Motion/Order to Raise Plan Percentage filed by your Trustee
Our office receives calls from clients in a panic from time to time when they receive one of these Motions and Orders. And understandably so. Your initial reaction is “I can’t raise my plan payment. I am already stretched to the limit.” Relax, your plan payment is not being raised. What is being raised is the percentage of debt being repaid to your creditors who filed a claim to be paid in your Chapter 13 Plan.
This is purely an administrative matter by the Trustee. Your creditors have a deadline to file a claim to be paid in your bankruptcy. After the deadline, the Trustee reviews your case and pays only those creditors who actually filed a claim. The plan as originally filed may have stated that the intention was to pay the unsecured creditors approximately 10% of the balance owed at the time of filing of the case. However, after all the creditors that filed claims are determined, it appears that your regular payment will end up paying these creditors 25% of what is owed by the end of your plan. For bookkeeping reasons, the Trustee will file a Motion and Proposed Order which raises the percentage paid to unsecured creditors to 25%. It is a simple matter and does not affect the amount of your payment.
Creditors who do not file a claim and were notified of the bankruptcy are not paid within the bankruptcy and will be discharged at the end of the plan even though they received no money. They have given up their right to collect the debt and cannot later make you pay them because they did not get paid in the bankruptcy.
Discharging Post-Petition Debt in Chapter 13
A lot can happen during a Chapter 13 repayment plan which generally lasts three to five years. Sometimes large debts are incurred that the debtor is unable to pay. Fortunately, a Chapter 13 debtor is able to discharge a post-petition debt, but only after certain prerequisites are met.
First, the debtor must amend the repayment plan to provide for a post-petition debt. Second, the debtor must usually obtain the approval of the bankruptcy trustee prior to incurring the debt. This is not always obtainable, especially in the case of a large medical bill. Third, the creditor must voluntarily choose to file a proof of claim. And finally, the claim must either be a tax claim, or a claim for a consumer debt necessary for the completion of the debtor’s plan.
A common situation in which post-petition debts arise in a Chapter 13 case is where the debtor needs to purchase a different automobile. Repaying a post-petition car loan through a Chapter 13 plan is easily accomplished through coordination and cooperation from the trustee, the lender, and the court. The lender agrees to be paid by the trustee, the trustee agrees to sanction the debt, and the court approves the amended plan allowing the lender to be paid through the bankruptcy plan.
In some cases it may not be practical to include a post-petition debt in the debtor’s Chapter 13 plan. In that case, the debtor may elect to convert the Chapter 13 case to one under Chapter 7. The Bankruptcy Code states that a debt that arises after the Chapter 13 filing date, but before the debtor’s conversion to Chapter 7, is to be treated as a pre-petition debt. The Chapter 13 restrictions and requirements listed in the preceding paragraph do not apply to debts in a conversion case.
The Bankruptcy Code contains many flexible options for reorganizing your finances and dealing with your creditors. Even when there is an unexpected event that results in a debt, your bankruptcy attorney can provide you with choices for dealing with a post-petition debt.
What Is A 341 Meeting And What Really Happens When I Go To Court?
I get this question constantly from clients. So here is a quick overview of what it is and how it works.
Whether you file a Chapter 7 or Chapter 13, you will be required to attend a 341 Meeting. A 341 Meeting is also called a Meeting of Creditors. The meeting is typically set 30 days after your case is filed. The Meetings are not held in an actual court room and the Judge is not present.
At this meeting you will meet the Trustee who has been assigned to your case. Typically the trustee sits at the head of the table and has a tape recorder to preserve the hearing for the court’s records. And you will not be alone–an attorney from O’Bryan Law Offices will be right by your side at the table. The trustee will have you raise your right hand and have you swear to tell the truth (put you under oath) just like in any court case where you will be testifying. Then the questioning begins by the Trustee.
Let me stop you right here because this is where your palms start to sweat and your heart is beating 100mph. I have never witnessed a client pass out, throw up, suffering a stroke or heart attack or any other ailment while under questioning. In fact, the response I usually get from clients after it is over is “Was that it?” That is because you are simply asked questions about the information you have provided about your financial information. Who knows the answers better than you! And the trustee is not there to shame you because you have filed bankruptcy. While they are looking at your assets to see if you have anything that could be used to pay your creditors, they are there to help you and do not pass judgment other than if you have assets, no assets, if your plan will pay out, etc.
