November 24, 2017

What Happens After Your Chapter 13 Plan is Confirmed?

When your Chapter 13 plan is confirmed, it means that the bankruptcy judge assigned to your case has formally approved your plan of reorganization and all creditors are bound to the terms of your plan.

In the Northern District of Georgia, a hearing on the confirmation of your plan will be scheduled automatically a the time you file your case. Usually, these hearings are scheduled for about 2 to 3 months from the date you file your case. Therefore, you can think of the first 2 or 3 months of your plan as a kind of probation period.

While in this probationary period, you have all the benefits of bankruptcy – namely the automatic stay that protects you from creditor action – while the Chapter 13 trustee watches to see if you have the capacity to meet your plan obligations. This is also the time when creditor claims are filed and either creditors or the trustee can object to your proposed plan. [Read more…]

What is the Secret to Making Your Chapter 13 Plan Work?

 

After 25+ years representing hardworking but financially struggling men and women in the Atlanta area, I can report to you that the #1 secret to surviving Chapter 13 is living below your means. This can mean you have to make some difficult choices.

Chapter 13 Trustees are Increasingly Demanding

When you enter Chapter 13, you need to eliminate the “wants” in your life in exchange for the “needs.” I advise my clients that if you find yourself meeting with a bankruptcy lawyer, everything needs to be on the table. And this includes your cars, home, furniture, jewelry and just about any other type of property you are financing. You will also find that your Chapter 13 trustee likely has a much more restrictive view of what constitutes a true “need:”

  • if you find yourself paying more than $300 per month for a car or truck, you need to consider giving that vehicle back to the creditor and buying a car for cash or financing a vehicle and keeping the payment below $300 per month
  • if you are financing vehicles, furniture or jewelry for your children or other relatives, you should be prepared to surrender that property and let your relative work out a deal on his/her own
  • if your budget includes out of pocket payments for your children’s college expenses, expect push back from the trustee. The trustee’s position will generally be that your child needs to use loans and grants to finance his/her own higher education and that your child may need to seek a less expensive education. Trustees generally do not agree with including someone else’s education costs in your budget
  • if your budget includes private elementary or high school for a child, you will need to produce evidence that your child has special educational needs that make public school insufficient
  • do not plan on keeping time shares or other non-essentials when you file Chapter 13

[Read more…]

Objection to Chapter 13 Confirmation or Motion to Dismiss? Now the Hard Work Starts

Last week, I was reminded about the importance of taking care of Chapter 13 business early.  I got stuck in court for 4 hours waiting to have a 45 second conversation with the Chapter 13 trustee.

My case involved a trustee motion to dismiss.  My client had filed Chapter 13 about 2 years ago and earlier this year he lost his job and thus fell behind on his trustee payments.  The trustee filed a motion to dismiss, with a hearing scheduled for mid-May.  A couple of days before the hearing my client called to say that he had landed a new job and could I buy him some time.  I called and emailed the trustee and she agreed to reset the motion to dismiss hearing to last week’s calendar.

I notified my client of the reset and asked him for detailed information about his new job including a salary breakdown.  He provided me most of what I needed but did not yet have an actual paycheck.  He also sent the trustee 3 of the 5 missing payments.  Finally, the weekend before the hearing I decided to file my amended budget with an estimated budget.

On the Monday before the Wednesday hearing I started calling and emailing the trustee.  No response.  I checked the trustee’s web site – my client’s personal check had not yet posted (although he did have a registered mail receipt signed by someone in the trustee’s office).  The day before the hearing I emailed and called.  No response.

Having no other choice, I trekked down to court only to discover that the judge’s hearing calendar was 15o pages with hundreds and hundreds of cases.  It took 3 1/2 hours to read the calendar.  After the call of the calendar I was able to talk to the trustee and she agreed to a consent order assuming the funds posted within 10 days – a 45 second conversation.

What could my client and I have done differently?

  1. I should have insisted on a paycheck breakdown 10 days earlier, even if we were working with estimates.  My client wanted to be accurate but in this case timeliness was more important.
  2. My client should have brought the trustee certified funds by personal delivery and obtained a receipt for same.  This should have been done at least 7 days prior to the hearing.

The good news here is that we saved his case.  This is especially important because I had filed a lien strip early on in the case and eliminated a $30,000+ second mortgage.  If the case had been dismissed that 2nd mortgage would have reattached to my client’s house.

Don’t Forget that You have Payment Obligations in Chapter 13

Chapter 13 can transform an upside down budget into one where your income equals your outflow, and it can reduce your total debt, sometimes by thousands of dollars.

Chapter 13 only works, however, if you pay what you are required to pay by your Chapter 13 plan.  Specifically, for cases filed in the Northern District of Georgia, you will have to pay your mortgage(s) directly and you will need to pay your Chapter 13 trustee your plan payment until the payroll deduction kicks in.

You cannot and must not be passive about your payment obligations – if you are not current with your post-filing mortgage payments and your initial trustee payments, your case may be dismissed.  In this brief audio podcast, I discuss what you need to keep in mind about your direct payment obligations in your Chapter 13 case.

What Happens if my Chapter 13 Case is Dismissed?

Earlier this week, I wrote a post entitled Should I Oppose the Chapter 13 Trustee’s Motion to Dismiss.  In that post I spoke about the relatively common scenario whereby a Chapter 13 debtor will fall behind on payments to the trustee or an unexpected claim will cause the plan to run longer than 60 months.  In such a case, the trustee will file a motion to dismiss and the debtor and counsel will have an opportunity to propose a cure to the delinquency.  Usually this cure takes the form of a lump sum payment immediately with the remaining delinquency paid to the trustee over time.

