Chapter 13 Case Dismissed Because of Funding Problem
December 1, 2006
Chapter 13 Case Dismissed Because of Funding Problem
Yesterday, one of my Chapter 13 cases was dismissed at the confirmation hearing for one reason and one reason only. I had cured all of the trustee's objections and the case was viable. My clients had the income to make the case work and there was no reason at all that this case should not have worked.
The reason for the dismissal - funding.
Chapter 13 functions as a payment plan. It allows debtors to modify the rights of creditors by changing (reducing) monthly payments and sometimes total balances. In some cases it allows us to reduce interest rates. In some cases it allows us to pay back less than 100% to credit cards. It allows debtors who are delinquent on a house or car note to cure that delinquency over time. All in all, Chapter 13 is a very powerful tool.
If a debtor forgets that Chapter 13 is a payment plan, however, it cannot do any of these wonderful things. If you file a Chapter 13 case, you absolutely, 100% must pay the Chapter 13 trustee. Your obligation to pay starts immediately. And if the payroll deduction order does not kick in for a month, the debtor must make up the difference.
In at least 70% of my cases, the Chapter 13 plan payroll deduction does not kick in right away. For most employers a month's delay is what we see. For federal employees, we may have to wait 2 months. Until that payroll deduction kicks in, the debtor has the sole responsibility for sending trustee payments to the Chapter 13 trustee.
In yesterday's case, I had originally filed the case as an emergency filing. The debtor was facing an emergency situation and I filed an incomplete petition to stop a foreclosure. Because funding is so important, I always file a prelimnary payroll deduction order at the same time as my emergency filing. Since I did not have all the debtor's information on hand, I filed a payroll deduction in the amount of $600 per month just to get some money coming in. I told my client that this figure would likely change and that when we filed the actual plan, they would have to keep their plan current.
After putting all of the case information together, I determined that the plan payment needed to be $1,200 per month. I filed a new payroll deduction order. I also advised my clients of their new payment obligation.
At the 341 hearing, I saw that my client's employer had just started the Chapter 13 deductions - the first month's payments had not been made. As we approached confirmation, I noted that the employer was still deducting $600 and had not started the $1,200 deduction. My client, unfortunatley, failed to make up the difference and was $1,200 behind. As my client had no way to come up with $1,200 I had no choice but to allow the case to be dismissed.
What are the lessons here?
do not assume that your Chapter 13 payroll deduction will kick in immediately. In most cases you will have to pay at least one or two trustee payments directly. Prepare for this.
if your plan payment changes, assume that there will be a 30 to 60 day delay in the processing of your new payroll deduction order
funding of your plan is your responsibility. You cannot put the responsibility on anyone else - not your lawyer, your employer or your trustee
funding of your plan is the most important factor in determining whether your case will work. If your case is funded, we can get a reset hearing to cure the other problems. If there is no funding the trustees will not be very cooperative.
Chapter 13 cases are becoming more and more difficult to get approved. If funding is not an issue all of the other problems are that much easier to solve.
http://thebklawyer.com/thebkblog/2006/12/01/chapter-13-case-dismissed-because-of-funding-problem/
Chapter 13 Case Dismissed Because of Funding Problem
Yesterday, one of my Chapter 13 cases was dismissed at the confirmation hearing for one reason and one reason only. I had cured all of the trustee's objections and the case was viable. My clients had the income to make the case work and there was no reason at all that this case should not have worked.
The reason for the dismissal - funding.
Chapter 13 functions as a payment plan. It allows debtors to modify the rights of creditors by changing (reducing) monthly payments and sometimes total balances. In some cases it allows us to reduce interest rates. In some cases it allows us to pay back less than 100% to credit cards. It allows debtors who are delinquent on a house or car note to cure that delinquency over time. All in all, Chapter 13 is a very powerful tool.
If a debtor forgets that Chapter 13 is a payment plan, however, it cannot do any of these wonderful things. If you file a Chapter 13 case, you absolutely, 100% must pay the Chapter 13 trustee. Your obligation to pay starts immediately. And if the payroll deduction order does not kick in for a month, the debtor must make up the difference.
In at least 70% of my cases, the Chapter 13 plan payroll deduction does not kick in right away. For most employers a month's delay is what we see. For federal employees, we may have to wait 2 months. Until that payroll deduction kicks in, the debtor has the sole responsibility for sending trustee payments to the Chapter 13 trustee.
In yesterday's case, I had originally filed the case as an emergency filing. The debtor was facing an emergency situation and I filed an incomplete petition to stop a foreclosure. Because funding is so important, I always file a prelimnary payroll deduction order at the same time as my emergency filing. Since I did not have all the debtor's information on hand, I filed a payroll deduction in the amount of $600 per month just to get some money coming in. I told my client that this figure would likely change and that when we filed the actual plan, they would have to keep their plan current.
After putting all of the case information together, I determined that the plan payment needed to be $1,200 per month. I filed a new payroll deduction order. I also advised my clients of their new payment obligation.
At the 341 hearing, I saw that my client's employer had just started the Chapter 13 deductions - the first month's payments had not been made. As we approached confirmation, I noted that the employer was still deducting $600 and had not started the $1,200 deduction. My client, unfortunatley, failed to make up the difference and was $1,200 behind. As my client had no way to come up with $1,200 I had no choice but to allow the case to be dismissed.
What are the lessons here?
do not assume that your Chapter 13 payroll deduction will kick in immediately. In most cases you will have to pay at least one or two trustee payments directly. Prepare for this.
if your plan payment changes, assume that there will be a 30 to 60 day delay in the processing of your new payroll deduction order
funding of your plan is your responsibility. You cannot put the responsibility on anyone else - not your lawyer, your employer or your trustee
funding of your plan is the most important factor in determining whether your case will work. If your case is funded, we can get a reset hearing to cure the other problems. If there is no funding the trustees will not be very cooperative.
Chapter 13 cases are becoming more and more difficult to get approved. If funding is not an issue all of the other problems are that much easier to solve.
http://thebklawyer.com/thebkblog/2006/12/01/chapter-13-case-dismissed-because-of-funding-problem/
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