Category Archives: Chapter 13 Bankruptcy

Do Not Use A Bankruptcy Petition Preparer To File Bankruptcy

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Who are bankruptcy petition preparer’s? They are hired to prepare the documents necessary to file a bankruptcy petition. Bankruptcy petition preparers are prohibited from giving legal advice or practicing law in any way shape or form. I personally have not witnessed anything good coming from using a bankruptcy petition preparer. In theory the petition preparer just takes the documents from you and prepares a bankruptcy petition. The problem is they cannot discuss exemptions to protect your assets, timing of filing the case and pretty much everything you need to know to complete the process correctly and receive a discharge. Bankruptcy attorneys can provide legal advice to make sure your rights are protected properly. Most attorneys carry malpractice liability insurance also. So you can pay someone $150 who will undoubtedly screw up your bankruptcy case since they cannot do anything but put numbers and letters on paper, or you can pay an experienced attorney anywhere from $1,000 – $2,000 to make sure the process is completed properly. The extra cost is priceless. Just ask bankruptcy filer Edward P. Guidry. See below for what happened in Mr. Guidry’s case due to not using an experienced attorney.

Chapter 13 and Chapter 11 Bankruptcy Petition Preparers Are Not Really Possible Around Here

If you know of a case under Chapter 13 or Chapter 11 that was prepared by a bankruptcy petition preparer in which the case was filed, plan of reorganization approved/confirmed by the court, the plan was completed and the bankruptcy filer received a discharge of their debts please provide me with the bankruptcy case number. At least in the Northern District of California using a bankruptcy petition preparer and expecting to have any type of success in a Chapter 13 or Chapter 11 reorganization is not possible. While Chapter 13 reorganization is a streamlined process compared to a Chapter 11 bankruptcy reorganization, a bankruptcy petition preparer will not be able to guide you through the process. It is actually a legal impossibility in my opinion for a bankruptcy petition preparer to even draft a Chapter 13 or Chapter 11 plan of reorganization given they cannot provide legal advice. I suppose they can just put down numbers and information that the client tells them to. I do not know how that would ever work though. While the Chapter 13 Trustee assigned to the case has duty to all parties involved in the bankruptcy case it is not their job to guide someone through the process from day one. If you choose to file your own Chapter 13 or Chapter 11 reorganization case, please retain the services of an experienced bankruptcy lawyer.

Bankruptcy Petition Preparers Can Only Charge You $150

In the Northern District of California bankruptcy petition preparers can only charge $150 to prepare a bankruptcy petition. Many attorneys charge more than $150 to prepare a skeleton petition and the bankruptcy attorney does not sign the petition or represent the bankruptcy filer in the case. In my opinion attorneys violate Section 110 of the Bankruptcy Code if they do this and charge the bankruptcy filer more than $150. If an attorney takes money from a client to help them file bankruptcy you are either the attorney-of-record in the case or do not take the money. Let us think about this. Why would an attorney that files bankruptcy cases for a living not want to put their name on your petition and be your attorney? Is it because they charged more than $150 for drafting a skeleton bankruptcy petition? Is it because the filing of the case is in bad faith? An artist signs their work right? So can we safely assume that if an artist refuses or chooses not to sign their work that there is something wrong with the work, or they are not proud of the work, or they do not want anyone to know that the art is their work? You get the point. An attorney not signing documents they prepare and charge you for is a red flag. If you are going to file a bankruptcy case for the benefit of the automatic stay there is nothing wrong with that in and of itself. That is a benefit of seeking protection of the bankruptcy code.

Bankruptcy Petition Preparers Cannot Give Legal Advice

This is where I have a huge problem with even allowing bankruptcy petition preparers to exist at all. How can anyone prepare a bankruptcy petition under Chapter 7 or Chapter 13 of the bankruptcy code without asking certain LEGAL questions to the bankruptcy filer? They cannot provide any advice as to the benefits/detriments to filing bankruptcy, when to file, what chapter of the code to file under, what is necessary to complete the bankruptcy and obtain a discharge, advising regarding exemptions to protect assets, what the different types of debts are and how to treat or list them, discussing the effects of bankruptcy at all and more less all the other important issues that need to be addressed BEFORE filing for bankruptcy protection.

