Thans to Judge Homer Drake, we have an answer to this question in the Northern District of Georgia. In the Walker case (2006 Bankr. LEXIS 845, Case No. 05-15010 (Bankr. N.D. Ga. May 1, 2006), Judge Drake overruled an objection by the U.S. Trustee. In this case, the debtor's Chapter 7 Statement of Intentions provided for the surrender of his house and vehicle. The Means Test filed by the debtor had allocations for payments to both the mortgage and vehicle lenders. The Trustee objected to the inclusion of these allocations when the debtor intended to surrender the collateral.
Judge Drake found that the Means Test was intended as a snapshot of the debtor's financial situation at the instant of filing and that at the time of filing, these payments were contractually due to the lenders. Further, Judge Drake found that since the Means Test could potentially penalize the debtor by using a six month lookback as evidence of future income then the Means Test is by its nature is not intended to reflect the debtor's current reality.
Judge Drake also noted that the trustee can still object to discharge under Section 707(b)(3) which allows the Court to consider the totality of the circumstances.
You can read more about Judge Drake's decision at the blog post on Scott Riddle's Georgia Bankruptcy Law Blog.
Technorati Tags: means test, median income test, treatment of secured debts in means test, Judge Homer Drake
Filed under Chapter 13 issues, Georgia Bankruptcy, Means Test issues by 
My mortgage is about to go into foreclosure–as we are two months behind right now and we also owe for June…The mortgage company will not accept a partial payment…and will initiate foreclosure proceedings very soon..we are also in trouble with our car notes and timeshare payments… should we consider bankruptcy if we cannot work out something with our lender???
–Mark
Jonathan Ginsberg responds: Mark, if your mortgage company will not work with you, then your only real option is Chapter 13. I think you are smart to consider this option early – which is preferable to waiting until a few days before foreclosure to look into the process. At a minimum, you should do the following now:
1) request copies of all 3 credit reports (both you and your wife) – credit reports are free in Georgia but will take a few days to arrive in the mail (by contrast if you need them immediately, I can get them for $45 per person). This is another advantage of starting early
2) get your credit counseling certificate. Credit counseling is now mandatory and if you wait until the last minute, you may not be able to get an appointment. I have a section about credit counseling on my Atlanta Bankruptcy web site. Consumer Credit Counseling of Atlanta and Hummingbird Credit Counseling are two organizations that my clients have used.
3) complete my bankruptcy intake form. Please pay special attention to the budget portion. Chapter 13 will not help you if you do not have enough stable income to pay your mortgage on-going and contribute to your Ch. 13 plan. If you have fallen behind on your house and your car because you are not making enough money, you may need to consider surrendering one of these secured items to make a Chapter 13 plan feasible. I can tell you that in almost every case, the Chapter 13 trustee will insist that you give up your time share. If you fell behind because of an unusual circumstance (i.e., an unexpected job layoff, an illness, a pregnancy, etc.) then a 13 will catch you up.
As part of the questionnaire I would need copies of all pay stubs for income earned by you and your wife (regardless of whether she would be filing with you) for the period December, 2005-May, 2006.
I also think that during this process you should continue negotiating with your creditors. And if you have numbers and knowledge about how Chapter 13 would work for you, you will be in a better position to evaluate your options.
I am happy to spend 30 minutes with you at no charge to review your completed questionnaire. Let me know by phone or email if I can be of help to you.
Technorati Tags: chapter 13, mortgage foreclosure, creditor negotiation, car note delinquency, consumer credit counseling, approved credit counselors for bankruptcy
Filed under Bankruptcy budgets, Chapter 13 issues, Foreclosure issues, Georgia Bankruptcy by
One component of the new bankruptcy law that gets little popular attention has to do with the limitations the new law places on re-filed Chapter 13 cases. The Bankruptcy Code now provides that in a second case filed within one year of a first filing, the automatic stay terminates in 30 days unless the debtor files a Motion to Extend Stay. For a third filing within a year, the automatic stay does not go into existence at all.
The intent of this new Code section is to stop so called "serial filers" – people who file and re-file to stop mortgage lenders from foreclosing.
Under the old law, by the way, bankruptcy judges could and frequently did exercise their power to dismiss a case "with prejudice" (pursuant to Section 109(g) of the Code) thereby barring a debtor from refiling for 180 days.
The problem from my perspective as a consumer debtor lawyer arises when a debtor has to file a second or even third case because of circumstances beyond his control. For example, in the Northern District of Georgia, where I practice, problems with Chapter 13 plan funding are the primary reason why Chapter 13 cases fail. Often the funding is short because the employer fails to start the payroll deduction on time. In our district every debtor who is employed must be subject to an automatic payroll deduction.
An initial Chapter 13 case may fail because the debtor's lawyer was inexperienced or got in over his head. Chapter 13 now requires numerous document disclosures and fast response to trustee objections. Many times over the past twenty years, I have received a frantic call from a debtor whose case had been filed by a lawyer who "dabbled" in bankruptcy and who failed to respond properly to the trustee objections. And there are also those cases that debtors filed pro se and two or three months into the case decided (usually on advice from their trustee) to get a lawyer. Under the old law trustees and judges frequently recommended re-filing. Now, that option is much less appealing or practical.
