Bankruptcy Alphabet-P is for Plan

In a chapter 13 Bankruptcy, the most essential element is the Plan.

                    P is for Plan

Photo by Leo Reynolds

Plans are required for Chapter 11, 12 and 13 bankruptcy cases. For this entry, I’m focusing only on the Chapter 13 Plan.

The Chapter 13 Bankruptcy Plan is the debtor’s proposal to pay creditors a certain amount over a period of three to five years. The length of the plan is determined by both the means test and the debtor’s individual circumstances.

The plan categorizes the amount the debtor will pay each month, how much the trustee shall be paid, the amount the attorney is to be awarded, a list of creditors who will receive adequate protection until the plan is confirmed, how much secured creditors will be paid upon a confirmed plan, how much priority unsecured creditors will be paid, whether the debtor assumes or rejects executory contracts or leases and finally how general unsecured creditors are treated.

Click to view a sample version of a Chapter 13 Plan

Confirmation of Plan
The goal of a Chapter 13 Bankruptcy case is to get a plan confirmed by the Court. In order for a Plan to be confirmed, the Bankruptcy Court must determine whether the requirements are satisfied.

1. The court filing fees must be paid;

2. The plan must be proposed in good faith;

3. Unsecured creditors must at least receive the value they would have received in a liquidation in a Chapter 7 case (known as the Best Interest of Creditors Test);

4. Holders of secured claims retain their lien until a) debt is paid in full under the plan; b) secured creditor is paid the value of the allowed claim; or c) debtor surrenders the collateral to the creditor;

Objections to Plan Confirmation
The trustee can object to confirmation of the plan for a variety of reasons:

1. Plan doesn’t satisfy Best Interests of Creditors Test;

2. Debtor is not submitting all of his disposable monthly income;

3. Debtor has not fulfilled all requirements prior to confirmation; (such as provide tax returns to trustee, file certain requirements, etc).

4. Plan does not provide enough funds to pay necessary secured or priority claims.

Secured creditors can object if they believe the plan proposes to wrongly modify their lien or plan does not provide for adequate protection.

Unsecured creditors can object if the plan does not propose to pay the creditor in full, however, the Court will confirm the Plan over the objection of an unsecured creditor if all of the debtor’s disposable monthly income is committed to the plan.

Other Bankruptcy Attorneys talking about the Letter P include:

Pay Advice-New York Bankruptcy Attorney, Jay S. Fleischman

Bankruptcy Alphabet-O is for Objection

You’ve seen it a million times on legal television programs, “Objection!” It doesn’t necessarily play out the same in bankruptcy cases.

              O is for Objection

Photo by Leo Reynolds

There are countless objections that can be raised throughout a bankruptcy case. I’m limiting this entry for two specific objections that are normally raised by trustees and some creditors.

Objection to Exemptions
You will see this objection if the trustee or a creditor does not believe you are entitled to the use of an exemption you have listed on your bankruptcy petition.

If you believe you are entitled to use that particular exemption, a hearing will be required where affidavits and documents would be used to establish your ability to use that exemption.

Objection to Confirmation of Plan
You will see this objection from the trustee or creditor if the proposed plan in a Chapter 13 case does not satisfy the statutory requirements under the Bankruptcy Code.

The requirements to confirm a plan are outlined in the Letter P entry of the Bankruptcy Alphabet.

Objection to Proof of Claim
A debtor or trustee will file an objection to a claim filed by a creditor if the claim is incorrect or filed out of time. It is important that your attorney review these claims to determine whether they are legitimate claims.

If the creditor does not respond to the objection, the Court will deny the claim. If the creditor does respond, a hearing will be scheduled to determine whether the claim is entitled to remain.

Other Bankruptcy Lawyers talking about the Letter O include:
Own-New York Bankruptcy Attorney, Jay S. Fleischman

Bankruptcy Alphabet-N is for Nondischargeable Debt

While the filing of a bankruptcy ultimately leads to significant debt relief, there are situations where your debt may not be dischargeable, or wiped away. We call this nondischargeable debt.

