Determining Chapter 13 Repayment Plan Payment

If debtor does not qualify for Chapter 7 bankruptcy, that debtor is likely to qualify for Chapter 13 bankruptcy. The most important issue for anyone filing Chapter 13 is to know is how much their Chapter 13 Plan payment will be. In my opinion, given the typical 5 year duration of Chapter 13, properly set plan payment is the most important factor in whether the case will be a success.

Determining the amount of the payment can be challenging at the very beginning of the case. Early estimates of plan payment can change significantly as more information becomes available.

Generally, there are four tests applicable to determining the amount of the Chapter 13 Plan payment:

The Chapter 13 Means Test (officially, the “Chapter 13 Statement of Your Current Monthly Income and Calculation of Commitment Period and Calculation of Your Disposable Income”);
The Disposable Income Test;
The Chapter 7 Liquidation Analysis Test; and
The Required Payments Test

The Chapter 13 Means Test was imposed when BAPCPA became law in 2005. The Means Test’s purpose is to determine whether debtor’s Plan would be 3 years or 5 years long, and to have an objective way to determine the amount of the payment. This calculation uses one of the established four methods of determining your Chapter 13 Plan payment.

The Disposable Income Test is the only one of the four tests that is strictly based on debtor’s ability to pay. Initially, debtor’s net household income is calculated and from that figure, debtor’s actual reasonable monthly expenses are subtracted. The resulting number–disposable income–is Chapter 13 Plan payment. That calculation does not include a deduction for the debts that will be paid through the Chapter 13 case, such as mortgage arrears, car loan payments, student loan payments, tax payments, and credit card bills.

In the Chapter 7 Liquidation Analysis Test, bankruptcy attorney looks at how much debtor’s general unsecured creditors (typically credit cards, medical bills and personal loans) would receive in a hypothetical Chapter 7 case. In many cases, they would receive zero, because there are no non-exempt assets with equity, and creditors would get nothing in a Chapter 7 case. The total amount of payments under Chapter 13 plan can’t be less than the amount determined under the Liquidation Analysis Test.

The last test is the Required Payments Test. Usually, priority debt, such as recent taxes and domestic support obligations, must be paid in full during the course of the Chapter 13 case. Mortgage and other secured debt arrears must also be paid in full, along with unpaid attorney fees, trustee commissions and (in most cases) at least a nominal amount to the general unsecured creditors. Add these payments up, and you reach the Required Payments.

After all of the numbers under each test have been calculated, debtor is required pick the highest amount, which becomes the plan payment. At the same time, that figure may change during the case as creditors submit their proofs of claim, as debtor’s income, expenses and assets change. This figure may also change depending on trustee’s view of the debtor’s financial circumstances.

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, Henrietta, 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.

Debtor and Ability to Reopen Bankruptcy

Generally, chapter 7 debtors have the right to reopen their cases for various purposes after their case is closed. Usually, the court will allow the debtor to do so to remove judicial liens for otherwise discharged debt via 11 U.S.C. §522(f) motion, or to add an overlooked creditor, or to file a financial management course certificate, or perhaps for another purpose.  In In re May E. Jones, Case No. 03-21929, debtor moved to reopen the case 13 years after it was closed, to amend the schedule of real property,  disclosing (for the first time) her interest in a parcel of real property and seeking to have the property abandoned to her under 11 U.S.C. §554. If the court were to reopen the case, a substantial real estate asset would likely revert to the debtor.

After reviewing the parties’ submissions and conducting an evidentiary hearing, Judge Warren found that the debtor was aware of her interest in the real property at the time the bankruptcy was filed but did not disclose that interest in her petition.  The court further found that reopening of the case would not be to the benefit to the creditors, and the debtor could not establish that she had acted in good faith at the time her Chapter 7 bankruptcy case was filed.

Concluding his decision, Judge Warren wrote:

The Court will not accept Jones’s invitation to turn a blind eye to the signals pointing toward bad faith, so that she can have the undisclosed assets abandoned back to her. That seems a bit like a parent rewarding a child who was caught hiding her failing report card with a hot fudge sundae.

What is the takeaway from this case?  The cardinal rule of bankruptcy is full and complete disclosure. Here, the debtor did not fully disclose all of her assets and did not act in good faith. Thus, the court denied her motion and debtor could not benefit from her actions. The above situation is unusual both in the length of time from the time of discharge and the relief sought.  However, I believe that it illustrates a simple principal that in bankruptcy a debtor cannot benefit from his wrongful conduct.

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.