Horror Story Resulting From Use of Bankruptcy Petition Preparer

I personally have met with at least 50 people who should not have used a bankruptcy petition preparer. The main problems are usually related to listing assets properly and protection them, and the Chapter 7 statement of monthly disposable income. If you own a home you cannot mess around with filing a Chapter 7 bankruptcy case on your own or with a petition preparer. In the current market of rising home prices that is a good way to have your house sold through the bankruptcy estate for the benefit of those you owe money to. In 2005 Congress amended the Bankruptcy Code and created the Chapter 7 Statement of Monthly Disposable Income (“Means Test”). If your six-month average gross income is over the median income for the number of people in your household you do not automatically qualify to pass the means test. You have to know what allowable expenses can be included in the Means Test to try and pass the Means Test and file a Chapter 7 case.

You Can Get Rid of Your Car Title Loan By Filing For Chapter 13 Bankruptcy

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If you have a title loan and are paying 20% or more in interest for the life of the loan you should really consider filing for Chapter 13 bankruptcy and reducing the percentage rate to around 5%. Yes, only around 5%. So you can get rid of your title loan, pink slip loan or equity loan by filing for chapter 13 bankruptcy. The chapter 13 plan reorganizes the debt owed and more or less gives you a new loan for 36 or 60 months depending upon your circumstances under reasonable terms. We have recently had an epidemic of clients with horrible title loans. The monthly car title loan payments were $1,710 and $2,100 respectfully. The percentage rates were above 80%! The highest cash for cars percentage rate we have ever witnessed in writing was 1,000 % interest. How can this be legal in California? Why have your state legislators not made this type of loan illegal?

What happened to state usury laws limiting interest rates?

First of all California title loan or cash for car loans are operating within a loophole in California usury law limiting interest rates. I previously wrote about the downfall of most state usury laws placing a cap on credit card interest rates. See www.westcoastbk.com/blog/2012/07/how-can-credit-card-companies-charge-such-high-interest-rates/ Our Supreme Court of the United States held in Marquette National Bank v. First of Omaha Corporation, 439 U.S. 299 (1978) that a bank could charge interest to customers allowed by the state law where the bank was located, not according to the limitations placed by the usury laws of the state the customer lived in. So what happened? A few states eliminated their usury laws limiting interest rates in that state. Banks then set up shop in the states without usury laws and charged their credit card customers higher credit card interest rates throughout the United States.

If you actually look up California State Usury Laws good luck. There are so many exemptions to the rule why have the rule at all? Title loans or equity loans are perfect example of a loophole being taken advantage of. Just because it is technically legal does that make it right? Our system works better when there is capitalism with a conscience. How can charging 99% interest ever be acceptable?

What is a title loan or cash for cars loan?

A title loan is when you have the pink slip for your vehicle because the vehicle has no outstanding loan but the owner of the vehicle needs some quick cash to take care of some other expense that must be paid soon. The title loan company will take the title to your vehicle and hold it until you pay off the loan. Now they have you and do whatever they want to you. Do you believe or think someone trying to obtain a car for cars or title loan has the money to fight when they are overcharged interest or payments are not properly accounted for? No, there is no recourse in most circumstances. I do not know the percentage of the vehicles repossessed for nonpayment on these title loans, but I have to believe these title loan companies are repossessing a lot of vehicles and making a killing auctioning them off. Or, title loan companies are making a killing charging additional fees for missed payments and stringing the loan out more and more making you pay more and more to get your vehicle title back.

How can Chapter 13 Bankruptcy Help?