     N is for Nondischargeable Debt

Photo by Leo Reynolds

The following is a list of debt that is not discharged upon the completion of a bankruptcy case.

-Unpaid Taxes: All taxes that are given priority status under the Bankruptcy Code are nondischargeable with very limited circumstances. If you have unpaid income taxes, you should consult with a bankruptcy lawyer to determine whether your tax debt meets the exception.

-Debt Caused by Fraud: This kind of debt occurs frequently in bankruptcy cases. In order for this particular debt to be rendered nondischargeable, a bankruptcy judge must determine whether the debt was caused by fraud through an Adversary Proceeding.

-Unlisted Debt: Debtors are required to list all creditors and debt they have. Failure to list a particular debt could lead to nondischargeability of that debt. Make sure you include all of the debt you have.

-Debt Caused by Fraud from a Fiduciary or Embezzlement: Similar to debt caused by normal fraud, it also includes any fraud if the debtor was in the role of a fiduciary, or person in a special legal relationship such as a conservator, guardian, trustee, or partner, etc. It also includes acts where a debtor wrongfully embezzled or took property of another. Again, a creditor must bring an Adversary Proceeding to determine whether the debt is nondischargeable.

-Spousal and Child Support: Any alimony or child support you owe will not be discharged in a bankruptcy filing.

-Willful and Malicious Injury: Debts that result from an intentional and deliberate injury to another. This is a special debt that can be discharged in a Chapter 13 case, but not Chapter 7. A creditor must bring an Adversary Proceeding to determine whether the debt is nondischargeable.

-Fines and Penalties: Debts related to fines and penalties from governmental entities is not dischargeable. There is a small exception regarding pecuniary loss, so you should consult with an attorney to determine whether your particular fine or penalty will be dischargeable.

-Student Loans: Debts related to education are not dischargeable under most circumstances. They can be discharged if the debtor brings an Adversary Proceeding asserting that paying the student loan created a undue burden on debtor and his/her dependents. See my previous article on student loan dischargeability.

-Driving While Intoxicated: Any debts caused from the debtor driving intoxicated are not dischargeable.

-Waiver or Denial of Discharge: If the debtor had filed bankruptcy before and either waived the discharge or was denied a discharge for a particular debt will not be dischargeable in a subsequent bankruptcy filing.

-Criminal Restitution: If ordered to pay restitution in a federal criminal case, the debt is nondischargeable.

-Debts Incurred to Pay Nondischargeable Taxes: If you use a credit card or check cashing scheme to pay your taxes, the debt associated with the credit card or check cashing company would be nondischargeable.

-Debts resulting from Divorce or Separation: Any debt incurred during divorce or separation is not dischargeable.

-Fees Imposed for Litigious Acts: Fees imposed on a debtor for litigation (filing fees) are not dischargeable.

-Debts Relating to Pensions: Debts for 401k loans and the like are nondischargeable.

-Debts for fraud against Deposit Institutions or failure to maintain capital of a deposit institution: These are uncommon exceptions related to the banking industry.

As you can see, there are some debts that are not wiped away by filing bankruptcy, but the overwhelming nature of bankruptcy laws are to provide debtors significant debt relief.

Other Bankruptcy Lawyers talking about the Letter N include:
Naked-New York Bankruptcy Attorney, Jay S. Fleishman
Nondischargeable-Northern California Bankruptcy Lawyer, Cathy Moran

Bankruptcy Alphabet-M is for Means Test

Significant changes to the 2005 Bankruptcy overhaul law (known as BAPCPA for “Bankruptcy Abuse Prevention and Consumer Protection Act”) gave us attorney practitioners more regulation, required potential debtors additional paperwork in the form of credit counseling, and forced attorneys to be called “Debt Relief Agencies” (which is a slap in the face to knowledgeable bankruptcy lawyers, because non-attorney bankruptcy petition preparers are called the same thing, but they don’t know bankruptcy law). But none of these have brought more ire than the Means Test.

