While most people believe that when they file for bankruptcy their payment plan is set in stone, this is not always the case. When you file for Chapter 13 bankruptcy, the amount you pay each month may vary each month.
For example, payments change greatly if you have an adjustable mortgage, your energy bills are different every month, and/or if you need to surrender or purchase a home or a vehicle. All these scenarios will cause your Chapter 13 budget to be affected. Because your budget is constantly changing, your plan may be adjusted accordingly.
Under section 1329 of the Bankruptcy Code, the trustee, the debtor, or one of the unsecured creditors can ask for a change in the payment plan anytime during your Chapter 13 bankruptcy case. The amount that your budget needs to change before your plan is adjusted depends on who reviews your plan. While all bankruptcy courts follow the Bankruptcy Code, states and districts enforce it differently. Typically, if you have a change of 10% in your budget for three or more months, your plan may be adjusted. If your expenses increase, it may be determined that you owe your creditors less money. If your income increases, it may be determined that you owe your creditors more money.
I strongly recommend speaking with an attorney to understand your Chapter 13 payment plan and how it can fluctuate throughout the duration of your case. Because the Bankruptcy Code is enforced differently depending on location, an attorney can clarify how it will be enforced in your case. Also, make sure that you notify your attorney of changes in your budget throughout the duration of your case, because you can get in trouble for concealing such changes.
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Here are some top reasons why people file for bankruptcy, and also a discussion of how filing for Chapter 7 or Chapter 13 Bankruptcy can help.
1. I filed to eliminate the legal obligation of paying off my debts.
This process of wiping the slate clean is called a discharge of debts. The goal of a discharge is to reduce debt to give you a fresh start. Whether it is through total elimination of debt via a Chapter 7 Bankruptcy, or through reorganization of your current debt via a Chapter 13 Bankruptcy, most or all of your current debts will be addressed.
2. I filed to stop foreclosure on my house and effectively make payments to catch up on missed payments of my mortgage.
If your home is in foreclosure, Chapter 13 Bankruptcy will stop the foreclosure any time prior to the sale. Bankruptcy does not eliminate mortgages on your property without payment. Rather, bankruptcy will structure a payment plan (usually lasting 5 years) in order for you to repay your mortgage the amount that you are behind.
3. I filed to prevent my car or other property from being repossessed.
Like foreclosure, repossession is another big reason people file bankruptcy. The past payments you have missed on your car or other personal property will be consolidated into your Chapter 13 Bankruptcy plan. After this you will no longer pay the finance company, rather you will make monthly payments to the trustee of your Chapter 13 Bankruptcy who will then pay the finance company.
4. I filed to reduce (or even eliminate) high medical bills.
Sometimes people get blind-sighted by an accident or an illness which can prove to be an expensive affair. Filing Chapter 7 Bankruptcy can greatly reduce the amount of those expensive medical bills.
5. I filed because I recently lost my job and am now unemployed.
According to studies, loss of work is one of the most common reasons people file for bankruptcy. Losing a job is closely tied to high medical bills and can mean that a family may be left without the protection of insurance that was once provided by their employer. Often times these two factors combined create an almost impossible situation to get out of without the help of bankruptcy.
6. I filed to stop the harassing behavior from creditors.
Often, creditors will persistently call the home of a particular debtor with demeaning and abusive behavior. Not only are these actions unethical, they can be unlawful. Bankruptcy will put on hold the demands of many creditors and stop their distressing behavior.
7. I filed to prevent my utilities from being shut off (or to restore already cut-off utilities)
If you have been failing to pay the utility companies, then there’s a good chance your utilities may be in risk of being terminated. Filing bankruptcy can prevent the utility company from shutting off your utilities.
8. I filed to get help for large amounts of student loan debt.
While it is true that your student loans will not be eliminated like several other types of unsecured debt, bankruptcy can at least consolidate your student loan debt. This consolidation will allow a debtor to make monthly payments through Chapter 13 Bankruptcy that are within the financial ability of the debtor.
9. I filed to end wage garnishments.
Chapter 7 Bankruptcy can stop those wage garnishments which take away some of your weekly earnings – often times leaving you without necessities. Chapter 7 Bankruptcy allows you to purchase necessities for you and your family and Chapter 13 Bankruptcy will also help if you face wage garnishment.
10. I filed to challenge certain claims of fraudulent creditors.
Bankruptcy will allow you to challenge the fraudulent claims of creditors who are trying to collect more money from you than you really owe, or those creditors who are using illegal practices to collect your money. An experienced bankruptcy attorney can provide the expertise you will need to stop these creditors. A good bankruptcy attorney can often even the playing field between a big creditor and a single debtor. Filing bankruptcy with an attorney can stop fraudulent reporting by a creditor.
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One of the more interesting features of Chapter 13 law is something called the “co-debtor stay.” Set out at Section 1301(a) of the Bankruptcy Code, the co-debtor stay disallows collection action on consumer debt against co-debtors of the person filing for bankruptcy. A typical scenario – you file Chapter 13 and include a debt to Best Buy for a new television. Your mother co-signed the loan with you. Your Chapter 13 protects your mother from collection efforts for as long as you remain in Chapter 13.
