Chapter 13 - What should I do?

[tony7497]

Hey everyone!



I'm posting here today to get some insight on a complex Chapter 13 situation I've found myself in. I'm 31 months into a 54-month Chapter 13 plan and my trustee has filed a motion to significantly increase my monthly payments.



The issue stems from an error by my attorney(who I am firing), who failed to file an updated budget and income schedule after my financial situation changed last year. In a nutshell, my income went up from 95k to 190k per year, they didn't file the correct paperwork with the court and now the trustee is demanding arrears which if I agree would put me in the negative every month until my plan is done.



The Problem: The trustee is demanding 100% of what she estimates should have been paid into the plan during that period, which amounts to a hypothetical arrearage of around $60,000. She's not willing to negotiate, citing that I should have known to set money aside regardless of my attorney's actions. A payment of this size would make my plan unfeasible and put me in a negative cash flow position every month. My income has also dramatically decreased to $125k salaried and I just don't have the money to pay 100% of what the trustee wants.



My Financials:

• Net Monthly Income: ~$6,400
• Monthly Budget (not including trustee payment): ~$4,000
• Current Trustee Payment: ~$1,400

The Proposed Solution: I've hired a new attorney who is proposing a strategic compromise:

1. File new, accurate budget and income statements.
2. Offer a lump sum of $17,500 (this year's underpayment) into the plan.
3. Extend the plan to the full 60 months and propose a new, feasible monthly payment that I can actually afford.

My attorney believes this is our best shot, but that it's a "coin toss" whether a judge will approve it over the trustee's objection.

Has anyone been in a similar situation where a trustee demanded a large arrearage due to a prior attorney's error? If so, can you comment on that or just a recommendation on what I should do? I just am so upset my previous law firm basically commited malpractice by not filing new income and budget motions correctly and I am penalized for it.

[justbroke]

I have seen other plans which were deemed infeasible while the debtor was in plan. It happens. You really have no recourse. If you notified your attorney as soon as you knew of this increase and followed up to make sure the plan was modified, it would have been the same increase in payments. The Trustee is treating this no differently than the IRS does when a third-party tax preparer makes a mistake in calculating a tax; the tax is still due from the taxpayer.

If you want to file a complaint with the State bar you may do so, but you will still owe the amount to the plan.

At least you have a 54 month plan and can propose extending it to 60 months (adding six months). I'm guessing the $17,400 represents six-months of payments. That sounds like a great strategy. Any Chapter 13 Trustee that would rather force the issue over having you dismiss and refile is likely not running the numbers (e.g., $17K in hand now is better than $0 now and a voluntary or involuntary dismissal).

My guess is that you are required to provide income tax returns to the Trustee and they noticed the significant change in income. Your attorney may not have noticed the difference, but the Trustee's office is who is actually watching every dollar. I'm not sure I would have caught it unless the debtor said to me, "Hey, I just got a $100K/year raise. Do I need to do anything?" I'd be sure to keep the response (in a writing of course), should any issue arise. But I also know that such an increase must be documented and any additional income is property of the bankruptcy estate in a Chapter 13.

[tony7497]

Very good analogy about using a bad tax preparer and still being held liable. It's shameful that professionals like this can basically get away with life altering decisions by not doing their jobs and missing court deadlines with zero repercussions.

I may very well dismiss my case to handle creditors on my own. My credit has significantly improved to a low 700 score and I've gotten a pre approval to refinance my cars to 8%, lower those payments and reduce the months on them to pay off faster. For any unsecured creditors I can continue paying my trustee fee to myself each month and deal with them one by one if they come after me. Worst case file another chapter 13 or 7 if I need to.

For the record, I did notify my previous law firm on their portal last year, provided pay stubs and they filed a new income and budget statement last summer with the courts but was rejected for missing my signatures (they never asked). I continuously called and emailed them multiple times a month and it wasn't until my tax return this year the trustee raised hell over all of this. The entire time since my pay raise they reassured me I did the right thing notifying them and that I would be fine (until I wasn't). I have proof of all of that and am hopeful they judge would have mercy or accept the offer I've made in good faith considering the circumstances.

Im still contacting malpractice lawyers at this moment and definitely have a case from what I've heard. It's just trying to calculate how much the loss would be to see if it would be worth their time...

[tony7497]

Also, a big issue with my case is that they're trying to get me to pay back 100% of my student loans when they can't even be discharged in bankruptcy. I have a separate IBR plan with Nelnet so if I dismiss that would chop my debt owed in half and they're very lenient in payment plans.

[justbroke]

Regarding the student loans: the majority rule among the bankruptcy districts is that student loans should be paid-in-full if the debtor is in a 100% plan and can afford to pay them in full over the "applicable commitment period." In other words, they treat them as a priority unsecured debt (so to speak) that must be paid in full during the plan's life.

Yeah, I hate that since student loan repayments last well beyond any Chapter 13 plan.

[tony7497]

That is what will cause me to file for dismissal if my trustee and judge do not agree with the plan my attorney is presenting. It is such a pain because I can enter into a reasonable repayment plan like IBR with the Department of Education and pay a much lower amount. But the courts won't accept that apparently.

Also, is it unheard of for a debtor to get in front of the judge and trustee for something like this? I want to show them all of the texts, emails and messages I have with my previous attorney where he lied saying he submitted income and budget statements and the courts were notified. I just don't understand how that doesn't count for something if you were misrepresented by a law firm. I spent $5,000 for them to submit court documents and notify the trustee on my behalf and they failed to do so which is causing this giant mess now.

[justbroke]

Yes, your bankruptcy attorney can ask to override the Trustee. But in the end, you are still responsible for the amounts that you should have paid into the plan (e.g., the IRS example). Let your attorney work with the Trustee to come up with a plan. Usually the Trustee and Attorney can work things out. If they don't then you go before the judge and argue your case. The judge is the referee and final arbiter of this issue.

So the Motion to Increase Plan Payments will go before the court anyhow. The way that you resolve the amounts owed is the part where your attorney and Trustee attempt to work out something. If they can't agree, then it goes to the hearing where your attorney will advocate on your behalf to pay the $17K now and then the remainder of the remaining months of the plan while extending the current confirmed plan to 60 months. If this attorney is the one that made the error then I'd think they'd be more than willing to fight on your behalf and explain the situation to the Trustee and potentially to the court to work out a new Modified Plan.

If not, your recourse is always to voluntarily dismiss.

[tony7497]

This is a new attorney I hired and paid for out of my own pocket to take over my case. I am firing the firm that was representing me because they made the mistakes I mentioned and are refusing to do anything I ask or get on the phone with me to discuss a plan of attack. From what I have heard in other consultations this week they are a paper mill for getting as many bankruptcies filed and do not care about their work at all. My new attorney is the one who was open to this idea and made no promises since it seems our trustee isn't receptive to this idea and wants 100% of arrears.

Worst case she says no and it goes before the judge who would make the final decision like you said. That's why I asked if it was normal for a debtor to speak in person to the judge if it gets that far and explain the human aspects of a case like mine where the initial attorney completed messed up and it's been documented with calls, texts, emails, etc. It might not change the outcome at all but I really would like someone of authority to hear how messed up my situation is due to professional council not doing their job and submitting paperwork correctly or in a timely manner to meet deadlines.

[justbroke]

Whether your new attorney will allow or need you to speak will be decided at some point if the judge wants some sort of evidentiary hearing. At least the judges here in Florida prefer that a debtor stay in play; they literally call it a "pay to play" system for Chapter 13s. A Chapter 13 Trustee is not successful unless the debtor is successful. This is mantra is what drives most Chapter 13 Trustees that I have met.