There are many ways filing for Chapter 13 Bankruptcy will help you deal with horrible cash for cars or title loans. The first is permanently reducing the interest rate to hopefully around 5%. For example let us say you obtained a title loan about 6 months ago for $4,000 at 99% interest over 36 months. The monthly payment will be about $350.18 a month for 36 months or a total paid of $12,606.48 for the original $4,000 loan received. When filing for chapter 13 bankruptcy, assuming the principal balanced owed at the time of filing is around $3,650, you will pay that principal back at 5% or approximately pay $110 a month in the Chapter 13 Plan for the vehicle loan until the chapter 13 plan is completed in 36 months. And this is all by federal court order. You need to add in bankruptcy attorneys fees and the Chapter 13 Trustee fee to truly calculate the monthly chapter 13 plan payment.

If you really want to get into this topic and how the interest rate can be reduced so much, research topics dealing with the hanging paragraph of Section 1325(a)(9) and its interaction with Section 1325(a)(5) of the Bankruptcy Code. Most bankruptcy lawyers will talk about a vehicle being a 910 day vehicle loan or not.

Second, the amount you pay back on the loan could be reduced depending upon the value of the vehicle and the amount of the title loan.

Third and most important is you will no longer make the payments directly to the car title or equity loan company. Your loan payment will be paid through the chapter 13 plan and by the chapter 13 trustee. This should prevent any funny business with accounting for payments being made and ensure you will get your pink slip back after completing the chapter 13 plan. In the real world you will be at the mercy of the title loan company accounting for your payments properly and being honest about whether you completed the loan and should receive your pink slip back. Take a few minutes and research how many people have problems getting their pink slip back. No doubt someone is getting screwed right now.

How Can I Try to Dismiss a Chapter 13 Case if I am a Creditor?

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If you are owed money and just received a notice of meeting of creditors and deadlines in the mail time is of the essence. Once a bankruptcy case is filed it sets in motion a number of deadlines that are extremely important to creditors. If you are a creditor then mostly likely you may have an interest is trying to get the Chapter 13 bankruptcy case dismissed in its entirety to prevent the discharge of the debt owed to you. So how can a chapter 13 case be dismissed prior to approval or confirmation of the Chapter 13 Plan?

Review the Filed Petition and Attend the Meeting of Creditors

Once the case is filed there is a limited amount of time to review the bankruptcy petition and chapter 13 plan. The meeting of the creditors is scheduled about 30 days after the case is filed. In most jurisdictions objections to approval or confirmation of the chapter 13 plan must be filed on or before the first scheduled meeting of the creditors. Depending upon the type of debt you are owed (secured, priority or general unsecured) the plan will provide how the different types of debts will be treated in the plan. If you have a secured claim or priority claim then generally the plan should provide for full payment over the life of the plan. If you have a general unsecured claim then you will receive a percentage of what you are owed. In the majority of Chapter 13 cases general unsecured creditors receive less than 10% of their claim or less. If the debtor is not treating your claim properly or is not committing all of their monthly disposable income to the chapter 13 plan your bankruptcy attorney may have grounds to file an objection to confirmation or approval of the chapter 13 plan on your behalf.

Objection to Confirmation of the Chapter 13 Plan

The most basic procedure to try and dismiss a chapter 13 case is to object to the confirmation of the chapter 13 plan. To object to the plan you need to have the proper grounds though. Section 1325 of the Bankruptcy Code provides the requirements to confirm a chapter 13 plan. If the proposed plan does not meet the requirements of Section 1325 you can object to approval of the plan. If the plan does not treat your claim properly under state law or the bankruptcy code you may object to confirmation of the plan. Generally the bankruptcy filer’s bankruptcy lawyers will try and work out the problem so that you will withdraw the objection to confirmation of the plan. If no solution can be agreed upon then a confirmation hearing will have to take place for the judge assigned to the case to decide who is right and whether the chapter 13 plan can be confirmed over the objection. If the court agrees and sustains your objection to confirmation of the chapter 13 plan, then the court may allow the debtor to amend the plan again. Eventually the court will seek dismissal of the chapter 13 case if a confirmable plan cannot be submitted within a reasonable amount of time.

