24 June 2010
The answer to this question is hard to predict until a proper analysis is completed. This analysis is based on applying the law to each person’s unique financial circumstances. Everyone’s payment amount is different. As I write, I am aware of one plan proposing to pay $78.00/month, another paying $130.00/month, and another paying about $700.00/month…
Initially, realize that many people do not qualify for a chapter 13 because of various factors including the availability of disposable income. But assuming they do, here are some of the factors used to determine what the payment will be:
First, the “means test.” This is the product of the new bankruptcy laws passed in 2005 when George W. Bush was President and the Republicans controlled Congress. It was designed to drive high-income debtors away from chapter 7 and into chapter 13. It was and remains to be highly criticized. What I can tell you is this, if you earn above the median income of your particular area, you may need to pay your disposable income for 5 years instead of 3. Also, your plan payment will be based on a statutory formula, with the possibility of an alteration, as opposed to being based on what you have left over after deducting your expenses at the end of the month.
Second, is the “best-interest of creditors test.” This test provides that a creditor must make out better in chapter 13 than they would under a hypothetical chapter 7. Its affect is to make you pay over the life of your plan the amount equal to the value of the assets (those that you want to keep) that exceeds your exemptions. This takes some understanding of what an exemption is. An exemption is a certain amount of value in an asset that the law allows you to keep from creditors, and even if you file for bankruptcy. For example, you’re allowed to retain $X amount of value in an automobile or $Y amount in a retirement account. So, in a chapter 13 plan, if you have for example $20,000 in total assets and the law allows you to retain (exempt) $19,000.00 of the value of those assets, you would have to pay $1,000.00 for those assets over the life of your plan. Many people that file for chapter 13 do not have any amount of value of their assets that exceeds the amount of their exemptions, so this test does not require them to pay anything more. (Remember, this is only one part of the plan payment amount.)
Third, you must pay your projected disposable income. Basically, you add up your income and deduct your expenses (except the debt you are seeking to discharge). Generally, what is left over you must pay into the plan. One exception is when you have income above the median income, as stated above (means test), in which case your plan payment will be dictated by a specified formula (at least for the most part).
Fourth, some debts, deemed “priority debts” and “administrative debts” must be paid in full during the course of the plan. This can make a chapter 13 impracticable for some.
Lastly, it matters what you decide to pay through the plan and what you decide to pay directly to creditors. The more items in your budget you pay directly, the less the amount your plan payment will be.
As you can see, calculation of the plan payment is a complicated process and really can only be arrived at after some significant number crunching. If you think filing chapter 13 may be advantageous to you, feel free to give this office a call.
Contact: George E. Bourguignon, Jr.
Phone: (413) 746-8008
Email: gbourguignon@bourguignonlaw.com
Website: www.bourguignonlaw.com
Plan payment in chapter 13/how much will I have to pay during a chapter 13/how does chapter 13 work/monthly payment in chapter 13/monthly payment during chapter 13/can I afford a monthly payment in chapter 13/benefits of chapter 13/is a chapter 13 better than a chapter 7
Tuesday, June 22, 2010
My ex-husband/ex-wife filed for bankruptcy, what do I do?
23 June 2010
There are many concerns that can arise when an ex-spouse files for bankruptcy —too many to address in one or even a few blogs— and every situation is different anyways. So, if you’re in this situation you should immediately meet with a competent bankruptcy lawyer who includes creditor representation as part of his practice (yes, you are likely considered a creditor, and possibly a co-debtor to some debts as well, or at least a “party in interest” in bankruptcy terms).
One concern that absolutely requires assessment by a competent bankruptcy attorney is the property settlement v. support issue. This is important because if your ex-spouse files a chapter 13, they may be trying to discharge (eliminate their personal responsibility for) an obligation they are calling a “property settlement.” You see, an obligation arising from a “property settlement” is dischargeable in a chapter 13, but one arising from a “domestic support obligation” is not dischargeable. So it will be advantageous for them to take the position that the obligation to you arises from a “property settlement” as opposed to a “domestic support obligation.” You may now be pulling your divorce order out to see how the obligation(s) to you are termed. But that will not be the end of it. A bankruptcy court is not controlled by how a state court characterized the obligation(s), but assesses the question according to federal bankruptcy law. In re Peter, No. 02-6295-AA, 2002 U.S. Dist. LEXIS 27329, at * 5 (Bankr. D. Or. Nov. 26, 2002). So, even if your divorce order describes an obligation as a property settlement (or as alimony or some other term). The bankruptcy court may not see it that way. This can make all the difference to you; the difference between receiving all of what is due to you, or just a fraction of it.