What happens if the proposed cure is not feasible for the debtor?  In such a case, the judge would sustain the trustee’s motion to dismiss or the debtor would not oppose the motion.  Either way, the debtor’s Chapter 13 case will be dismissed.

When a Chapter 13 case is dismissed, creditors can immediately pursue all non-bankruptcy alternatives.  If there is a home and mortgage delinquency involved, the mortgage lender can start foreclosure proceedings.  If there is a car payment involved, the car lender can immediately start the repossession process.  Credit card lenders can restart collection efforts including calls and letters. [Read more…]

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? [Read more…]

Why Tax Refunds Payable to the Chapter 13 Trustee Will Do Little to Decrease Your Plan Balance

At least two of the three Chapter 13 trustees in the Northern District of Georgia require a Chapter 13 plan provision which provides that any tax refund payable to the debtor during the term of the debtor’s plan shall be paid to the Chapter 13 trustee.   These trustees will object to any plan that does not include a tax refund provision.

Although I explain the implications this provision, many of my clients express shock and outrage when their expected refund of $3,000, $4,000 or more does not show up in their mailboxes, but instead ends up in the hands of the Chapter 13 trustee.  These clients, quite naturally, expect that the tax refund payment will reduce their Chapter 13 obligation and either reduce the term of their plans or possibly allow for a reduction in the regular monthly payment.

More recently one of my clients fell behind on his Chapter 13 plan and had to enter into a consent order with the Chapter 13 trustee to pay extra each month to cure the delinquency.   Shortly after the consent order was filed, this client saw a  $2,200 tax refund to to the trustee and he wanted to see that money applied to his delinquency and thus reduce the burden of his delinquency cure.

Unfortunately in both of these situations, my clients will not get the desired benefit from the “seizure” of their tax refunds.  The funds will go into the plan, but instead of reducing the balance or the term of the plan, they will increase the dividend payable to unsecured creditors [Read more…]

Pay Attention to Your Chapter 13 Payroll Deduction

In the Northern District of Georgia, every Chapter 13 case must be filed as a “payroll deduction order” case.  In other words, you must fund your Chapter 13 with a payroll deduction.   In my experience the trustees will allow direct payment of Chapter 13 plan payments only when a debtor is self employed or if the debtor can convince the trustee that the debtor’s job would be in jeopardy if the employer received a payroll deduction order.

Not surprisingly payroll deduction cases work better – if the funds to pay your Chapter 13 come directly out of your paycheck, then there is one less variable to go wrong in your Chapter 13.

However….I have seen far too many cases in which a debtor got behind on his obligation to the trustee even when there was a payroll deduction.  Why?  Because the employer was withholding the wrong amount.

Payroll deduction orders are filed electronically.  When I file a case, there is a data entry screen for payroll deduction orders.  I fill in the appropriate data and the clerk of court sends out the deduction order.

In many Chapter 13 cases, however, the Chapter 13 plan I originally file on behalf of my client will need to be amended.  Many times, this amendment involves increasing the plan payment.  When that happens, I will file a second, or a third payroll deduction order through the electronic court filing system.  Each time the clerk of court mails out the new order.

Sometimes, the employer gets a second or third order from the clerk and does not recognize that the amount has changed.  Some employers ignore the second or third order altogether.  I have also seen situations in which an employer withholds money and sends it in for months at a time, then arbitrarily stops honoring the order, or arbitrarily starts withholding and sending in a random amount. [Read more…]

You are Responsible for Your Chapter 13 Trustee Payments

I have probably written about this subject before, but I am going to raise it again because it creates so many unnecessary problems and it arises month after month and year after year.

If you are a Chapter 13 debtor, you and you alone are responsible for making your trustee payments.


Pre-confirmation

In the Northern District of Georgia, all Chapter 13 cases must be funded by payroll deduction. An employer deduction order (“EDO”) should be filed in your case at the time your case is filed. Until the money starts coming out of your check, however, do not assume that your employer knows what to do or knows how to do it right. Further, you should assume that your employer may need 1 to 3 payroll cycles to implement the payroll deduction. Until the money starts coming out, you have to make the payments directly.

I cannot tell you how many confirmation hearings have been held up because a Chapter 13 debtor was one or two bi-weekly payments behind. In fact, I advise my clients to send in the first one or two bi-weekly or semi-monthly payments under the assumption that the employer will not withhold accurately the first time.

The pre-confirmation period in a Chapter 13 functions as a kind of probation period for your Chapter 13. If we drafted an “aggressive” plan, there is a good chance that we may have to amend the plan and increase the payment to the trustee. If this happens, your attorney will file an amended EDO. But guess what. Some payroll office employees don’t recognize that the amended EDO is different than what they received 4 weeks previously. When you plan is amended to increase the payment you need to verify that the correct amount is being withheld.

Post-confirmation

Five years is a long time. And during that five years you may experience an interruption in your employment causing an interruption in your pay and therefore an interruption in payment received by the trustee. Do not ignore this interruption and hope that no one will notice. The trustee uses a computer program to track payments. If you fall behind, the lapse will eventually trigger a trustee Motion to Dismiss. If that Motion to Dismiss occurs in year three, leaving you, for example 22 months left in your plan, any delinquency needs to be cured in that 22 months. This may require a substantial increase in your monthly payment or a large lump sum.

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