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Nuts & Bolts of Confirmation 3/24/2017. The outline is for Mary Grossman’s and Rebecca Garcia’s offices Contact information and answers to many procedural questions are available on our respective websites: Rebecca Garcia www.ch13oshkosh.com Mary Grossman www.chapter13milwaukee.com.
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Nuts & Bolts of Confirmation 3/24/2017 • The outline is for Mary Grossman’s and Rebecca Garcia’s offices • Contact information and answers to many procedural questions are available on our respective websites: • Rebecca Garcia www.ch13oshkosh.com • Mary Grossmanwww.chapter13milwaukee.com
What We Hope to Accomplish • Office efficiency • Faster confirmation (attorney fees paid faster) • Less noticing • Save money • How using checklists can help you • Avoid common errors • Make sure you have all the documents needed
Petition • List all prior names on petition • Especially if potential issue with photo ID and Social Security Card at the 341 meeting • List all prior cases filed in last eight years on the petition • Know if your client is eligible for a discharge • Be sure to complete No. 11 if debtor rents his or her residence
Petition and Schedules Non-Filing Spouse (NFS) • Make sure NFS is on Court Docket • Must be done at the time petition is filed • If not done, you will have to send notice to all creditors and file a copy of the notice and certificate of service with the court • Make sure all assets and debts of the NFS are listed
Schedule A/B- Real Estate • Best to show how value of Real Estate was determined, including calculation of cost of sale in the description section • Complete all pertinent information about each property including community property checkbox
Schedule A/B-Personal Property • Generally nothing, other than debtor’s pending PI or WC claims, should have an “unknown” value • Review pay stubs for additional bank and credit union accounts and prepaid debit cards • Check all bank account, investment account and cash value life insurance balances on the date the petition is filed (right before it is actually filed) if close to exemption limits. • Provide Trustee with copies of all bank statements, investment account statements, and statement of cash value life insurance from date of filing • Send with tax returns and pay stubs
Schedule A/B-Personal Property • If the debtor owns a business list all assets and accounts receivable • If corporation or LLC - list the interest and value • Describe how value was determined • If no vehicles be ready to explain why • List household goods (No. 6) and electronics including cell phone (No. 7) separately • If debtor is renter, remember to list security deposit • If you list pet/animal expenses on schedule J, list on schedule A/B also
Schedule C-Exemptions • If using homestead exemption make sure it is the homestead – not other real estate • Check the wildcard exemption to make sure it is not over-used • Remember one person/one vehicle rule for car exemptions • Do not mix federal and state exemptions • If the debtor has recently moved to the state make sure that they are eligible to claim the state or federal exemptions • Mistakes in exemptions in schedule C always require an adjourned 341 because of time limits to object to exemptions
Schedule D-Secured Debt • Make sure ALL secured debt is listed – even if small balance • Watch out for small secured debts • Get It Now • Your Credit • Wells Fargo Financial Acceptance • Colder’s • American TV • Jewelry Sellers (Shaws, etc.) • Kirby (United Consumers Financial) • Citifinancial • American General Finance • Heights Financial
Schedule D-Secured Debt • Purchase Money Security Interest Debts • Make sure to put in date incurred as it determines treatment in the plan • 910 days (cars) • 1 year (any other thing of value) • Indicate on schedule D if the debt is PMSI or non-PMSI (matters for adequate protection and cram downs) • Property taxes are secured debts • Watch for income tax or other tax secured debt; may be secured if there is a tax lien • Calendar claims bar date to be sure you file secured claim if secured lender does not file it • Debtor can file claim for creditor within 30 days after claims bar date
Schedule E/F-Priority Debt-Taxes • Schedule IRS and WDOR in every case as even if debtor does not expect any tax liability • They are NOT noticed automatically • If tax debt is owed, better to get claim in sooner so you can deal with it • If priority debt is owed and not scheduled there will be no claim or it will be a late claim • The Trustee will successfully object to late claims • The debt will survive the case • Priority debt must be paid in full • Tax debt may or may not be discharged
Schedule E/F-Priority Debt -Taxes • Check tax transcripts before filing • Make sure all returns are filed • Don’t forget business tax returns, including payroll, sales and use, road use, and personal property tax • Have clients who file their bankruptcy case early in the year (Jan –Mar) file their income tax returns as soon as possible • If returns are filed shortly before the case, or between filing and the 341 meeting, send returns to Insolvency Specialist assigned to case (listed on proof of claim)
Schedule E/F-Priority DebtTaxes (continued) • Code requires prior 4 years of pre-petition taxes be filed before confirmation can be recommended • Trustee needs either • An amended IRS claim – takes several weeks • Stamped copies of the returns, or confirmation from the IRS (letter, fax) that the returns are filed. • Verification of successful electronic transmission if debtor testified at Sec. 341 meeting that returns have not been filed and taxing authorities have not filed claims showing unfiled returns.
