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Archive for the ‘dismissing a case’ tag

Getting Ready to Finish a Chapter 13 Case

September 11th, 2017 at 7:00 am

Finishing a Chapter 13 case successfully is a big deal. It’s rewarding financially and emotionally. Here’s how it happens.  


The End-of-Chapter 13 Benefits

Just because of the way Chapter 13 works, a lot of its benefit comes near or at its very end. For example:

  • “General unsecured debts”: In most cases most of the debts are neither secured nor “priority,” meaning they are “general unsecured” ones. Also, in most cases a major portion of those debts are not paid through your Chapter 13 plan but rather discharged—legally written off forever. But that doesn’t happen until you successfully finish the case.
  •  “Priority” income tax debts: You have to pay these taxes (usually because they too new to discharge) through your Chapter 13 plan. But you usually don’t have to pay interest or any ongoing penalties on these taxes. However, if you don’t successfully finish your case that interest and those penalties would be imposed again. Once you finish the case, that interest and those penalties disappear.
  • “Stripped” second/third mortgage:  Chapter 13 may give you the power to turn a second or third mortgage into an unsecured debt. This “stripping” of the mortgage from your home gives you tremendous immediate and long-term financial savings.  But this “stripping” requires you to successfully finish the case.
  • Curing first mortgage arrearage: If you are using Chapter 13 to stretch out your payments for catching up on your mortgage, you may well not catch up until close to the end of your payment plan. Under Chapter 13 your mortgage lender is prevented from foreclosing while you are under bankruptcy protection. But if your case gets dismissed before you completely catch up on the mortgage, your lender could start/resume foreclosure. You need to finish your case to ensure that you get current on your mortgage.

How Do You Know How Much Longer Your Case Needs to Go?

In some Chapter 13 cases you know exactly how many months it is supposed to take. Other cases are less clear. That’s because cases can be affected by events that unfold during the years that a case is active.

For example, your Chapter 13 plan may require you to catch up on your “priority” taxes or unpaid child support. You may not know precisely how much you owe in taxes or support at the time your bankruptcy lawyer calculates the length of your plan. Once the exact amount becomes known that may extend or shorten your case. That may be true of certain other kinds of debts, like the arrearage on a home mortgage that you’re curing.

Also, changes in your income and/or expenses can result in a plan “modification,” again potentially extending or shortening it.

So how do you know how long your case has to go while you are in the midst of it?

Your lawyer likely has the information to either very closely estimate or tell you exactly how long you have. He and she could also ask the Chapter 13 trustee to run this calculation. The trustee is likely set up to do that efficiently. (See our most recent blog post about the roles of this trustee.)

Case Completion Events

Once you’ve finished paying all you are required to pay into your Chapter 13 plan, the trustee tells you and your lawyer that you have done so. Your lawyer gets the opportunity for a final review of your case, to verify that everything went as it should.

Once the trustee is satisfied that you’re done, he or she informs the bankruptcy court. Then the court enters a discharge order. That discharges all (or virtually) all the debts that you have not paid through your payment plan. If your plan says you were to pay 20% of your “general unsecured debts,” the remaining 80% would be discharged. Unpaid income tax interest and penalties would be discharged. These creditors could never chase you for these debts. All of the other benefits of Chapter 13 would get finalized.

Simultaneous with the discharge order, the court would order the closure of your case.

You’d be done. It would make perfect sense for you to have a quiet little party to reward yourself for having successfully completed your case!

 

Your Voluntary Dismissal of a Chapter 13 Case

August 25th, 2017 at 7:00 am

The Bankruptcy Code explicitly says that, at the request of the person in a Chapter 13 case, the bankruptcy “court shall dismiss” the case. 

 

The last three blog posts have been about amending, or “modifying,” your Chapter 13 payment plan. But what if you don’t want to be in the Chapter 13 case at all? Can you just end it altogether?

Yes, almost always you can end a Chapter 13 case, by getting it “dismissed.”.