A case may fail because a debtor has not yet wrapped his mind around the idea that his lifestyle and spending habits must change.
When a debtor wants or needs to refile, he will find that it has become much more difficult and expensive to find a lawyer to take his case. In my office, I will take a second filing within a year sometimes, but the up front cost will be higher that it would be for an initial filer. Why? I know that at a minimum I will be making an additional court appearance to extend the stay and because the trustees tend to be much more demanding in a refiled case.
As a rule I will not take third filings and many of the more experienced, capable bankruptcy lawyers I know will not take third filings either. The risk of getting stuck in litigation and hours of unpaid time loom too large. I routinely refer third cases to one of the high volume filers.
No doubt the debtors themselves are partially to blame. In my office I advise my clients orally, in memo form and by letter and email that the debtor is responsible for making all trustee payments until the payroll deduction kicks in and that all mortgage payments must be paid directly as on-going mortgage payments are not part of the plan. And every month or so I have a debtor insist that "nobody told me" to make my mortgage payments or trustee payments.
However, without minimizing the debtor's responsibility, I can see how a debtor would be confused by the process. Bankruptcy is confusing and a bit terrifying. Debtors are almost always very stressed and overwhelmed by months of financial pressure. And, often, a main reason that a debtor is in bankruptcy relates to that debtor's poor financial management skills and practical budget know-how. This lack of know how, in my view, extends to the debtor's decision making in choosing a bankruptcy lawyer and evaluating his bankruptcy and non-bankruptcy options.
Often the choice of a bankruptcy lawyer is made at the last minute. Cash strapped debtors often choose a lawyer based on up front price. Usually a law firm offers a low up front cost because (a) it is a volume filer or (b) it is a new or inexperienced lawyer trying to get cases to learn the practice area. In both these scenarios, despite the good intentions of the lawyer, there is an increased risk that the first filing will not work.
The bottom line, in my view – there are many reasons why an initial filing may not work and more often than not the dismissal is for a reason other than a serial filing mindset by the debtor.
Now I am reading that teaser rates and adjustable rates are rising, especially in the subprime lending market. In the Bankruptcy Litigation blog, Illinois bankruptcy attorney Steve Jakubowski cites a Wall Street Journal article as stating that subprime loan originations have increased from $150 billion in 2000 to $650 billion in 2005. Further, about 25% of all mortgage debt in the United States is coming up for interest rate resets in 2006 and 2007. Many of these resets will result in substantially higher monthly mortgage payments.
This all means that there are going to be a lot of first time filers looking at Chapter 13 to stop a foreclosure. How many of those debtors will be affected by the new restrictions on refiling Chapter 13?
–Jonathan
Technorati Tags: refiled chapter 13, second bankruptcy filing, repeat bankruptcy filing, adjustable rate mortgages, interest rate reset, serial filers, Steve Jakubowski, bankruptcy court northern district of georgia, payroll deduction order, chapter 13 trustee
Filed under Automatic stay issues, Chapter 13 issues, Foreclosure issues by
This morning, I came across an interesting blog by a gentleman who is currently going through a Chapter 13 and is describing his experiences preparing as he goes through his case. It appears that he tried a debt counseling program that did not work and now has made the decision to go through Chapter 13.
I am not sure where he lives, but his Chapter 13 diary blog warrants a look. And if you have your own experiences to share, please leave a comment or send me an email.
–Jonathan
Filed under Chapter 13 issues by
I recently worked on a case that demonstrated the need for Chapter 13 attorneys to remain alert when dealing with county property taxes and Chapter 13 debtors.
In this case, my client was both delinquent in his payment of county property taxes and his taxes were not being escrowed by the mortgage company. Because of the delinquency, I included the county tax commissioner as a creditor in the case. Because my client's county property taxes were not being escrowed, I allocated approximately $300 per month as a monthly tax escrow so that he would be able to pay the tax bill later this year.
The county tax commissioner filed a proof of claim that included the delinquent tax debt for 2005 as well as anticipated property tax debt for 2006. I filed a Motion to Disallow Claim on the grounds that the 2006 tax debt had not yet come due and because we were already allocating for this tax obligation in the budget.
The county attorney called me and explained that under Georgia law, your county property tax debt comes due on January 1 in the exact amount of the previous year's tax. This tax obligation is subject to change based on updated tax rolls but it exists as of January 1. So, in my case, his position is that the county acted correctly in filing a proof of claim for both 2005 and 2006.
I discussed this issue with my client and we decided to withdraw our objection to the county's proof of claim, and we will amend our budget to get rid of the 2006 monthly allocation. On January 1, 2007, however, I will need to re-amend the budget to add a monthly tax escrow allocation as he will have to pay 2007 directly.