Schedule E/F – Priority Debt – Domestic Support Obligation • Domestic Support Obligation (DSO) • List recipient name and address – NOT just WISCTF • If address unknown list name c/o WISCTF • If recipient out of state check UST website for that state’s DSO address (Contact Sheet) • Review paystubs for DSO withholding • List on Sch. E/F even if debtor is current on DSO • Consider if DSO debt is due to person[Sec. 507(a)(1)(A)] or government[(Sec. 507(a)(1)(B)] • DSO debt to government eligible for special treatment in plan, but debtor must propose 60 month plan
Schedule E/F & Debts Generally • Do not list amount of debt as unknown • If close to the debt limit check if debts are • Contingent • Unliquidated • For all debt sections • Proof read to make sure creditors are not listed with “need address” • Use Part 3 of Sch. E/F to add multiple collection agencies • Might help with debt limit issues
Schedules D and E/F Generally • Vital that all creditors receive notice in Chapter 13 case to ensure discharge, if Debtor is eligible for discharge • Not like a chapter 7 no asset case because all chapter 13 cases are asset cases • SVK’s Guseck 310 B.R. 400 (Bankr. E.D. Wis 2004) decision • Adding debt after the bar date is too late • Especially important if adding debt • Must be pre-petition debt • Court does not send notice to the creditor • When amending debt schedules you must send the creditor; • notice (copy of the 341 notice) with bar date,AND • Copy of the plan and possibly amendments
Schedule G-Executory Contracts • Don’t forget the leased car • OK to omit car lease on Schedules A/B & D • Make sure Schedule G lessor is on mailing matrix • Make sure leased car payment is listed on J • If debtor has residential lease other than month to month, include residential lease on Schedule G
Schedule H-CoDebtors • Item 2. should be “yes” for all Wisconsin debtors • List codebtors • Did debtor co-sign for their kids’ car? • If just co-debtor uses car, debtor probably still on title, so be sure to list car on Schedules A/B and C and car loan on Schedule D
Schedule I-Income • Make sure all occupation and employer information is complete • Payroll address • How long on the job • Trustee reviews when looking at income • If income not consistent has there been a recent job change? • Check paystubs carefully. List all deductions for: • Taxes withheld • Health and life insurance, including flex spending and HSA contributions • Retirement plan contributions and loan repayments • DSOs (See previous slide Sch E/F-Priority-Debt DSO)
Schedule I-IncomeChild Support/401(k) • Child support received • Know when it ends (if kids are teenagers) • How will debtor make plan payments when it ends? • Child support paid and/or 401(k) Loan repayment • Know when it ends • If under-median income, plan payments should increase when the 401(k) loan or child support ends • Step plan • If over-median income line 19 and 41 of the 122C-2 should be averaged. • OK to do step plan if needed to make the required payments.