Seek Dismissal Pursuant to Section 1307 of the Bankruptcy Code

If the chapter 13 case is just dragging on and on with little to no progress, then a party-in-interest, creditor or trustee may file a motion with the court to request a hearing and dismissal for unreasonable delay. A recent Ninth Circuit Bankruptcy Appellate Panel case discussed this process and procedure. The case, In re Debra Sue Phillips, BAP No. NV-14-1359-JuKuD, the debtor, Debra Sue Phillips, appeals the bankruptcy court’s dismissal of her chapter 13 case pursuant to Section 1307(c) of the Bankruptcy Code.

Section 1307(c) provides that a bankruptcy court may either dismiss or convert a chapter 13 case for cause, whichever is in the best interest of creditors.

– Section 1307(c)(1) provides dismissal or conversion for unreasonable delay that is prejudicial to creditors. In reality the Chapter 13 Trustee’s office will seek dismissal under 1307(c)(1) if the case is dragging on without confirming a chapter 13 plan. § 1307(c)(1). “A debtor’s unjustified failure to expeditiously accomplish any task required either to propose or confirm a chapter 13 plan may constitute cause for dismissal under § 1307(c)(1).” Ellsworth v. Lifescape Med. Assocs., P.C. (In re Ellsworth), 455 B.R. 904, 915 (9th Cir. BAP 2011)
– Section 1307(c)(2) provides for dismissal or conversion for nonpayment of any fees and charges required under chapter 123 of title 28.
– Section 1307(c)(3) provides for dismissal or conversion for failure to file a plan tmely under section 1321 of this title. Rule 3015 provides that a plan is untimely unless it is filed within fourteen days of the petition date. Subsequent plans required by the court are also subject to § 1307(c)(3). Ellsworth v. Lifescape Med. Assocs., P.C. (In re Ellsworth), 455 B.R. at 916.
– Section 1307(c)(4) provides dismissal or conversion for failure to commence making timely payments under section 1326 of this title.
– Section 1307(c)(5) provides for dismissal or conversion upon the denial of confirmation of a plan under Section 1325 of this title and denial of a request made for additional time for filing another plan or modification of a plan.
– Section 1307(c)(6) provides for dismissal or conversion upon a material default by the debtor with respect to a term of a confirmed plan.

If the court finds there is sufficient cause and proper additional grounds then the court must choose conversion to chapter 7 or dismissal of the case entirely. Okay, well, what is cause then? Cause is not specifically defined in the Bankruptcy Code in Section 101 (Definitions). In the Phillips case Section 1307(c)(5) was the section cited to request dismissal. Under Section 1307(c)(5) the first element for there to be cause is denial of confirmation of the Chapter 13 plan and denial of leave to amend and file a new plan. Nelson v. Meyer (In re Nelson), 343 B.R. 671, 674-75 (9th Cir. BAP 2006) In the Phillips case at the time of the hearing on the motion to dismiss the Phillip’s bankruptcy attorneys did not have a current plan on file and the court had denied confirmation of the prior seven proposed chapter 13 plans. The court in Phillips also gave Phillips ten weeks to file an eighth amended plan for consideration, but Phillips did not file an eighth amended chapter 13 plan. The bankruptcy court found cause under Sections 1307(c)(1) and (c)(3) to dismiss the case.

The court must also consider the best interests of creditors when deciding whether to dismiss or convert a case to Chapter 7. In the Phillips case neither the trustee’s motion or the debtor requested or considered conversion to Chapter 7. Accordingly, the 9th Circuit Bankruptcy Appellate Panel affirmed the bankruptcy court’s granting of the trustee’s motion to dismiss the case.

What is a Hardship Discharge in a Chapter 13 Bankruptcy Case?