Interestingly, this issue would not have arisen if there had been no delinquency for 2005 as I would not have listed the county as a creditor, although arguably every property owner is automatically delinquent as of January 1. My sense is that the mortgage company escrow departments as well as county tax commissioner's offices are probably fine with the existing escrow system as it would be a logistical nightmare to convince escrow departments not to escrow for the current calendar year. However, if you pay your property taxes directly or if you do list the county tax commissioner as a creditor be aware of this proof of claim issue so that you do not double pay.
Technorati Tags: county property tax, chapter 13, proof of claim, chapter 13 trustee, jonathan ginsberg, objection to proof of claim, motion to disallow claim, withdrawal of motion to disallow claim
Filed under Chapter 13 issues, Georgia Bankruptcy, Proof of claim issues, Tax issues by
This afternoon, I received a call from a potential client with an unusual problem. He advised me that he filed a Chapter 13 on December 29, 2005, but that the mortgage company went ahead with foreclosure on January 2, 2006 and now he was facing an eviction. How could this be?
A quick look at the Court docket explained what had happened. The debtor had filed a previous Chapter 13 case back in June, 2005 and had elected to pay his filing fee in installments. The case ended up being dismissed, but the debtor never paid the remaining balance due for the filing fee.
When the debtor filed his second case in December, 2005, he again requested permission to pay the filing fee in installments. After the case was filed and a case number issued, the computer system in the clerk’s office flagged the case as one with unpaid filing fees from a previous case.
The Judge’s office then sent a form letter to the debtor advising him that he had 10 days to pay the outstanding balance due on the previous case or the current (December, 2005) case would be dismissed and the automatic stay annulled ab initio. For those of you who do not speak Latin, this means that the case and the automatic stay would be treated as if it never existed at all, dating back to the date of filing.
Unfortunately the debtor, who was proceeding without a lawyer, did not understand or recognize the seriousness of the judge’s order and he failed to pay the outstanding filing fee. After the 10 day period elapsed, the judge issued and order dismissing the case and annulling the stay ab initio.
Shortly after the dismissal order was issued, the bank initiated eviction proceedings. Unfortunately, I had to advise the debtor that there was nothing I could do for him. I recommended that the debtor call my good frieind Schuyler Elliott to see if there was any wrongful foreclosure angle here. Schuyler has developed a Georgia wrongful foreclosure practice here in the Atlanta area. Schuyler felt that there might be some issues with the foreclosure but the debtor’s failure to preserve his bankruptcy protection would make any wrongful foreclosure action time-consuming and expensive.
The lessons you can take from this story are as follows:
1. It is not wise to enter into bankruptcy without the help of an experienced lawyer. This is especially true under the new bankruptcy law and this is especially true if you have previously filed a case. One of the purposes of the new law is to discourage repeat filings and there are many traps that can bite you when you file a second case.
2. You need to read any documents issued by the Clerk of Court or by a bankruptcy judge. Here, the judge issued an order where the most important phrase was in Latin. Is there a constitutional problem there? Maybe. But this debtor has neither the money nor the time to pursue a challenge.
Filed under Chapter 13 issues, Foreclosure issues, Georgia Bankruptcy, Wrongful foreclosure by
Recently I appeared with a client at a 341 hearing and the trustee raised an interesting point about family size calculations for purposes of the median income/means test calculation.
As you may know, when you first come to my office, you have to provide me income data for the past 6 months so I can run a median income test. If your average monthly income during that 6 month period is less than the average monthly income for a similarly sized family in Georgia, we are free to file Chapter 7 or a less than 5 year Chapter 13.
As you might expect, the average income for a family of 3 is higher than the average income for a family of 2. So it is easier for a 3 person family to fall below the median income limit (meaning you have more choices).
In my case, my client filed individually. He is married and has one teenage child from a prior marriage. He pays child support.
When I prepared this case, I showed that he had a family size of 3 (debtor, spouse and teenage child). The trustee objected saying that because the child does not live with him, the actual family size is 2.
This raises a number of interesting questions. What if a debtor and his ex-wife share custody equally? What if the child lives at college? What if the child is spending her junior year of high school abroad? What if the ex-spouse has legal custody but the child actually lives some or all of the time with the debtor.
There are no answers yet for these questions but it is easy to see how these types of issues will spawn a lot of appellate litigation.
Filed under Chapter 13 issues, Georgia Bankruptcy, Median income test issues by
Recently, I attended a Section 341 meeting of creditors hearing in Gainesville and the trustee asked the debtor and me to review and sign a 17 question checklist prior to the call of the hearing. The questions on the checklist verify that the debtor has received all necessary disclosures and understands the process. You can review the 341 hearing checklist here.
Ultimately this type of checklist should save time, and, in my view, it represents the reality that this new bankruptcy law has added additional administrative burdens on all parties – the debtors, the trustees and the Courts – that add little value and contribute little to the goal of preventing abusive filings.
Filed under Chapter 13 issues, Georgia Bankruptcy by