 

Student Loans and Possibility of Discharge

I have previously written about dischargeability of student loans in bankruptcy. For most people filing bankruptcy does not result in a discharge of a student loan under the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act (“BAPCPA”) amendments. The code, as amended, does not provide for the discharge of a student loan in a bankruptcy. In order for the student loan to be discharged, the debtor must brings a lawsuit, known as adversarial proceeding, and ask bankruptcy judge to make a determination that the continued existence of the student loan will create an “undue hardship” on the debtor. Under the applicable prior decisions, “undue hardship” is the most difficult part, that is the debtor must convince the bankruptcy court judge that in this case under the circumstances applicable to this debtor, the debtor will not be able to make any significant payments on the student loans owed. The high burden of proof makes these lawsuits extremely difficult.

However, under appropriate circumstances, it may be possible to determine what position the Department of Education may take on student loan dischargeability. The Department of Education recently issued a guidance letter on whether a student loan dischargeability lawsuit will be litigated or whether the Department of Education will recommend agreeing to the discharge.

The Department of Education seems to be focusing on a number of factors such as debtor’s efforts in trying to repay the loans, physical or mental disability leading to inability to work, likelihood of significant future income and factors beyond debtor’s control that led to the filing of bankruptcy.

Private student loan lenders have no such policy and it will be up to the individual creditor/lender to determine if their attorney will defend such a lawsuit vigorously or agree to settlement before a trial or go to trial.

It is never easy to obtain discharge of student loans in bankruptcy and all potential alternatives should be explored. Another option may be Income-Based Repayment (“IBR”). This program was designed to make sure that graduates who aren’t earning a significant income after graduation aren’t spending all their income on repaying their student loans and may result in a significant payment reduction and potential loan cancellation.

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.

New Bankruptcy Court Judge in Rochester

The uncertainty with regard to the next bankruptcy court judge in Rochester has finally been resolved. On March 15, 2012, Paul R. Warren, Esq., the Clerk of the Bankruptcy Court for the Western District of New York, was sworn in as the next Bankruptcy Judge for the Rochester Division of the Bankruptcy Court.  Judge Warren replaced Judge Kaplan who was sitting in Rochester following Judge Ninfo’s retirement.

Mr. Warren received his undergraduate degree from St. John Fisher College and his law degree from the University of Dayton. He was admitted to practice in the Western District of New York in 1984. In the past, Mr. Warren served as a Chapter 7 panal trustee. A few years later, he was appointed the Clerk of the Bankruptcy Court. Based in Rochester, Mr. Warren had worked in both Rochester and Buffalo offices of the Clerk’s office.

While Judge Warren has been on the bench for only two days, I already heard positive feedback from fellow bankruptcy lawyers who appeared before him during the motion term last week. I look forward to having some first hand experience appearing before him, and I will post my own impressions on this blog.

If you are 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.

Bankruptcy and Cash Advances

Most of my Chapter 7 bankruptcy clients have a lot of credit card debt that was accumulated over time. That debt may have come from making purchases, incurring services charges and interest, as well as taking cash advances  on credit card. While most of credit card debts are dischargeable in bankruptcy, credit card cash advances may represent a significant problem for potential bankruptcy filer.

According to the Bankruptcy Code, any cash advance, or combination of cash advances from one lender, totaling more than $875, obtained within 70 days of the bankruptcy filing date is presumed to be non-dischargeable. This particular provision is included in Section 523(a)(2)(C)(i)(II). The dollar amount of the cash advance, changes every three years.

This provision was included in the Bankruptcy Code because the Congress was concerned that consumers, who obtained significant cash advances relatively close to time they filed for bankruptcy, knew or should have known that they would be seeking bankruptcy relief, and should not be able to eliminate such debts. Another reason for that provision was to prevent consumers from taking cash advances immediately prior to a bankruptcy filing.

However, in terms of procedural issues associated with cash advances taken out with 70 days prior to the filing, in order to have the court declare that the debt is non-dischargeable, the creditor must file objections in the bankruptcy court. Specifically, the creditor must file an adversary proceeding. Since there are filing fees and other expenses associated with such filings, if the amount of the cash advance is not particularly large, most creditors will not bother filing an adversarial proceeding.

However, since a cash advance may result in an adversary proceeding, I always ask my clients about them and, in appropriate situation, may ask the client to postpone the bankruptcy filing until after the expiration of the 70 day period.

If you are 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.

Who Will Be the Next Bankruptcy Judge in Rochester?

At the end of the year, Judge John C. Ninfo II, who has been presiding over the bankruptcy court in Rochester since 1992, will be retiring. The Second Circuit Court of Appeals has been interviewing candidates to replace Judge Ninfo since early this fall.

However, since the Second Circuit has not made its selection so far, the Bankruptcy Court for the Western District of New York has established a contingency plan for January and February 2012. The Hon. Michael Kaplan, one of the two Buffalo bankruptcy judges, will be coming to Rochester and Watkins Glen to preside over motions and hearings.