A few more suggestions; timing, do not wait. Not only are there important deadlines to meet in bankruptcy, but bankruptcy cases generally move faster than other types of legal cases or proceedings. One other suggestion is, do not rely on your divorce lawyer (usually) to properly assess the ramifications of a bankruptcy filing by your ex-spouse. Typically, a divorce lawyer only has a rudimentary knowledge of bankruptcy, as opposed to someone practicing in the field regularly.
If your ex-spouse just filed bankruptcy and you need some help, or you just finished a divorce and have some bankruptcy concerns, feel free to give us a call.
There are many concerns that can arise when an ex-spouse files for bankruptcy —too many to address in one or even a few blogs— and every situation is different anyways. So, if you’re in this situation you should immediately meet with a competent bankruptcy lawyer who includes creditor representation as part of his practice (yes, you are likely considered a creditor, and possibly a co-debtor to some debts as well, or at least a “party in interest” in bankruptcy terms).
One concern that absolutely requires assessment by a competent bankruptcy attorney is the property settlement v. support issue. This is important because if your ex-spouse files a chapter 13, they may be trying to discharge (eliminate their personal responsibility for) an obligation they are calling a “property settlement.” You see, an obligation arising from a “property settlement” is dischargeable in a chapter 13, but one arising from a “domestic support obligation” is not dischargeable. So it will be advantageous for them to take the position that the obligation to you arises from a “property settlement” as opposed to a “domestic support obligation.” You may now be pulling your divorce order out to see how the obligation(s) to you are termed. But that will not be the end of it. A bankruptcy court is not controlled by how a state court characterized the obligation(s), but assesses the question according to federal bankruptcy law. In re Peter, No. 02-6295-AA, 2002 U.S. Dist. LEXIS 27329, at * 5 (Bankr. D. Or. Nov. 26, 2002). So, even if your divorce order describes an obligation as a property settlement (or as alimony or some other term). The bankruptcy court may not see it that way. This can make all the difference to you; the difference between receiving all of what is due to you, or just a fraction of it.
A few more suggestions; timing, do not wait. Not only are there important deadlines to meet in bankruptcy, but bankruptcy cases generally move faster than other types of legal cases or proceedings. One other suggestion is, do not rely on your divorce lawyer (usually) to properly assess the ramifications of a bankruptcy filing by your ex-spouse. Typically, a divorce lawyer only has a rudimentary knowledge of bankruptcy, as opposed to someone practicing in the field regularly.
If your ex-spouse just filed bankruptcy and you need some help, or you just finished a divorce and have some bankruptcy concerns, feel free to give us a call.
Wednesday, June 16, 2010
What is feasibility in a chapter 13 and why is it important?
18 June 2010
In order to accurately understand the concept of feasibility, it is important to start with a discussion of the basics of filing a chapter 13 bankruptcy. In chapter 13, the debtor needs to present a plan for approval by the bankruptcy court. It is a personal reorganization plan so to speak. Generally, it will include a monthly payment that the debtor must pay to the chapter 13 trustee, who in turn makes payments to creditors, albeit usually less than what creditors would like. Once the plan is approved, the monthly amount will not change unless the debtor’s circumstances change.
One of the many requirements of a chapter 13 debtor, with some unlikely exceptions, is that he must pay all of his disposable income to the chapter 13 trustee for the duration of the plan. For those with income below their area’s median income, which is most debtors, this means deducting the total of their monthly expenses from the total of their monthly income, and paying what remains. Most plans will be three years, but cannot be more than five years. If a debtor does not have disposable income to pay to the trustee, he cannot present a confirmable chapter 13 plan (there are some exceptions to this rule, however, these exceptions are not available in Massachusetts or Connecticut).