A Clearly Stated, Special Right

You can dismiss a Chapter 13 case easily because the Bankruptcy Code says you can, and says so very clearly:

On request of the debtor at any time… the [bankruptcy] court shall dismiss a case under this chapter [13].

(Section 1307(b) of the Bankruptcy Code.)

Two parts of this deserve to be highlighted:

  1. You can ask for a dismissal “at any time”—at any point in the life of a Chapter 13 case. So you can dismiss it soon after filing, if you realize you’ve made a mistake and change your mind. And you can dismiss your case after your payment plan has been approved by the court, for example, if your circumstances change and you don’t want to be in it any more.  
  2. The law says that “the court shall” dismiss the case whenever you ask. This seems to mean that the bankruptcy court doesn’t have any choice about it. The wording isn’t that the court “may” but rather that it “shall” dismiss your Chapter 13 case.

As a result if you ever want your Chapter 13 case dismissed, usually within a day or so of your bankruptcy lawyer filing a motion to dismiss your case will be dismissed.

Be aware that there isn’t a similar statute enabling the easy dismissal of a Chapter 7 “straight bankruptcy” case. So this is a powerful right special to Chapter 13.

Why Is This Reserved for Chapter 13?

Most likely Congress included this right to provide an incentive for people to file under Chapter 13. Naturally you’ll be more inclined to try a particular legal solution if you can always get out of it. The idea is to encourage people to pay part of their debts instead of writing them off under Chapter 7.

In fact Congress thought this right to dismiss so important that you can’t be forced to give it up. The statute finishes by saying: “Any waiver of [this] right to dismiss… is unenforceable.” (Section 1307(b)) You can‘t be forced to sign away this right by contract or otherwise.

The Importance of the Dismissal Option

A Chapter 13 case lasts a long time compared to a Chapter 7 case—usually 3 to 5 years. A lot can happen during that time. So it can be important to be able to get out.

The major reason you filed your case may no longer apply. For example, you may have filed to catch up on home mortgage payments but you get a job out of state. So now you decide to surrender or sell the home instead, and don’t need the Chapter 13 case.

Or your financial circumstances change so that you don’t need Chapter 13 help, or else it doesn’t help you enough. In the example of being behind on your mortgage, if you came into some money you might be able to quickly catch up and no longer need the time that Chapter 13 buys you. Or your income goes down significantly so that you can’t catch up even within the extended time Chapter 13 provides.

In these and countless other circumstances, it’s good to be able to get out if that’s your best option.

But IS Dismissal Your Best Option?

As easy as it is to do, simply dismissing the case is often not your best option. That’s because most likely you have debts which you would continue to owe. Chapter 13 does not result in a “discharge”—legal write-off—of your debts until its successful completion. So if you dismiss before then you will continue to owe those debts. It may be better to instead “convert” into a Chapter 7 case. But there are situations when dismissal is the best. We’ll address these issues in the next few blog posts.

Can You Definitely Dismiss Your Case If You Want To?

In spite of what we said about the clear language in the statute, there may be some extreme situations when a debtor could not dismiss a Chapter 13 case.

There has been debate among bankruptcy judges about this. Some have decided that in situations of serious debtor abuse or fraud, the debtor can’t escape the jurisdiction of the court by simply getting his or her case dismissed. There may be other statutes or legal principles that can defeat even the clearly stated right of dismissal.  So in limited situations a judge might prevent a Chapter 13 case from being dismissed. 

However, in the vast majority of situations, just about as soon as you ask your Chapter 13 case will be dismissed.

 

“Pre-Petition” and “Post-Petition” Debts in Chapter 13

November 11th, 2016 at 8:00 am

There are various ways of dealing with debts that arise during the course of your Chapter 13 “adjustment of debts” case.

 

On Monday we wrote about debts that arise before filing a Chapter 7 case and those that arise after filing.  Those that arise before filing—“pre-petition” debts—are included in the “straight bankruptcy” Chapter 7 case. If they are the kind of debts that can be written off in bankruptcy (“discharged”), then they are. Those debts that arise after filing—“post-petition” debts—are not included and are not discharged.

