Reinstatement of Dismissed Chapter 13 Bankruptcy

In a recent decision, In re Trine, Bk. 13-21520 (W.D.N.Y. 2015), the Bankruptcy Court for the Western District of New York held that once dismissed, a Chapter 13 Bankruptcy case cannot be reopened absent “extraordinary circumstances”. The failure of the debtor and her attorney to respond to the letters from the court and motions does not meet “extraordinary circumstances” standard.

In Trine, the debtor made a motion to reopen a Chapter 13 Bankruptcy Case that had been dismissed two months earlier. The reason for the motion was debtor’s failure to make payments pursuant to the terms of the plan.

In  most Rochester Chapter 13 Bankruptcy cases, plan payments are deducted from the debtor’s wages pursuant to the order of the bankruptcy court. A Chapter 13 Bankruptcy debtor is obligated to start plan payments within 30 days of filing the plan whether or not the employer has started to deduct payments from wages. In Rochester, the debtors are typically informed by their attorneys as well as Chapter 13 Bankruptcy Trustee when plan payments must start, and are given specific instructions as to how to make these payment, in what amounts, and where to send them.

For reasons that are unclear, the debtor in Trine did not make any plan payments during the first three months of the case.  Subsequently, the Chapter 13 Trustee sent the debtor and her attorney a letter stating that the plan payments were in default, and requesting that the debtor or attorney respond withing 10 days, that if they failed to respond a motion to dismiss the case would follow, and that if the case was dismissed the creditors would be immediately notified of the dismissal.  The trustee stated he would be willing to accept an arrangement where  the default could be cured over a period of time.

Neither debtor nor her attorney responded to the letter.  Subsequently, the Chapter 13 Bankruptcy Trustee brought a motion to dismiss. After several court appearances, the court gave to the debtor an additional three months to bring the plan current. When that time expired and the plan was still in arrears, the Chapter 13 Bankruptcy Trustee filed a report that the payments had not been brought current and the court entered an order dismissing the case.

Once the case was dismissed, one of the creditor’s repossessed the debtor’s car. Only after the car was repossessed, the debtor’s attorney made a motion, asking for the dismissal to be vacated and the case reinstated so that the car could be returned to the debtor. The Chapter 13 Bankruptcy Trustee opposed the motion, and the court denied it.

The debtor in this case relied on the ‘catch-all’ grounds of Rule 60(b)(6) of the Federal Rules of Civil Procedure, which allows relief from a judgment or order for “any other reason that justifies relief.” Case law interpreting Rule 60(b) states that relief will only be granted by the existence of “extraordinary circumstances”. Judge Warren stated in his decision that this provision “does not provide the easy procedural do-over frequently envisioned by litigants appearing before this court”. The court found that since neither the debtor nor the attorney responded to the default letter or the motion to dismiss, and did not appear at the hearings, the debtor did not present any extraordinary circumstances that would justify the reopening of the case.

Once the debtor received the first letter from the Chapter 13 Bankruptcy Trustee, she should have immediately contacted her attorney as well as Trustee to find out why the payments were not being made.  Further, if the debtor receives a notice of hearing from the Bankruptcy Court, that notice should not be ignored.

If you contemplating filing Chapter 7 Bankruptcy or Chapter 13 Bankruptcy, or are dealing with debt problems in Western New York, including Rochester, Canandaigua, Brighton, Pittsford, Penfield, Perinton, Fairport, Webster, Victor, Farmington, Greece, Gates, Hilton, Parma, Brockport, Spencerport, LeRoy, Chili, Churchville, Monroe County, Ontario County, Wayne County, Orleans County, Livingston County, and being harassed by bill collectors, and would like to know more about how bankruptcy may be able to help you, contact me today by phone or email to schedule a FREE initial consultation with a Rochester, NY, bankruptcy lawyer.