November 25, 2017

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.

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…]

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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