By Ryan C. Wood

If you are currently having problems making your Chapter 13 plan payments each month due to circumstances that you cannot control there may be some help for you. If you currently have a bankruptcy attorney you should seek his or her advice immediately before your case is dismissed for nonpayment. Most Chapter 13 trustees have a quick trigger finger when plan payments become delinquent. If you do not have a bankruptcy attorney you need to consult with one immediately to see what your options are. There are generally three main options if you are unable to make your Chapter 13 plan payments. The first one is to modify your Chapter 13 plan to a lower payment you can afford either temporarily or permanently depending upon the circumstances. Some Chapter 13 trustees will enter into a stipulation to repay the missed payments without filing a motion to modify and obtain court approval. Another option is to convert your case to a Chapter 7. The third option is to obtain a hardship discharge. All three of these options are dependent on court approval and would depend on your particular circumstances. Today we are going to discuss the hardship discharge.

Pursuant to 11 U.S.C. §1328(b), a hardship discharge is available for people that cannot modify their Chapter 13 plans in a practical manner and had circumstances come up that they could not be held accountable for that made them unable to continue their Chapter 13 plan payments. Additionally, they need to have paid into the plan not less than what they would have paid to their Chapter 7 creditors if their bankruptcy estate was liquidated. It is also important to note that the hardship discharge is only available to people whose Chapter 13 plan was confirmed or approved by the bankruptcy court. If your plan was not confirmed you are not eligible for the hardship discharge. See Toste v. Smedberg (In re Toste), BAP 9th Cir., 2014).

So what exactly does the hardship discharge cover? Does it discharge all your debts or only some of them? To truly understand the hardship discharge we need to know about what is dischargeable or not in a regular Chapter 7 bankruptcy and what is dischargeable in Chapter 13 bankruptcy cases. In a Chapter 7 bankruptcy your general unsecured debt is dischargeable unless it fits into a category under 11 U.S.C. §523(a). These are debts such as those incurred through false pretenses or fraud, priority tax debt, student loans, domestic support obligations, death or personal injury caused by operation of motor vehicle while driving under the influence, restitution, unscheduled debts, and much more. For a complete list you should review the exceptions to discharge under §523(a). Be sure to provide your bankruptcy attorney detailed information about how your debts and how they were incurred if there are any not so good circumstances.

Chapter 13 bankruptcy discharges are broader than Chapter 7 bankruptcy discharges. There are certain debts that are non-dischargeable under §523(a) that are dischargeable in a Chapter 13 case. Pursuant to 11 U.S.C. §1328(a), you are entitled to a full discharge of your debt except for the following debts: debts that provided for a cure for any defaults on any secured or unsecured debts (for example: if you were behind on your mortgage or car payments and the Chapter 13 plan provided for the cure amount), debts for priority taxes, student loans, money obtained by false pretenses or fraud, unscheduled debt, fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny, domestic support obligations, death or personal injury caused by person filing for bankruptcy who was driving under the influence. Additionally, debts for restitution included in the sentencing of a conviction of a crime or restitution awarded in a civil action against the person filing for bankruptcy as a result of willful or malicious injury that caused personal injury or death to someone is also non-dischargeable in a Chapter 13. Thus, if you successfully complete the Chapter 13 plan, the non-dischargeable debt in §523(a) other than the debts enumerated in the above paragraph will be dischargeable. Some issues pursuant to Section 523(a) may require an adversary proceeding to be filed to prove the grounds for a debt to be not discharged.

So what happens if you initially filed a Chapter 13 case but circumstances occurred where it was no longer feasible for you to continue making payments in your Chapter 13 plan? You can obtain the hardship discharge, but the discharge is narrower than the normal Chapter 13 bankruptcy case discharge if you complete the plan and receive a §1328(a) discharge given all of the regular §523(a) exceptions to discharge provisions apply. See Toste v. Smedberg (In re Toste), BAP 9th Cir., 2014). You can look at it as you are receiving a Chapter 7 discharge rather than a Chapter 13 discharge.