A Chapter 7 case usually takes only about 4 months to complete. There is nothing in the law preventing you from incurring new debts at any time. On the other hand a Chapter 13 “adjustment of debts” case takes 3 to 5 years. You are usually not allowed to incur new debts during that time except with court or trustee permission. Also, your payment plan is based on a budget that usually does not have room for paying any new debts. So Chapter 13 presents some special issues in dealing with pre-petition and post-petition debts.

Post-Petition Debts in Chapter 13

Just like in Chapter 7, in Chapter 13 post-petition debts are not covered in the case. That means that a new debt can usually not be added to your pre-petition debts in your Chapter 13 plan. In particular, you can’t discharge a post-petition debt in part or in full along with your pre-petition debts. Instead, you have to pay any post-petition debt in full.

But there are usually sensible ways of dealing with them.

For Example

To make practical sense of this, here are some examples of post-petition debts in a Chapter 13 case.

Minor new debts usually cause no problems. These are more like expenses than debts. For example, if in the middle of your Chapter 13 case you have a doctor’s appointment, and a couple weeks later you get a bill for $120 for the part that your medical insurance didn’t pay, that $120 is technically a new debt. But hopefully your budget allows for it, and you have the money to pay the bill when you get it.

What if the debt is larger, say, $850 to replace all the tires and the brake rotors/pads on your vehicle? Your Chapter 13 budget should have some money every month earmarked for vehicle maintenance and repairs. In the best case scenario you’ve not needed to use that monthly amount during the last several months, and have saved it for just this kind of situation. So you have the $850 available when needed.

But you may not have that money, if it’s gone to ongoing vehicle maintenance and repair costs or other expenses. If you don’t have the money right away, and you can delay getting the tires and brakes for a few months, you could set the budgeted amount aside each month until you have enough.

Amended Chapter 13 Plan or Permission to Incur New Debt

But what if those tires and brakes were at the point that it’s really unsafe to wait? Then your bankruptcy lawyer may be able to solve the problems by amending your Chapter 13 plan. That may reduce your plan payments temporarily, or maybe even permanently, so that you can afford the tires and brakes.

Or the vehicle repair shop may be willing to let to pay on credit. If so, it may be pretty straightforward for you to incur that new debt. You may simply be allowed to do that if the amount of credit is under a certain dollar amount. Or there may be a straightforward procedure in your jurisdiction to get permission from your Chapter 13 trustee or bankruptcy judge. Or if necessary, your lawyer can incorporate that change into a formal amended Chapter 13 plan.

There is very likely some sensible way to deal with this kind of needed new debt.

A Large New Post-Petition Debt

What if you unexpectedly incur a much larger new debt because of some emergency during your Chapter 13 case? A vehicle accident or medical emergency come to mind.

Again, the new debt can’t be included in your Chapter 13 case, and can’t be discharged. So, depending on how much would not be covered by insurance, having to pay that new debt could jeopardize your ability to pay your Chapter 13 plan payments. That situation may be helped by amending your plan, but sometimes that’s not enough. This is all especially true if that accident or medical emergency significantly affects your income and expenses.

There are two relatively drastic solutions to such drastic changes in circumstances.

You could convert your Chapter 13 case into a Chapter 7 one. Your changed circumstances may make the goals of the Chapter 13 case no longer desirable or feasible. The converted Chapter 7 case can include the new debt—indeed any debts incurred since the Chapter 13 filing.

Or you could dismiss your present Chapter 13 case and file a new one. If the goals of the original Chapter 13 case are still viable, including the new debt(s) in a new Chapter 13 case may be your best solution. There is generally no problem getting the bankruptcy court to dismiss a case under these circumstances. And there is no restriction on filing a new case if you did not receive any discharge of debts in the prior one.

The bottom line is that if new debts arise during a Chapter 13 case, there are generally ways to deal with them.

 

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210-342-3400

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