Assuming that a debtor does have disposable income, as described above, the plan must be feasible. In other words, “a debtor’s plan must have a reasonable likelihood of success, i.e., that it is likely that the debtor will have the necessary resources to make all payments as directed by the plan.” In re Fantasia, 211 B.R. 420, 423 (B.A.P. 1st Cir. 1997). When a creditor objects to a debtor’s plan, the debtor has the burden of proof to show his plan is feasible. Id. Failing to explain discrepancies that appear in bankruptcy filings can constitute grounds to deny approval of the plan. In re Scott, No. 98-1866, 1999 WL 644380, at *1 (6th Cir. Aug. 13, 1999). In addition, having unrealistic expenses, like not budgeting for commonly expected expenses, or amounts that are too low, can be grounds for denial as well. In re Hockaday, 3 B.R. 254, 255-56 (Bankr. S.D. Cal. 1980).
Empirical evidence shows that some debtors, in hopes of attaining the benefits of chapter 13, present plans, and sometimes are even successful in having them approved, that are not realistic. They likely have unrealistic expectations of living within a budget that they believe, in their exuberance for a successful chapter 13 plan, is possible. Sometimes it is idealistic income expectations, sometimes unrealistic expense expectations. This is why most plans fail, as the debtor does not reach the end of the plan.
If you are interested in the benefits of chapter 13 and want to be successful, or if you are involved in a chapter 13 that you think may not be feasible, please feel free to call.
In order to accurately understand the concept of feasibility, it is important to start with a discussion of the basics of filing a chapter 13 bankruptcy. In chapter 13, the debtor needs to present a plan for approval by the bankruptcy court. It is a personal reorganization plan so to speak. Generally, it will include a monthly payment that the debtor must pay to the chapter 13 trustee, who in turn makes payments to creditors, albeit usually less than what creditors would like. Once the plan is approved, the monthly amount will not change unless the debtor’s circumstances change.
One of the many requirements of a chapter 13 debtor, with some unlikely exceptions, is that he must pay all of his disposable income to the chapter 13 trustee for the duration of the plan. For those with income below their area’s median income, which is most debtors, this means deducting the total of their monthly expenses from the total of their monthly income, and paying what remains. Most plans will be three years, but cannot be more than five years. If a debtor does not have disposable income to pay to the trustee, he cannot present a confirmable chapter 13 plan (there are some exceptions to this rule, however, these exceptions are not available in Massachusetts or Connecticut).
Assuming that a debtor does have disposable income, as described above, the plan must be feasible. In other words, “a debtor’s plan must have a reasonable likelihood of success, i.e., that it is likely that the debtor will have the necessary resources to make all payments as directed by the plan.” In re Fantasia, 211 B.R. 420, 423 (B.A.P. 1st Cir. 1997). When a creditor objects to a debtor’s plan, the debtor has the burden of proof to show his plan is feasible. Id. Failing to explain discrepancies that appear in bankruptcy filings can constitute grounds to deny approval of the plan. In re Scott, No. 98-1866, 1999 WL 644380, at *1 (6th Cir. Aug. 13, 1999). In addition, having unrealistic expenses, like not budgeting for commonly expected expenses, or amounts that are too low, can be grounds for denial as well. In re Hockaday, 3 B.R. 254, 255-56 (Bankr. S.D. Cal. 1980).
Empirical evidence shows that some debtors, in hopes of attaining the benefits of chapter 13, present plans, and sometimes are even successful in having them approved, that are not realistic. They likely have unrealistic expectations of living within a budget that they believe, in their exuberance for a successful chapter 13 plan, is possible. Sometimes it is idealistic income expectations, sometimes unrealistic expense expectations. This is why most plans fail, as the debtor does not reach the end of the plan.
If you are interested in the benefits of chapter 13 and want to be successful, or if you are involved in a chapter 13 that you think may not be feasible, please feel free to call.
Tuesday, June 15, 2010
What is good faith and why is it important in a chapter 13 bankruptcy?
17 June 2010
The term “good faith” is not defined in the bankruptcy code. Nonetheless, the code expressly requires that your chapter 13 petition be filed in “good faith” and that your chapter 13 plan be proposed in “good faith” (your petition is different than your plan); and your case may be dismissed if a creditor can show that you have not operated in good faith. Needless to say, good faith is required every step of the way in bankruptcy. It is becoming so important that there is a trend in bankruptcy law to not allow a chapter 13 debtor to exercise certain rights expressly stated in the code, that we used to take for granted, unless they are operating in good faith. For example, the code says that a chapter 13 debtor has the right to dismiss the case at any time. That used to mean if circumstances changed so that the chapter 13 was no longer beneficial to you, then you could dismiss it and carry on without the benefits (or obligations under your changed financial circumstances) of chapter 13. But if not operating in good faith, this trend indicates that these rights may no longer be available to you. What does that really mean? It could mean that you will not be allowed to dismiss the case and have to stay in chapter 13, or worse, you may have to convert to chapter 7. Why does it matter if you have to convert to chapter 7? Well the reason many people file a chapter 13 is because they get to keep their non-exempt assets, which is not permitted in chapter 7. Also, many people file a chapter 13 to save their homes from foreclosure, and chapter 7 does not contain the same protections to make that possible. So, failing to operate in good faith in chapter 13 could have devastating consequences.