And it wouldn’t be called a Meeting of Creditors if your creditors were not invited. All creditors have notice of the meeting but most do not appear. The majority of the cases I cover in Chapter 7 do not have any creditors appear. It is more likely in a Chapter 13 but is still a low number that actually come to the meeting. If a creditor appears, that does not mean your stomach should sink. Usually, it is a creditor on a home or vehicle which appears and will ask you information regarding insurance and your intentions as to keeping or surrendering the secured item.
The typical meeting lasts about 5 minutes or less. You spend a lot more time waiting your turn than you do actually in the meeting itself.
It is normal to be nervous of the unknown but I hope this information puts your mind at ease. Literally, if you need someone to hold your hand, we will be happy to do that too.
Is An Inheritance Part Of A Chapter 13 Bankruptcy Estate?
Facts: Client is in the final few years of a 15% Chapter 13. He inherits ½ interest in a home worth about $85,000 and $50,000 in stocks. He only has about $20,000 of total unsecured debt left in his bankruptcy. His Chapter 13 payments are only $200 per month. The Trustee filed a motion to increase his plan to 100%. Result: Debtor sells stock and pays off his Chapter 13 at 100%.
At first glance, the bankruptcy statues would lead you to believe that any inheritance acquired by the debtor at least 180 days after the filing is the debtor’s property. Section §541 describes property of the estate and mentions only those inheritances acquired within 180 days after filing a petition – 11USC §541(a)(5)(A).
However, Section §1306(a)(1) states that property of the estate includes everything listed in §541, and all property acquired by the debtor after the filing of the petition but before the case is closed. Compare that to Section 1327(b) which states “confirmation of a plan vests all of the property of the estate in the debtor”. Further, §1327(c) says that property vesting in the debtor is “free and clear of any claim or interest of any creditor provided for in the plan” (11USC §1327(c)).
Basically, in order to reconcile §1306(a)(1) and §1327(b) and (c), and to capture newly acquired property for the purposes of the bankruptcy estate, Courts rely on §1325(b) –the plan must provide that all of debtor’s “disposable income” be applied to make payments, and then §1329 is used as authority for the Trustee to modify a debtor’s plan after confirmation. The basic argument is that although property vests within the Debtor pursuant to §1327(b), a windfall will be captured for the creditors on a motion to modify under §1329. Is an inheritance this late into a Chapter 13 “disposable income” under §1325(b)? I would think that property excluded by §541, or property otherwise exempted from the estate would not be, but case law seems to result in the opposite analysis.
A few debtor friendly cases indicate use of the ‘best interest of the creditors’ analysis under 11 USC §1325(a)(4) – basically are the creditors better off than they would be under Chapter 7? And in Chapter 7, creditors would most likely not be entitled to an inheritance received over 180 days past the filing date. However, in spite of the Code, Courts have increasingly held that the Chapter 13 estate includes gifts, inheritances, and windfalls that are acquired after the filing. There are several cases where acquiring property (like lottery winnings – see In re Koonce, 54 BR 643 (Bankr DSC 1985), law suit settlements, insurance settlements, inheritances– see In re Nott, 269 BR 250, 257, 258 (Bankr. MD Fla 2000) and In re Euerle, 70 BR 72 (Bankr DNH 1987), large gifts or loans – see Doane v Appalachian Power Co, 19BR 1007 (Bankr WD Va 1982)) has forced Debtors to pay more to their creditors than originally planned for in the Chapter 13. In a recent case in the Western District of Kentucky, a Motion by filed the Trustee resulted in a debtor turning over $205,431.43 to complete his plan at 100% because he won the lottery.
I imagine basic public policy concerns might be behind most of these Court rulings, but isn’t a Chapter 13 supposed to give the debtor a fresh start? It seems like under the Code, any property acquired after the filing should be property of the debtor giving him complete right to control the property. And if so, why is it considered disposable income? Are real property and stocks considered “disposable income”? Why is a debtor penalized for falling into good fortune after filing a Chapter 13? After all, this is not property that was committed to funding the plan. Shouldn’t post-petition acquisitions be used for post-petition obligations? What if Debtor’s case was converted to Chapter 7? Then the property would not be part of the estate – he could keep the inheritance and the creditors wouldn’t even get their promised 15%. Would the conversion be considered in “bad faith” after the Trustee’s motion has already been filed? Hmmm.