The administrative order posted on the Court’s Website states that the motion calendars for Rochester in January and February will be held on Fridays rather than Wednesdays, but will not be changed otherwise. Since Judge Ninfo has presided over the bankruptcy court in Rochester for the last 20 years, Judge Kaplan may represent a significant change and Rochester bankruptcy lawyers will have to learn about his approach to bankruptcy cases and judicial philosophy.

If you are 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.

Upcoming Changes in Bankruptcy Filing Fees

I have previously discussed fees associated with both Chapter 7 Bankruptcy and Chapter 13 Bankruptcy. As of November 1, 2011, those fees are going to increase for the first time in several years.

The filing fee for filing a Chapter 7 Bankruptcy or Chapter 13 Bankruptcy will increase by $7. For Chapter 7, the filing fee will increase from $299 to $306. The Chapter 13 filing fee will rise from $274 to $281. The Court Clerk for the Western District of New York announced changes in the filing fees on the bankruptcy court’s website on October 17, 2011. The cost of filing an adversary proceeding and various motions is rising as well.

If you are 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.

Upcoming Changes to the Means Test Figures

Once again, the means test figures for median income are changing as of November 1, 2011. In New York, it means that the amount of income that the debtor can have before being forced into a Chapter 13 Bankruptcy is going to decrease.

Through October 31, 2011, a single debtor in New York could have $46,295 in income in income and still be able to file Chapter 7 Bankruptcy.  Starting November 1, 2011, that figure is decreasing to $45,931.  Similar decreases will take place for all family sizes. The comparison of the existing and new income limits is below.

Old Income Limits

FAMILY SIZE

1 EARNER         2 PEOPLE              3 PEOPLE              4 PEOPLE *

$46,295               $57,777                    $68,396                  $83,942

New Income Limits

FAMILY SIZE

1 EARNER         2 PEOPLE                3 PEOPLE             4 PEOPLE *

$45,931               $56,113                    $66,953                  $81,212

* Add $7,500 for each individual in excess of 4.

While the decreases are not large, they are going to make it more difficult for some individuals and families to qualify for Chapter 7 bankruptcy.

The figures used for the each state’s median income are based on United States Census data, and adopted by the Office of the United States Trustee.  Usually, these figures are adjusted based upon the Consumer Price Index (CPI) for All Urban Consumers once or twice per year.

When the economy is growing, typically income rises because of the cost of living increases, inflation and other reasons. When the economy is not growing, income actually decreased from the prior year. As a result, the means test is adjusted and lower median income figures are used which make it more difficult for debtors to qualify for Chapter 7 Bankruptcy.

If you are contemplating filing Chapter 7 Bankruptcy or Chapter 13 Bankruptcy, or are dealing with debt problems in Western New York, including Rochester, New York, 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.

Cell Phones and Bankruptcy

Filing bankruptcy can release a debtor from an expensive cell phone contract and let debtor discharge the early termination penalty. While now almost everyone has a cell phone, the contracts are typically long term and it is easy for a debtor to run up a substantial bill.  Should a typical consumer debtor filing Chapter 7 Bankruptcy or Chapter 13 Bankruptcy list their cell phone provider as a creditor for bankruptcy purposes?

If debtor has an outstanding bill on a closed account, then such bill must be included with the rest of the outstanding debts. Any such bill will be eliminated by the Chapter 7 Bankruptcy filing, or paid in Chapter 13 Bankruptcy.

In addition, the bankruptcy filing would enable the debtor to not only eliminate their balance but remove their obligation to pay any early cancellation penalty.  Filing a Chapter 7 Bankruptcy has the effect of terminating any “executory contract” which is one in which the parties are still performing it. Cell phone contracts are executory contracts during the contract period. By including the cell phone provider as a creditor in the bankruptcy petition, the contract is automatically terminated, and any early cancellation penalty becomes a dischargeable debt just like the credit card debts. Some cell phone companies may request a security deposit after the bankruptcy filing, but, in my experience, most providers will not ask for a security deposit.

If debtor plans to keep the account, the account must be listed in the bankruptcy petition. Debtors should list the cell phone provider as a potential creditor in the bankruptcy petition, even if no balance is owed. Although the bankruptcy law has the effect of automatically terminating the cell phone contract, virtually all cell phone companies will continue service if the account is current, and will not pay any attention to the bankruptcy filing. The advantage to the debtor is that by including the cell phone company in the petition, even if it is current, is that the contract can later be terminated before the end of the typical two-year period, and the debtor will not be responsible for the early termination penalty.

In addition to the above, debtors should always include their cell phones in Schedule B which lists all of their personal property. Here in Rochester, Chapter 7 trustees have been raising this issue during 341 meetings and asking debtors about the cell phones they owns. Since some of the phones, such as an iPhone, are valuable, trustees can look at them as one more potential asset in the bankruptcy estate.

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.