OK, so it’s important, but what is it? Initially, understand that good faith includes both pre- and post-filing acts. Some factors that are considered include: accuracy in stating debts and expenses, lack of effort/ability to pay debts, honesty in disclosing assets and financial affairs (no surprise), manipulation of the bankruptcy code, the type of debts, the motivation, the amount proposed to be paid to creditors, and prior filings. Courts have generally employed a “totality of the circumstances approach.” In re Sullivan, 326 B.R. 204, 211 (B.A.P. 1st Cir. 2005). That is legal speak for “we will consider just about anything reasonable and use our commonsense.” But, the determination about whether good faith is lacking still needs to be made by an experienced practitioner. This is for many reasons, including that many people feel that bankruptcy is inherently unfair, so a lay person may not be able to put aside those feelings from their analysis. Also, an experienced judge will make the decision if good faith is challenged. So, it pays to consult a trained eye to discern what a court could determine is not good faith, and what is permitted under the law.
If you are planning on filing a chapter 13 and would like to meet the requirements, including good faith, or if you have become involved in a chapter 13 someone else has filed and think it is not done in good faith, feel free to give us a call for a free initial consultation.
The term “good faith” is not defined in the bankruptcy code. Nonetheless, the code expressly requires that your chapter 13 petition be filed in “good faith” and that your chapter 13 plan be proposed in “good faith” (your petition is different than your plan); and your case may be dismissed if a creditor can show that you have not operated in good faith. Needless to say, good faith is required every step of the way in bankruptcy. It is becoming so important that there is a trend in bankruptcy law to not allow a chapter 13 debtor to exercise certain rights expressly stated in the code, that we used to take for granted, unless they are operating in good faith. For example, the code says that a chapter 13 debtor has the right to dismiss the case at any time. That used to mean if circumstances changed so that the chapter 13 was no longer beneficial to you, then you could dismiss it and carry on without the benefits (or obligations under your changed financial circumstances) of chapter 13. But if not operating in good faith, this trend indicates that these rights may no longer be available to you. What does that really mean? It could mean that you will not be allowed to dismiss the case and have to stay in chapter 13, or worse, you may have to convert to chapter 7. Why does it matter if you have to convert to chapter 7? Well the reason many people file a chapter 13 is because they get to keep their non-exempt assets, which is not permitted in chapter 7. Also, many people file a chapter 13 to save their homes from foreclosure, and chapter 7 does not contain the same protections to make that possible. So, failing to operate in good faith in chapter 13 could have devastating consequences.
OK, so it’s important, but what is it? Initially, understand that good faith includes both pre- and post-filing acts. Some factors that are considered include: accuracy in stating debts and expenses, lack of effort/ability to pay debts, honesty in disclosing assets and financial affairs (no surprise), manipulation of the bankruptcy code, the type of debts, the motivation, the amount proposed to be paid to creditors, and prior filings. Courts have generally employed a “totality of the circumstances approach.” In re Sullivan, 326 B.R. 204, 211 (B.A.P. 1st Cir. 2005). That is legal speak for “we will consider just about anything reasonable and use our commonsense.” But, the determination about whether good faith is lacking still needs to be made by an experienced practitioner. This is for many reasons, including that many people feel that bankruptcy is inherently unfair, so a lay person may not be able to put aside those feelings from their analysis. Also, an experienced judge will make the decision if good faith is challenged. So, it pays to consult a trained eye to discern what a court could determine is not good faith, and what is permitted under the law.
If you are planning on filing a chapter 13 and would like to meet the requirements, including good faith, or if you have become involved in a chapter 13 someone else has filed and think it is not done in good faith, feel free to give us a call for a free initial consultation.
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