Now the obligation of the co-debtor does not disappear. If you repay a consumer debt at 30 cents on the dollar in your Chapter 13, your co-signer will be liable for the remaining 70% after your case is over. However, during the time you are in Chapter 13, your mother is protected. Often in these cases debtors will set up special payment classses in their chapter 13 plans to pay co-signed debts in full to protect the co-debtor. In other situations – such as when the co-signer is an ex-spouse, the co-debtor is left exposed.
The co-debtor stay only applies to consumer debt and it only applies in Chapter 13. If you have co-signed debts, make sure to tell your lawyer so that appropriate decisions can be made.
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What is an “objection to confirmation” in a Chapter 13 case and should you be concerned about it? As you know, a Chapter 13 bankruptcy functions as a court sanctioned repayment plan. Under the law, you – the debtor – must propose this repayment plan to the court.
Clark and Washington’s job is to evaluate your financial circumstances and to prepare this repayment plan. As your attorneys, we have both a desire and an obligation to represent you zealously. We know that five years (the typical term of a Chapter 13 plan) is a very long time and we also know that you will face unexpected emergencies and cash crises during your plan.
Your creditors and Chapter 13 trustee are not particularly concerned about what might happen over the next five years. They want every dime of “disposable” income and will push for the highest possible Chapter 13 plan payment.
The Chapter 13 plan we prepare in your case, therefore, will satisfy the requirements of the Bankruptcy Code, but it will also reflect what we consider a realistic approach to the next five years. Not surprisingly, your Chapter 13 trustee may not agree with our assessment of what constitutes your “best efforts” and the trustee or creditors may file a document called an “objection to confirmation.”
By law, you must be served by mail with this objection to confirmation. Objections to confirmation are filed in 98% of the Chapter 13 cases filed in Tennessee bankruptcy courts. Every week we get frantic calls from clients who have received an objection and are certain that their case has been dismissed. This is NOT the case.
An objection to confirmation does not mean that your case has been dismissed.
Instead, an objection to confirmation means that the trustee or creditor wants a change in your plan. Most likely they will want more money from you each month. Usually, we can negotiate a compromise to satisfy the objection and get your case approved or “confirmed” by the judge. Sometimes we have to argue the objections – click to read a recent blog post about one of Clark and Washington’s successes in defeating an objection to confirmation.
Look at objections to confirmation as a normal part of the Chapter 13 process. As your attorneys, we will be with you every step of the way and we will advise you regarding the best way to deal with objections to confirmation.
Filed under Chapter 13, Objections to Confirmation by
May a debtor include payments due secured creditors (house payment and car payment) for Chapter 13 means test calculation purposes if the debtor’s plan provides for the surrender of the collateral? Attorney Mary Beth Ausbrooks, managing attorney of Clark and Washington’s Nashville office recently argued this issue before Judge Marian Harrison in Nashville (Middle District of Tennessee) bankruptcy court.
Opposing Mary Beth was the Nashville Chapter 13 trustee, Henry Hildebrand. The trustee argued that if the debtor was planning on surrendering her house and her car, she could not deduct the monthly payments for these items when calculating the means test. Without these deductions, the debtor would show over $1,000 more in “disposable income” which would result in a much higher Chapter 13 payment.
In a brief published decision, Judge Harrison sided with the debtor and Clark and Washington. The judge focused on the language of Section 1325 of the Bankruptcy Code which looks to payments contractually due in the 60 months following the filing of the case. The statute does not provide that surrendered items result in the disallowance of the deduction so the trustee cannot demand as much. Click here to read Judge Harrison’s decision in the case of Brenda Sue Ray.
Filed under Bankruptcy in the news, Means test calculations, Objections to Confirmation by
One of the most controversial topics arising from the BAPCPA changes ot the bankruptcy law has to do with the so-called "hanging paragraph" of Section 1325(a). Stated simply, Section 1325(a) does not clearly address what happens in a Chapter 13 if a debtor surrenders a vehicle back to a secured creditor if the vehicle is worth less than the outstanding claim.
Example: Tom has a 2005 Chevrolet worth $10,000. GMAC holds a lien against that vehicle totaling $14,000. Tom files Chapter 13 and provides in his plan that he elects to surrender the Chevrolet back to GMAC. What happens to the $4,000 "deficiency?"
Some federal circuit courts of appeal have held that the surrender of the vehicle wipes out all liability. Other appeals courts have ruled that upon surrender, any deficiency balance would become an unsecured claim payable in the Chapter 13.
The 6th Circuit Court of Appeals (its precedent governs cases filed in Tennessee) has issued a ruling on this matter in favor of creditors. In the case of AmeriCredit Financial Services v. Long, the 6th Circuit Court of Appeals has ruled that deficiency claims arising from a debtor’s surrender of a vehcile in a Chapter 13 survives the surrender and must be paid pursuant to the Chapter 13 plan.
You can read a copy of the AmeriCredit v. Long decision by clicking on the link. The decision is worth reading not only to understand the Court’s logic, but also to get a sense of the frustration that the appeals court has for the poorly worded provision of the law. While the 6th Circuit holding provides that the vehicle surrender does not wipe out the deficiency, the appeals court does not hold back in expressing its displeasure in issuing its decision.