               M is for Means Test

Photo by Leo Reynolds

As the name infers, this is a test to determine certain qualifications related to the debtor’s bankruptcy filing. Specifically, it determines whether a debtor qualifies for Chapter 7 Bankruptcy and if not, how long of a Chapter 13 Bankruptcy Plan must last and how much money should go each month to general unsecured creditors in a Chapter 13 Plan.

What’s the point of the means test?
The concept is to only allow those debtors to file Chapter 7 liquidation who need it most. If a debtor has some money to put into a Chapter 13 plan, Congress wants you to file Chapter 13 and pay some of your debt back.

How does it work?
Without going into all of the little intricacies of the formula, the basic description is an income minus expenses test. You might think, “Great, we have Schedule I & J in the Bankruptcy Petition that includes my current income and expenses, we use that right?” Nope. Well, if we don’t use actual income and expenses, what do we use? Congress has mandated that we average the last 6 months of your income to come to a “current monthly income” amount and then instead of your actual expenses, Congress has standardized most expenses. A one size-fits all concept of expenses. One big problem is that the standard expenses are, for the most part, inadequate. And if you didn’t think that was confusing enough, this means testing calls your average income your “current monthly income”. That’s right. Two different things called your current monthly income. (You can see why Bankruptcy Attorneys and Judges hate it.)

The basic concept to determine whether you qualify for Chapter 7 Bankruptcy is two-fold: First, we determine whether your current monthly income (the average income) multiplied annually is greater than the average annual income for a family of your size in your jurisdiction (another standard). If it is lower, congratulations, you qualify for Chapter 7 bankruptcy, if it is in your best interests. But what if you are higher?

Then we jump to the second hurdle where the standard expenses are subtracted from your current monthly income (the average income) giving us a “current disposable monthly income” (DMI).

Now, we take the DMI and multiply it by 60. If this new amount is less than $7,025 (until April 2013), you qualify for Chapter 7. If the amount is greater than $11,725 (until April 2013), then you don’t qualify for Chapter 7. What about between those two figures?

Well, then we take the amount of your general unsecured debt and multiply it by 0.25. If your DMI multiplied by 60 is less than the debt figure, then you qualify for Chapter 7, if not, you don’t. The test ends there.

What about the Chapter 13 stuff?
The means test tells us two things about Chapter 13: how long your plan must be and what must be paid to unsecured creditors.

Easy one first: If you don’t qualify for Chapter 7 under the test, then your plan must be for 60 months. If you would have qualified for Chapter 7, then your plan must be at least 36 months.

To determine the amount that must be paid to your unsecured creditors, we simply take your current monthly income (your average income) and minus your standard expenses, whatever the amount is must be paid to your unsecured creditors over the plan.

What if my expenses are greater than my income?
If your standard expenses are greater than your income, then you are not required to pay your unsecured creditors anything under the plan (almost-that’s another discussion for another time).

Does that mean I can be in Chapter 7?
Nope. That’s another criticism of the means test.

Other Bankruptcy Lawyers talking about the Letter M are as follows:
Means Test-New York Bankruptcy Lawyer, Jay S. Fleischman
Modify-Northern California Bankruptcy Lawyer, Cathy Moran

Bankruptcy Alphabet-L is for Lien Stripping

Stripping always seems to be positive…If there is one bright spot with the downturn in the housing market, it might come in the form of lien stripping, the ability to totally void a lien on a residential property.

              L is for Lien Stripping

Photo by Leo Reynolds

Lien stripping, essentially voiding the lien, is one of those benefits to debtors under the Bankruptcy Code. In certain circumstances, a debtor under a Chapter 13 Bankruptcy can request the court to void a lien on the debtor’s residential property.

What are the requirements?

11 U.S.C. §1322(b)(2) allows a Debtor the ability to modify the rights of certain secured claims if they are “wholly unsecured”. Case law has pretty much solidified that if a lien is partially secured by property, its rights cannot be modified, but if the lien is “wholly unsecured” meaning the value of the property is less than security interest of the lien, then the lien is wholly unsecured.

