Tag Archives: Chapter 13 Plan Payment

Can A Third Party Help Make A Chapter 13 Plan Payment?

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There are a number of requirements that must be met for proposed chapter 13 plans to be confirmed or approved by the bankruptcy court. See Section 1325 of the Bankruptcy Code for all of the requirements. The focus of this article is Section 1325(a)(6) which provides the court shall confirm a plan if, “the debtor will be able to make all payments under the plan and to comply with the plan.” The proposed chapter 13 plan must be feasible or possible. More or less the bankruptcy filer must be able to make the payments proposed in the chapter 13 plan for the entire life of the plan. Usually the plan will last three to five years depending upon the circumstances. So can a third party help make a chapter 13 plan payment each month for the entirety of the plan? The answer is yes under most circumstances.

Yes, A Third Party Can Help Make A Chapter 13 Plan Payment

This issue does not really come up too often for most bankruptcy lawyers. Most courts generally allow third party help, but it is disfavored for a number of reasons. See In re: Schwalb, 347 B.R. 726, 759 (Bankr. D. Nev. 2006. In Schwalb the court held that a debtor may rely on contributions from family and is not prohibited, but disfavored. Of course if the bankruptcy filer can get it done themselves that is much more favorable than having to rely on a third party for money each month. There has to be a firm commitment from the third party to make the contribution each month into the chapter 13 plan. If a third party contribution seems like it is speculative or will only be occasional then the chapter 13 plan can be considered not possible or feasible. The amount of the monthly contribution must be certain too. How can a court confirm or trustee recommend confirmation if the amount of the monthly contribution by the third party is not listed or known? There are a number of factors to consider: (1) the contributor’s relationship to the debtor and motivation in making the contributions; (2) the contributor’s long and undisputed history of making the contributions otherwise providing support for the debtor; (3) the commitment of the contributor to make the contribution in a specific amount for the duration of the chapter 13 plan; and (4) the financial stability of the contributor to make the proposed contribution. The bankruptcy filer and their bankruptcy attorney have the burden of proof in providing evidence to support confirmation of the proposed chapter 13 plan.

Why Would Someone Need Help With Their Monthly Chapter 13 Plan Payment?

The basic problem is the debtor or person filing bankruptcy does not have enough income after paying normal living expenses to meet their obligation under the bankruptcy code to creditors when filing chapter 13 bankruptcy. The bankruptcy filer may only have $100.00 left over each month, but they have taxes that must be paid back in the chapter 13 plan or mortgage arrears that must be paid back in the chapter 13 plan. To pay the unpaid taxes or mortgage arrears the bankruptcy filer, for example, would have to pay $300.00 each month to fund the plan and make it feasible. Again, the bankruptcy filer cannot afford the plan payment, so they obtain third party assistance from a friend or family member. The friend or family member pays the additional $200 a month to make the plan possible or feasible and meet the requirements of Section 1325(a)(6).

Are There Limits To Third Party Help In Chapter 13?

How these issues are dealt with is different from circuit to circuit, district to district and division to division. But generally speaking most jurisdictions allow third party help under most circumstances. In a recent case with third party help proposed, In re Carolyn Deutsh, 2015 Bankr. Lexis, 1368, the Bankruptcy Court actually denied confirmation of the debtor’s chapter 13 plan for not being feasible. What went wrong here? In this case the third party contributor was the debtor’s boyfriend. So, they are not married and the boyfriend is a new boyfriend who says he “intends to contribute only for so long as he is financially able” according to the declaration filed in the case. Okay, can that be relied upon? The bankruptcy court said no. The third party needs to have some sort of tie to the debtor that is not so new it cannot be depended upon. Also the language of the declaration leaves a lot to be said. Why the declaration in Deutsh or less says “I think or guess I will help” instead of “I will contribute $700 a month toward the chapter 13 monthly plan payment for the entire duration of the chapter 13 plan.” There still could have been an issue with the third party contributor being a new boyfriend, but if the language of the declaration had been more concise about the boyfriend’s willingness to help things in the Deutsh may have been different.

The moral of the story is make sure the third party contributor to the monthly chapter 13 plan payment is committed to help, you have known them for some time and the amount they will contribute each months is listed specifically in the declaration prepared and filed with the court.

Will I Get My Chapter 13 Plan Payments Back If My Case Is Dismissed Before Being Confirmed or Approved?

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There are many reasons why a Chapter 13 bankruptcy case would be dismissed. But what happens after the case is dismissed before the Chapter 13 plan is confirmed or approved? One of the most common questions is what happens to the Chapter 13 Plan payments I made to the Chapter 13 trustee’s office? What about my car payment or other people I owe money to after the case is dismissed?

Chapter 13 Trustee Payments

This is probably the most common question because everyone wants to get the money back they paid into the Chapter 13 plan when the case is dismissed. The money you get back depends upon how many months ago the case was filed and the language of the plan and what is going on in your case. If you have provided for pre-confirmation adequate protection payments to a creditor like a car loan company then those payments plus the Chapter 13 trustee percentage will be subtracted from the amount you get back. Some Chapter 13 plans include a provision that your bankruptcy lawyer will receive some of their attorney fees in the event the case is dismissed. So you may have to subtract all or a portion of your bankruptcy attorney fees from the amount you will get back. This same respect of course was not given to attorneys for debtors. In Chapter 13 cases, rarely at the fault of the attorney for the debtor, the Chapter 13 Plan is not confirmed and the case is dismissed.

