Chapter 13 clients will fall behind because of illness, job loss, family emergencies, or an employer’s failure to send in withheld funds.  Sometimes employers stop withholding funds for no particular reason.

Whatever the cause if you fall behind on your payment schedule to the Chapter 13 trustee, you will eventually face a trustee “Motion to Dismiss.”   In the Northern District of Georgia, each of our three trustees use a computer system that periodically produces reports identifying cases that have gone delinquent and the system thereafter spits out a form motion to dismiss.

A motion to dismiss may also arise if claims (usually tax claims) come in higher than expected, thereby causing the plan to run more than 60 months.

What should you do if you receive a Motion to Dismiss in your case?

First, you should contact your lawyer’s office to address the reason why the motion was filed and to discuss possible solutions.

From my side of the desk, I will discuss with you possible cures.  The good news here is that our Chapter 13 trustees are usually willing to work out a deal to save your case.  Typically the trustee will want 25% to 50% of the delinquent funds paid immediately and will accept the remaining balance of delinquent payments over time.

Here is an example:  Tom filed a Chapter 13 case in September, 2006.  It is now August, 2009.  The trustee motion to dismiss indicates that Tom is $3,500 behind on his payments to the trustee.  In this situation, I would look at the trustee’s web site to see if there is a problem with the payroll deduction.  Perhaps Tom has changed jobs and I need to file a new payroll deduction.  Perhaps Tom’s employer has been withholding and sending in the wrong amount.

I would also calculate how much longer Tom has in his plan.  Here the plan has been active for  almost 3 years (36 months).  This means that I have only 24 months left.

If Tom can come up with $1,000, I can propose a cure to the trustee: $1,000 payable now and $2,500 payable over the next 25 months at $105 per month.   Assuming the trustee accepts, I would modify the payroll deduction order to increase the monthly payment by $105.

The trustee will likely want “strict compliance” on such a cure – this means that if Tom should fall behind again, the trustee would not need to file a second motion to dismiss.  Instead the trustee would only need to send Tom and me a letter giving him 10 days to cure the delinquency, otherwise the case would be dismissed without further notice or hearing.

Now, let’s consider another example:  Sally has been a debtor for 20 months.   Her monthly trustee payment is $1,300 per month.  Because of unexpected illnesses, Sally has fallen behind by $10,000.  She is currently out of work but will be back at her regular job in 6 weeks.  The hearing on the trustee’s motion is scheduled for next week.

In this case, Sally would be able to come up with $2,000 within the next month.  Dividing the remaining $8,000 by 40 months = $200.   My proposal to the trustee would be $2,000 in 30 days + an additional $200 per month for the remainder of the plan and strict compliance on future payments.

If the trustee won’t go for this type of deal, I would argue for it in a hearing before the judge.   The trustee might not accept it, and the judge might be concerned as well because Sally has no money up front.

What happens if Sally cannot afford this cure or if the judge would not accept our proposed cure?  I’ll discuss that in another post.

About Jonathan

Jonathan Ginsberg represents honest, hardworking men and women in the Atlanta area who need personal bankruptcy protection. In practice for over 25 years, Jonathan teaches bankruptcy law and practice at legal continuing education seminars and he is a founding member of the Bankruptcy Law Network. Jonathan lives with his wife and children in Atlanta.

Comments

  1. Bill Mattocks says:

    We filed chapt 13 with over so many thousands owe to the creditors. In addition, we have two homes, the 1st under mortgage and the 2nd home without a mortgage. The 1st home holding a mortgage has a 1st and 2nd. Property values dropped tremendously leaving the second mortgage as a unsecured. In addition our 2nd home has over three hundred thousand in equity. Originally because the 2nd mortgage on the 1st home was considered unsecure because property values dropped tremendously, the 2nd mortgage became a strip mortgage whereas the creditor wanted that second to be included within the payment plan over a five year period. The trustee was proposing 4500 per month. We just received a letter from the trustee dismissing the case, not sure of the reason.

Speak Your Mind

*

Page optimized by WP Minify WordPress Plugin