Here is an example:

If your home is worth $100,000 and you have a first mortgage balance of $95,000 and a second mortgage balance of $10,000, the Court would not be able to void the second mortgage because it is not “wholly unsecured”. $5,000 of the second mortgage is secured by the total value of the property.

If your home was valued at $90,000 and the you owed $95,000 on your first mortgage and $10,000 on your second, the second mortgage is wholly unsecured. No portion of the value of your home secured the second mortgage. It can be stripped.

Note that regardless of either example, the first mortgage is at least partially secured by the property. It would be impossible to strip a first mortgage unless the value of the property was $0.00, but more than likely, even the land alone would be worth more than that.

This is the kind of knowledge and assistance you don’t get from bankruptcy mill law firms. You only get it from qualified bankruptcy attorneys who know their craft well.

Other Bankruptcy Attorneys talking about the Letter L are as follows:
Lien-New York Bankruptcy Lawyer, Jay S. Fleischman

Bankruptcy Alphabet-K is for Knowledge

You’ve undoubtedly heard the phrase, “You get what you pay for”. Have you ever bought something thinking you were getting a great deal only to get it home and not live up to your expectations? Guess what? The same thing happens in Bankruptcy. What do you look for? Cheap service or knowledge?

                K is for Knowledge

Photo by Leo Reynolds

A recent article by the U.S. Court system indicates a growing trend of pro se bankruptcy filers (those who filed bankruptcy without the aid of an attorney). The article represents that between 2-4 percent of Nebraska bankruptcy cases are filed pro se. An interesting statistic from the article is that 31% of all U.S. pro se filings are dismissed without a discharge of debt. Clearly, these debtors needed proper knowledge from an attorney to represent their best interests.

I wouldn’t advise an individual to file a case on their own. Too many times I’ve been sitting through the meeting of creditors and have witnessed situations where debtors have improperly filed their case and documents or have relied on non-lawyers, known as “bankruptcy petition preparers”, and have had a difficult meeting, which should have been simple.

Similarly, I wouldn’t advise someone to consult with a “bankruptcy mill law firm”. These are law firms who claim to “specialize” in nothing but bankruptcy. The problem with these firms is that they process your paperwork in a “one size-fits all” type of way. No bankruptcy is ever the same as the next. There are situations where you need extra help with special situations that arise. These law firms will abandon you if a creditor contests your bankruptcy, forcing you to either go on your own or find an attorney who is willing to provide the appropriate knowledge to the situation.

Would you file a bankruptcy on your own or go through a bankruptcy mill if you knew that with just a little extra knowledge you could wipe away a second mortgage through an adversary proceeding, void the lien on a car loan, discharge student loan debt or dispose of tax debts?

Caldwell Law provides that knowledge for a reasonable price. You’re not a one size-fits all template or simply a client number. We take great care to thoroughly review your situation and devise whether bankruptcy is the right option for you and if so, which chapter fits your goals and best interests.

Does it cost a little more? Maybe, maybe not. But wouldn’t you be willing to pay a fair price for the benefit of knowledge? That’s what a lawyer should do.

Other Bankruptcy Lawyers talking about the Letter K are as follows:
Keys-New York Bankruptcy Attorney Jay S. Fleischman
Keep-Northern California Bankruptcy Lawyer, Cathy Moran

Bankruptcy Alphabet-J is for Judgment

In Nathaniel Hawthorne’s “The Scarlet Letter”, the protagonist, Hester Prynne, is made to wear the letter “A” made out of scarlet cloth, to exhibit her act of adultery.

In the context of Bankruptcy, often times individuals feel like they bear a similar scarlet letter, the Letter J.

                    J is for Judgment

Photo by Leo Reynolds

In the legal landscape there are several different items that constitute “judgment”, but what I’ll be focusing on is the normal scenario that leads to bankruptcy.

After several months of non-payment, or paying less than the monthly minimum, a credit card company will likely send you off to “collections”. Collections can be a variety of things. It can be an internal department that will harass debtors who owe them money and may have the authority to settle debts. The credit card company may sell the debt you owe to a collection agency who will begin the process of harassing or trying to settle the debt. Lastly, if all else fails, a lawyer is called upon to file a lawsuit.

