Archive for the ‘Chapter 13 issues’ Category
Sunday, October 4th, 2009
Last month, I wrote a post describing a case that was recently heard by one of the judges in the Northern District of Georgia. In this case, a debtor had filed a Chapter 13 the day of a foreclosure. The lender was not aware of the bankruptcy so it went ahead with the foreclosure sale. Like many foreclosure sales in Georgia, the amount of the mortgage was equal to the likely value of the house so there were no bidders at the foreclosure sale. Instead, the lender bid the amount of the mortgage and was, in effect, the winning bidder.
By the end of foreclosure Tuesday, the lender's law firm had learned of the Chapter 13 filing so the law firm did not "record" the foreclosure deed. Instead, the lender filed a motion to "validate foreclosure" asking the judge to permit the foreclosure to go through thereby divesting the debtor of title.
The debtor painted a very sad picture – he and his wife had four children of their own and a sister and her three children were also living in the home – and they faced homelessness if the foreclosure was allowed to go through. Further, the debtor claimed that he and his wife had been victimized by a "paralegal service" that had prepared emergency "two page" petitions then did nothing more.
The lender's attorney took a very hard line – between the husband and wife, these debtors had filed 5 previous cases only one of which actually worked for more than a few months. The debtor was trying to scam the system and the court ought not permit such an action. Further, the debtor had used the same paralegal service twice – if they were a ripoff why did he use them a second time?
The judge, who is a compassionate and decent man, was clearly struggling with what to do. I felt that the lender's attorney took the wrong approach. In my view the debtor and his wife came across more confused than pathologically dishonest. They clearly did not have entirely clean hands when it came to using the bankruptcy process to stop a foreclosure, but I could see that the judge was bothered by the idea that 7 children and two families might end up on the street.
In my previous post I asked what you thought would happen. Here's what the judge did:
The judge decided to validate the foreclosure and lift the stay. He was very concerned about the multiple filings and by the fact that there was no equity and an almost impossible likelihood that the debtor could actually fund a Chapter 13 that included over 2 years of mortgage arrearage. He did note that Georgia law now provides that foreclosure notices must include the name and contact information of a human being at the mortgage company who has the authority to enter into loan modifications. He directed the lender's lawyer to include this information in the order that would be issued granting the lender's motion (in most cases, the moving party in a motion hearing has the obligation to draft a proposed order for the judge to sign).
In case you are wondering, I would not have a lot of hope that the lender will be very cooperative in working out a deal with the debtor.
He also directed the debtor to cooperate with the U.S. Attorney in investigating the paralegal service.
What can you take from this case? First and foremost, any Chapter 13 case that you file must be viable on its face. In other words if you have only $200 disposable each month, and you have to pay $20,000 over five years, your case is not viable. You have to present a workable plan.
Second, multiple filings make judges very concerned. I am not a big fan of petition preparation services or paralegal services. Bankruptcy has become a lot more complicated over the past 10 years or so. I think that you take a very big chance when you use a non-attorney for your bankruptcy filing. If you are going back a second or third time you should never do so without a lawyer as the Bankruptcy Code has been amended specifically to make repeat filings more difficult.
Posted in Automatic stay issues, Chapter 13 issues, General consumer bankruptcy info, Georgia Bankruptcy, motion for relief from stay, motion to validate foreclosure, multiple chapter 13 filings, pro se debtor | Comments Off
Thursday, August 27th, 2009
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.
More importantly creditor claims go back to their pre-bankruptcy status. If, for example your Chapter 13 plan called for a payment amounting to 5 cents on the dollar to unsecured creditors, a dismissal would give those unsecured creditors the right to pursue 100% of balances due + interest.
The law does allow a debtor to refile Chapter 13, but there are strings attached. In a refiled case the automatic stay (the core protection of bankruptcy) would only last 30 days – your attorney would need to file a special motion asking the judge to keep the stay in effect beyond 30 days.
Generally, if case #1 was dismissed because of circumstances beyond the debtor's control – i.e. a job loss or illness – judges will be amenable to extending the stay and eventually approving a 2nd plan. However, 2nd cases are inherently looked at with suspicion by Chapter 13 trustees.
Posted in Chapter 13 issues, Trustee motion to dismiss, chapter 13 case dismissed, motion to extend stay, refile chapter 13, trustee mtd | Comments Off
Tuesday, August 25th, 2009
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.
Posted in Chapter 13 issues, Trustee motion to dismiss, delinqency, mtd, trustee payments | Comments Off