In language highly unusual to circuit court opinions, 6th Circuit Judge Merritt writes "due to a glitch or a gap in a recent revision to the Bankruptcy Code intended to benefit creditors, the law is now silent on what happens to the remaining indebtedness in the surrender-of-the-car situation. The bankruptcy court below held that the congressional mistake in drafting the revision means that the remaining indebtedness is completely wiped out. We believe the gap should be filled and the Congressional mistake corrected. The law previously governing this situation should be restored until Congress can correct its mistake and fill in the gap."
Now, back to our example. For the time begin at least, if Tom surrenders his car in his Chapter 13, GMAC can file an unsecured claim in Tom’s case for $4,000. If Tom’s plan provides for a 100% payout to unsecured creditors, his plan will cost him around $80 more per month. Let’s hope that Congress will see fit to fix this problem and end the situation where a lender gets a vehicle back to resell and hundreds or thousands of dollars in windfall profit earned on the backs of struggling debtors.
Filed under Bankruptcy in the news, Chapter 13 by
Our office recently received the following question from a reader of our blog:
I am now in a full-time Air Force Reserve, with 27 years total military service time. I will be discharged if the Air Force finds out about my financial problems. My wife and I are carrying over $200,000 in credit card debt . Our cash flow is negative $7,000 per month and our only remaining asset is around $60,000 stocks. What can we do?
Our firm’s answer: First, I think that you need to find an experienced and knowledgeable bankruptcy lawyer. I recently filed a Chapter 13 case for a military reserve officer who was in a similar mess. We structured the Chapter 13 as a direct pay, meaning that we did not set up a payroll deduction with the Air Force. That case is proceeding along nicely and I expect it to be confirmed next month.
While there is no guarantee that your commanding officer will not find out, Chapter 13 trustees do not regulalry contact employers. In my case, the military has not been made aware of my client’s filing. An experienced lawyer in the district where you would file can give you more specific advice.
You also need to find out if Chapter 13 is an option at all. It may not be, but you need to find out for certain to either eliminate the option or keep it available.
You also should ask whether there is any way to protect your stock. Every state has "exemption laws" that protect certain assets. You don’t say where you live so I can’t comment about what you might be able to protect, but it would be a shame to use up an asset that is fully or partially protected prior to filing a bankruptcy.
If you do nothing, at some point you are going to get sued and all bets are off. While bankruptcy is always a last resort, it can give you the power to eliminate or reduce debts and to cancel contracts.
Make sure to find a lawyer with specific experience in Chapter 13, because I think that is the type of bankruptcy you would most likely want to consider.
Best of luck to you.
Filed under Chapter 13, Common pre-bankruptcy mistakes, Pre-bankruptcy planning by
With foreclosure numbers in Tennessee cities on the rise, it should come as no surprise that desperate homeowners are being targeted by scammers. Usually the scammers pitch promises to stop a pending foreclosure using a "secret provision in the law" or an alleged special relationship with mortgage lenders.
In almost every case, the scammer asks for several hundred or several thousand dollars, then he prepares a two page Chapter 13 "emergency petition" in the homeowner’s name and files the petition in the local bankruptcy court. The scammer does not put his own name on the petition – instead he signs the homeowner’s name as if the homeowner filed the case.
Often the emergency filing will stop the foreclosure, although only temporarily. Under the bankruptcy law, a Chapter 13 plan and schedules must be filed within 15 days of the "emergency" filing. Since the homeowner did not intend to file bankruptcy in the first place, many of these cases are dismissed by the clerk’s office when no plan and schedules are filed.
Further, many of the emergency petitions are filed without proper documentation – no credit counseling certificate and no pay advices.
At best, the bewildered homeowner will realize what is going on and will retain counsel to either proceed with the Chapter 13 or to file a dismissal in court. More often than not, however, the homeowner will be afraid to take any action out of concern that the homeowner himself did something wrong. The wrongfully filed case will wind its way through the bankruptcy system until it is eventually dismissed and the homeowner will be left facing foreclosure again, but with less of a bankruptcy option because of the previous filing.
Recently a federal judge in Kansas denied bond to a foreclosure scammer named Issac Yass, who owned a company called Stopco that allegedly perpetrateda slightly different type of bankruptcy fraud in several States, including Tennessee. Investigators say that Yass operated by filing Chapter 13 petitions on behalf of fictitious persons who claimed to have a fractional interest in the properties in foreclosure. He then charged homeowners a monthly fee. Yass’ case is unique in that the alleged fraud was perpetrated on a grand scale – investigators contend that since 2006, Yass stopped foreclosures on over $50 million worth of properties.
At Clark and Washington, we have seen many cases of many kinds of foreclosure scams. Sometimes we can help pick up the pieces, and sometimes there is little or nothing we can do. If you are facing a foreclosure in Tennessee, we strongly recommend that you seek competant legal advice from a lawyer who is a member of the Tennessee bar. If a non-attorney foreclosure prevention company solicits your business, run the other way.
Filed under Bankruptcy in the news, Emergency petitions, Foreclosure by
