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
Showing posts with label chapter 13. Show all posts
Showing posts with label chapter 13. Show all posts
Tuesday, June 22, 2010
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.
Thursday, February 25, 2010
Should I file a chapter 13 plan by myself?
26 February 2010
No. The first reason is because a chapter 13 is a complex legal and financial arrangement. Generally, it is more complicated than a chapter 7. In fact, most lawyers would consider themselves unqualified to assist a client in filing a chapter 7, and even more a chapter 13, and they would be right. The second reason is that the bankruptcy practice is a specialty. This means there are few people out there who are able to give you accurate advice if you are attempting to glean information from those who are knowledgeable. The rest of the information is garbled, off-point, or just flat out wrong. A third reason, related to the second, is that chapter 13 practice, and thus what you need to do, varies substantially from region to region. This means if you are gathering information from the internet or books or pamphlets, if it isn’t geared for your specific locality, its value is decreased. Another reason is that the fail rate for attorney assisted chapter 13 plans ranges roughly between 2/3 and 3/4. The failure rate for pro se filed chapter 13’s approaches 100%. In fact, it is a rarity for the pro se proposed plan to even be confirmed. (Do you know what that means?) Finally, in all likelihood, because of the failure rate, you will waste money, which is probably exactly the opposite of what you are trying to accomplish by filing without the assistance of a qualified attorney.
Let me give you an illustration of the complexity, and thus the danger of filing a chapter 13. A debtor filed a chapter 13, had their plan confirmed, and (after a few bumps in the road) completed the plan all the way to its completion. A success, right? So far I would say yes, and statistically it would be better than about 99% of pro se filers, and even better than the large majority of filers that have the assistance of counsel. But here is what happened.
After the initial filing, but while the chapter 13 plan was underway, the debtor attained a legal claim. After the plan was completed, the debtor sought to pursue the legal claim she obtained while she was completing their plan. The defendant argued successfully that the debtor was barred to pursue the legal claim under the doctrine of judicial estoppel. What happened is that the debtor lost her legal claim because she did not amend her bankruptcy papers while the plan was underway. Robinson v Tyson Foods, Inc., No. 08-14991, 2010 WL 396130 (11th Cir. Feb. 5, 2010).
If after reading this blog you don’t have an idea why the debtor lost her legal claim or what judicial estoppel means, then you shouldn’t file alone. But if you do, when you realize you need help, feel free to give this office a call. However, it would be best to call before trying to do it yourself.
No. The first reason is because a chapter 13 is a complex legal and financial arrangement. Generally, it is more complicated than a chapter 7. In fact, most lawyers would consider themselves unqualified to assist a client in filing a chapter 7, and even more a chapter 13, and they would be right. The second reason is that the bankruptcy practice is a specialty. This means there are few people out there who are able to give you accurate advice if you are attempting to glean information from those who are knowledgeable. The rest of the information is garbled, off-point, or just flat out wrong. A third reason, related to the second, is that chapter 13 practice, and thus what you need to do, varies substantially from region to region. This means if you are gathering information from the internet or books or pamphlets, if it isn’t geared for your specific locality, its value is decreased. Another reason is that the fail rate for attorney assisted chapter 13 plans ranges roughly between 2/3 and 3/4. The failure rate for pro se filed chapter 13’s approaches 100%. In fact, it is a rarity for the pro se proposed plan to even be confirmed. (Do you know what that means?) Finally, in all likelihood, because of the failure rate, you will waste money, which is probably exactly the opposite of what you are trying to accomplish by filing without the assistance of a qualified attorney.
Let me give you an illustration of the complexity, and thus the danger of filing a chapter 13. A debtor filed a chapter 13, had their plan confirmed, and (after a few bumps in the road) completed the plan all the way to its completion. A success, right? So far I would say yes, and statistically it would be better than about 99% of pro se filers, and even better than the large majority of filers that have the assistance of counsel. But here is what happened.
After the initial filing, but while the chapter 13 plan was underway, the debtor attained a legal claim. After the plan was completed, the debtor sought to pursue the legal claim she obtained while she was completing their plan. The defendant argued successfully that the debtor was barred to pursue the legal claim under the doctrine of judicial estoppel. What happened is that the debtor lost her legal claim because she did not amend her bankruptcy papers while the plan was underway. Robinson v Tyson Foods, Inc., No. 08-14991, 2010 WL 396130 (11th Cir. Feb. 5, 2010).
If after reading this blog you don’t have an idea why the debtor lost her legal claim or what judicial estoppel means, then you shouldn’t file alone. But if you do, when you realize you need help, feel free to give this office a call. However, it would be best to call before trying to do it yourself.
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