Can the Extra $200 IRS Deduction for Having A High Mileage Car or Old Car Still be Used? The Ninth Circuit BAP In Luedtke Say No

By Ryan C. Wood

If you have an old car chances are you are paying more in operational expenses for the old car than a newer one would cost. Most people would agree they have to pay more for repairs such as changing worn out brakes, needing new tires, may be needing a new transmission, timing belt, car engine and other maintenance and service needs for their old car. The bottom line is you need to put more money into your car for the wear and tear. For years bankruptcy attorneys have added an extra $200 pursuant to the IRS standards for old vehicles due to additional maintenance costs. The Ninth Circuit Bankruptcy Appellate Panel in Drummond v. Luedtke (In re Luedtke), BAP No. MT-13-1313, 9th Cir. BAP (Apr. 9, 2014), the 9th Circuit said this extra expense can no longer be used in Chapter 13 Statement of Current Monthly Income and Calculation of Commitment Period and Disposable Income (Official Form 22C).

Different jurisdictions have different rulings when it comes to this issue. Some jurisdictions allow an additional $200 deduction for an “older vehicle operating expense” in the Official Form 22C because they acknowledge the fact that older cars do cost more to maintain. Some jurisdictions do not. Unfortunately for debtors, last week the Ninth Circuit Bankruptcy Appellate Panel moved the Ninth Circuit to the “not allowed” side.

Mr. & Mrs. Luedtke filed a Chapter 13 bankruptcy case in Montana. They had two cars and claimed an additional $200 deduction for an “older vehicle operating expense” on their Chapter 13 Statement of Current Monthly Income and Calculation of Commitment Period and Disposable Income because one of their cars was a 1993 Ford Taurus with 118,000 miles. The trustee objected to the Chapter 13 plan the Luedtkes proposed because the trustee indicated that the additional $200 expense deduction could have been paid into the plan to benefit general unsecured creditors. The bankruptcy court overruled the trustee’s objection and the trustee appealed to the Bankruptcy Appellate Panel for the Ninth Circuit.

According to 11 U.S.C. §1325(b)(1), all of the debtors’ projected disposable income (this figure is derived from the Chapter 13 Statement of Current Monthly Income and Calculation of Commitment Period and Disposable Income, Line 59) needs to be paid to general unsecured creditors. What is this statement determining how much unsecured creditors should receive in the plan? The statement of disposable income takes into account your income averaged over the last six months and compares this average income with the median income for the number of people in your household in the county you live. If you are below the median income in your county then the commitment period can be 36 months. If you are above the median (meaning your income is higher than the median income for your county based on the number of people in your household) the minimum commitment period for the plan has to be 60 months and the statement of disposable income is filled out further. Most of the expenses or deductions from your income are based on IRS National Standards and Local Standards, not your own personal monthly expenses. If your personal expenses are higher than the IRS National Standards and Local Standards you still only receive the deductions calculated by the IRS and not what you actually spend. If you are spending more than the IRS standards, in theory it means you are spending above what you can afford. After all allowable expenses are deducted from your income you end up with the “projected disposable income” figure. This is the minimum amount the general unsecured creditors must receive in the Chapter 13 plan. If you need more help understanding this process you should speak with bankruptcy lawyers in your jurisdiction.

The Bankruptcy Appellate Panel in Luedtke case held that the additional $200 deduction for the older vehicle expense is not listed in the IRS’s Financial Analysis Handbook. The only place that references the extra $200 deduction is under a chapter that only dealt with compromise proposals from taxpayers that are late in paying their taxes. That chapter has to incorporate the chapter in the IRS manual that provides for the National Standards and Local Standards but it is not reciprocal, meaning the National Standards and Local Standards do not incorporate the $200 older vehicle expense. Therefore the court indicated the $200 additional deduction for an older vehicle expense is not allowed to be used in the Chapter 13 Statement of Current Monthly Income and Calculation of Commitment Period and Disposable Income to reduce bankruptcy filer’s monthly disposable income.