Also, as of October 1, 2012, a Chapter 13 trustee is allowed to take a percentage of the Chapter 13 plan payments they return to you for their administrative costs. This is how the Chapter 13 trustee’s office gets paid. They get a percentage of the Chapter 13 plan payments they receive and then pay out to creditors (creditors have to file a valid claim pursuant to FRBP 3001). They used to only be allowed to take their percentage on pre-confirmation adequate protection payment and disbursements of funds after the chapter 13 plan was confirmed or approved. The United States Trustee, a part of the Department of Justice, in August 2012 decided it was okay for the trustee’s to also take their percentage from the amount refunded to people who file for bankruptcy in the event the case is dismissed.

What About The Attorney For The Debtor? How Do They Make Out Upon Pre-Confirmation Dismissal?

Does the attorney for the debtor get paid for all of their time upon dismissal of the Chapter 13 case pre-confirmation? Nope. The debtor’s attorney gets what they received as a retainer prior to the Chapter 13 case being filed. Then if you try and actually get paid for your time you run the risk of getting sued or a one-star review of Yelp for just seeking payment for the actual and necessary time and expenses expended for the benefit of the client.

How much is that? It depends. What happens though is the longer the Chapter 13 case is pending the more time and money the bankruptcy attorney has to expend to keep the case going and get the relief the client is seeking. This causes a horrible conflict of interest created by the compensation rules as they stand right now in the Northern District of California and other districts and Chapter 13 cases. Each and every client is indebted to me post-petition very quickly. Most of my time is front loaded and that is the correct way to properly represent debtors. If you do not go down every road to see if the bridge is out good luck after the case is filed figuring it out in a timely and efficient manner. Bankruptcy is an area of the law that you better have your ducks in a row before filing. So I will spend at least 2-3 hours before the petition is even started to be drafted to make sure we can be successful in reorganizing our client’s debts in Chapter 13. The meeting of the creditors comes around about 30 days after the petition for bankruptcy is filed. I now have around $200 – $300 in real paid expenses and anywhere from 10 – 15 hours into the case upon conclusion of the 341 meeting of creditors. At $350 an hour that is from $3,500 – $5,250 in attorneys fees and expenses expended for the benefit of the client. This is in a case that does not have any issues to address or argue about. If actually have to advocate on behalf of my client because a creditor or trustee’s office is not following the law or interpreting it differently look out. I am now into the case for anywhere from $5,250 to $15,000 [to get this money I have to file a application for approval of my fees and costs with a hearing; that is an additional $2,000 I have to spend just to get the time and expenses I have already spent approved] for fulfilling my obligation to my client regardless of the likelihood of being paid for my time. This is about as benign a way for me to describe these circumstances to you given I am in the boat. I also am poor so I have no real voice or choice in this. I think my largest problem with this I know that in the real world circumstances like this COULD never happen. On the street this COULD never happen. On street you instant personal liability for your choices. I am not condoning violence or vigilante justice. All I am saying is the world has a way of checking you in the natural course of things, some may call it “instant karma,” if you run afoul of another human being. But that is not how most things work today. The cannons or natural law that governed human interaction for thousands of years has been thrown out the window for a system that creates inequities between humans for financial gain. Corporations and a government that can do things and make decisions and have ABSOLUTELY no risk of going to jail for it or losing everything they have worked for their entire life. I put everything on the line each and every day I do business as an attorney. I am always personally responsible by operation of law. I live and work in the community I practice law in. Anyone can walk into my office and tell me what is up from down if they feel it is necessary. That is not how the government or corporations (directors and officers of corporation) have to face with their decisions. Hell, corporations just crunch the numbers and determine if dealing with the death and destruction they are going to cause makes more money than paying the insurance claim or setting up a fund to compensate the victims. Time and time again it seems the human cost can be dealt with and the corporation can still turn a profit so the stock market continues to go up and up. The government at this point is not much different in their decision making it seems. I digress . . . . . . .

At this point maybe the Chapter 13 Plan is confirmed and or possibly not. I can say the only reason our firm does not get a Chapter 13 Plan confirmed is because our client unfortunately cannot or chooses to not do what they are instructed to do to be successful in reorganizing their debts. It is never any fault or lack of effort on our part. We just left holding the bag time and time again. I give free consultations and lose anywhere from $5,000 – $30,000 every year over this issue. If that fair? At some point the powers at be decided the Chapter 13 Trustee’s office should not have to work for free if a case is dismissed pre-confirmation. Somehow that same respect is not given to bankruptcy attorneys. Instead the enforcement of the rules of bankruptcy attorney compensation create a conflict of interest with our clients almost instantly that no one seems to care to change. How sad. So I choose to work for free to uphold my obligation to my clients and the law as their bankruptcy attorney despite the issues discussed above.

Car Loan Payments

This issue was briefly mentioned above regarding pre-confirmation adequate protection payments. Some Chapter 13 trustees will require, or you might be able to cramdown (pay less than what you owe on the loan at the time your case is filed), that your car loan payments be paid inside the Chapter 13 plan. This means instead of making your car payment directly to the car loan company the payment will be made as part of the monthly chapter 13 plan payment to the trustee’s office. If the chapter 13 plan calls for paying pre-confirmation adequate protection payments then the car loan company will receive a car loan payment each month and there will not be a huge amount to catch up on once the case is dismissed. You will have to deduct the payments made to your car loan company if the case is dismissed. What if there are no pre-confirmation adequate protection payments being made? Under this circumstance your car loan company will not have received any payments on the car loan for however many months you were in the bankruptcy case and the chapter 13 plan was not confirmed or approved by the bankruptcy court. If you were in the case for 10 months before it was dismissed and the monthly car loan payment prior to filing bankruptcy was $250, then you will be behind $2,500 in car payments once the case is dismissed.