In Nebraska, when you are sued with a lawsuit, you should be provided notice of the lawsuit either by certified mail or a service processor, such as the county sheriff. For as long as I’ve been a lawyer, it seems more and more I discover situations where debtors are not informed that a lawsuit had been filed against them. That’s another discussion about lawyer ethics.

Once you have been served, you have 30 days to respond to the lawsuit. Often times, there isn’t a defense to the lawsuit, but it could be beneficial to file an Answer so that you can provide yourself with time to find a bankruptcy attorney. If you don’t owe the debt, then you should definitely respond to the lawsuit.

If no response is filed with the court, the collection’s lawyer will go back to the court and request the judge for a Default Judgment, meaning, “Judge, we automatically win because the Defendant hasn’t responded”. The judge will order that a judgment exists against you. The judgment is a legal order that allows the collection’s attorney to use legal remedies to collect the debt, which includes execution of property or garnishing your wages.

An execution of property allows the county sheriff to observe your possessions and indicate in a court filing whether you hold any property that could be sold at a sheriff’s sale. Depending on what the sheriff files, you may have the ability to prevent the sale of some property by using the same bankruptcy exemptions to exempt property.

A collection’s attorney files a Summons for Garnishment in Aid of Execution to garnish the wages or bank account funds. In Nebraska, generally, the amount that can be garnished is either 15% or 25% depending on whether the judgment debtor (the one who owes the debt) is considered a head of household. (Basically, if you are the family breadwinner or use your wages to care for dependents, you are the head of household.) There are exceptions to these amounts based upon exempt wages.

If your employer says that it expects to pay you for the next 60 days, the Court will issue an Order of Continuing Lien, which tells the employer to continue garnishing your wages for 90 days. After that period, the judgment creditor (the one who is entitled to the money) can apply to have the Continuing Lien extended for another 90 day period.

Judgments will remain on your credit report for 7 years from the time they are entered on your report. You can save your credit, or at least recover quicker, by filing a bankruptcy before a judgment can be entered against you.

Other Bankruptcy Lawyers talking about the Letter J are as follows:
Personal Finance Lawyer-New York Bankruptcy Lawyer Jay S. Fleischman
Justify-Northern California Bankruptcy Lawyer, Cathy Moran

Bankruptcy Alphabet-I is for Involuntary Petition

Most bankruptcies are voluntary, meaning the debtor took the initiative and filed their bankruptcy petition on their own. Once in a blue moon bankruptcy cases are involuntary, meaning the debtor didn’t file the bankruptcy case, creditors did.

           I is for Involuntary Petition

Photo by Leo Reynolds

Why would a creditor file a bankruptcy on an unwilling debtor?
A creditor will file an involuntary petition when they believe that a debtor is hiding assets from execution, giving preference to other creditors, or simply dishing assets to insiders.

What chapters can be filed?
An involuntary petition can only be filed in Chapter 7 Liquidation cases or Chapter 11 Reorganization cases. An involuntary petition against family farmers under chapter 12 or wage earner chapter 13 cases are permitted.

For Chapter 11 Involuntary cases, a creditor needs to plan well to determine whether this would be a good remedy because by filing an involuntary Chapter 11 case, the creditor, rather than the debtor in possession, may be open to trustee fees.

Individual debtors in an Involuntary Chapter 7 case need to determine whether there is merit to dismiss the case or whether converting to chapter 12 or chapter 13 would better fulfill their interests.

How can an Involuntary Petition be filed?
A petition can be filed in the following manner:

  • If less than 12 creditors, a petition must be filed by one or more creditors who hold a combined claim of more than $10,000;
  • If more than 12 creditors, a petition must be filed by at least three creditors who hold claims of at least a combined $10,000 more than the value of any such lien on property of the debtor securing such claims held by the holders of such claims. 11 U.S.C. §303.

An Involuntary Petition is an important tool that is often times overlooked by creditors who could force individuals into bankruptcy in order to remedy a debt.

Other Bankruptcy Attorneys talking about the Letter I are as follows:
Income-New York Bankruptcy Attorney Jay S. Fleischman
IRS-Northern California Bankruptcy Lawyer, Cathy Moran

Bankruptcy Alphabet-H is for Hearing

Debtors are required to attend a meeting of creditors around 30 days following the filing of their bankruptcy petition. It’s not called a hearing, because a hearing is defined (by me) as being a session conducted by a judge who decides an argument currently at issue. Despite my contention that it is an examination, a debtor still feels like the §341 Meeting of Creditors is a hearing.

                     H is for Hearing

Photo by Leo Reynolds

If it is not a hearing, what is it?

     The §341 Meeting of Creditors is conducted by the appointed bankruptcy trustee to the case. The Meeting is extrajudicial, meaning it occurs outside of the scope or jurisdiction of the bankruptcy judge. In fact, the Bankruptcy Code prohibits the Court from any involvement in the Meeting. 11 U.S.C. §341(c)

Why is it called a Meeting of Creditors?

     A Debtor’s creditors are permitted to appear at the Meeting and ask the Debtor questions concerning the Debtor’s filed petition, assets, finances and anything relevant to the bankruptcy action.

Do all of my creditors appear?

     No, in fact, out of all of my cases, I’ve only had one creditor ever appear. It was the Internal Revenue Service. The Debtor owed a significant amount of taxes so it was no surprise to the Debtor that they appeared. The Debtor was prepared prior to the Meeting and everything went smoothly. That is not to say that creditors never show up, they just haven’t in my cases yet.

What about this trustee person?

     The Bankruptcy Trustee administers the Debtor’s case. His role at the Meeting is to examine the Debtor under oath to determine whether the petition is accurate and whether the Debtor has un-exempt assets in which can be claimed and liquidated. 11 U.S.C. §343

How long does a meeting last?

     In most cases it takes about two minutes. No joke. Once in awhile, when there are significant un-exempt assets, it may take longer. In even less instances, an examination by a creditor may require that it be held at another time only between the creditor and Debtor in a deposition like atmosphere.

There is not much more to the hearing…er, §341 Meeting of Creditors.

Other Bankruptcy Attorneys talking about the Letter H are as follows:
Household-New York Bankruptcy Attorney Jay S. Fleischman
House-Northern California Bankruptcy Lawyer, Cathy Moran

Bankruptcy Alphabet-G is for General Unsecured Creditor

Generally, there are two types of debt/creditors, secured and unsecured, but the unsecured category is broken down into two additional categories: priority unsecured creditors and general unsecured creditors.

G is for General Unsecured Creditor

Photo by Leo Reynolds

Let’s break down the Creditors by type:

Secured Creditor

  • These are the type of creditors who hold a lien against the property you own. Most examples include your mortgage lender and the bank you pay for your car loan.

Priority Unsecured Creditor

  • These are the type of unsecured creditors that do not hold liens against property, but Congress has deemed more worthy than general unsecured creditors. 11 U.S.C. §507. These debts are not dischargeable. They include:
  1. Domestic Support Obligation Debt-child support and spousal support that is behind.
  2. Wages to a debtor business’ employees.
  3. A Debtor business’ contribution obligation to employee benefit plans.
  4. Debts owed to farmers or fishermen.
  5. Generally all taxes and government fees (but there are exceptions to income taxes owed).
  6. Debt created by a personal injury to creditor when debtor was intoxicated.

General Unsecured Creditor

  • All other creditors not listed as priority. These types of creditors are your credit card debt, cash advance debt, medical debt and any other similar debt.

The beauty of general unsecured debts are that they are discharged unless an exception to discharge is rendered.

Other Bankruptcy Attorneys talking about the Letter G are as follows:
Garnishment-New York Bankruptcy Attorney Jay S. Fleischman
Guaranty-Northern California Bankruptcy Attorney, Cathy Moran