Schedule I-Income • Business Income and Rental Income • Net business and rental income should appear on Schedule I, Line 8a • File a separate attachment for each business and rental property as instructed by the form • Do not invent the income • Acceptable proof of business income • Schedule C tax return (divide by 12 for monthly); but NOT depreciation • If no records compile them! • Don’t forget # 13 is a code requirement under Sec. 521(a)(1)(B)(vi) • If there are changes put them down (e.g. step payment plan – how will debtor make stepped up plan payments?) • Use #13 for other explanations regarding other expected changes in debtor’s income
Schedule J-Expenses • List all dependents. Compare to dependents on most recent tax return and be prepared to explain differences. • Debtor(s) + number of dependents should generally = household size on 122C • For mortgage payments • If no escrow, make sure monthly amount for property taxes is listed • Don’t forget • Ongoing timeshare payments • Condo fees • Leased car • Any direct payments • Child Support • Student Loan
Schedule J-Expenses • Bureau of Labor Statistics keeps average expenses for family size • Expenses looked at as a totality of the circumstances • Common items that are high include • Food • Cell phone, cable, internet • Transportation, especially extra amounts for repair/maintenance or a budget to replace the car • Be prepared to provide proof or computation • 40% of amount for mileage in IRS tables is car ownership expense • Miscellaneous/entertainment/charitable contributions
Schedule J-Expenses • If self-employed or have insufficient or no tax withholding, provide something for taxes • Review prior tax returns • Does debtor usually owe or receive refund? • Child support paymentsif not withheld form debtor’s pay • If student loans are listed on J then they must be • Long term debt • On plan as direct • No gifts, gym memberships, kid’s music lessons or sports • Storage expense is, at best, questionable
Schedule J-Expenses • Net on the bottom of J has to approximately equal the plan payment. • The net amount on the bottom of J may exceed the plan payment if Debtor is over-median income and the means test allows • If budget is negative • Can the debtor afford a Chapter 13? • Large expenses or net on bottom of Schedule J larger than plan payment OK to the extent of Social Security income on Schedule J • Complete Schedule J-2 for expenses of Joint Debtor if Debtors are separated
SoFA No.1 – No.3 • No.1 If Debtor filing alone, but married box checked, have creditors received notice of NFS? Is Sch. H completed correctly? • No. 2 Trustees use prior residence information to determine if venue is proper and proper exemptions claimed on Sch. C • No. 3 Should always be consistent with Schedule H#2 regarding spouse
SoFA No. 4 – No. 6 • No. 4 and/or No. 5 complete income information needed • Income from employment or operation of business and all other income • No. 5 other income and losses • List Gambling winnings/losses • Review tax returns for other income • No. 6 Payments to Creditors (preference payments) • Check box for purpose of payment (mortgage, car, credit card, loan repayment, other-specified.)
SoFANo.7 – No.8 • No. 7 Debt payments to family or friends • Provide recipient’s name and address • Prepare debtor that family/friend Trustee’s office may contact person to obtain statute of limitations extension • No. 8 Payments to someone other than family or friends on account of debt owed to family or friend • Example: Mom lets debtor use her credit card and debtor repays debt to mom by paying mom’s credit card bill
SOFA No. 9 – No. 10 • No. 9 Lawsuits • list all matters active in one year prior to filing including divorces, child support or custody actions, small claims, personal injury cases and known class action lawsuits. • No. 10 Garnishments, Repossessions, Foreclosure within 1 year • Tells the Trustee about secured claims that might not be in plan • Was there a car repossessed in the month prior to filing? • If there is a return or repossession just before filing, put on the plan as surrender • The vehicle may not be sold and the creditor may file a secured claim • If more than $600 taken through garnishment in 90 days before filing, consider reporting on Schedules A/B and C and recovering from creditor
SOFA No. 13 – No. 15 and No. 18 • No. 13 List all gifts of cash and/or property of over $600 per person to anyone within 2 years before filing (Trustee will ask about gifts within 4 years) • Includes the old car given to a family member • No. 14 List each charity that received contributions from debtor totaling more than $600 over within 2 years before filing • Check prior tax returns and paystubs for charitable contributions • Compare to charitable contributions listed on Schedule J and Form 122C • No. 15 List all losses incurred within 1 year before filing due to theft, fire, disaster or gambling • No. 18 List sales, trades or other transfers of property of property within 2 years before filing (Trustee will ask about gifts within 4 years) • Does not list if ordinary course of business activity or financial affairs • Does not include activity already listed on SoFA • Give Trustee copy of closing statements for real estate sales • Review Debtor’s tax return for sales
SOFA No. 16 – No. 17 • No. 16 Attorney Fees and Credit Counseling Fees • Attorney fees must match amounts paid on 2030 and plan • Breakdown the total received from debtor – Attorney fees, filing fee, credit report fee, etc. • No. 17 Payments to anyone promising to help debtor deal with creditors • Trustees looking for debt repayment scams for reporting to UST • List name of organization and its contact information and amounts paid
SOFA No. 20 – No. 24 • No. 20 List closed bank and credit union accounts • Check Paystubs for accounts no longer open when case filed • No. 22 List Debtor’s property held other than at debtor’s home • Storage units • Relative/friend not living with debtor but using car that debtor owns • No. 23 Property held by debtor that belongs to someone else • Debtor doesn’t own a car but drives parents/girlfriend/boyfriend’s car • No. 24 List the businesses and dates • Type of business, active or closed & when • Check box for type of entity (sole proprietorship, LLC, etc.) • Check tax returns for business (Tax return Schedule C and page 2 of Tax return Schedule E)
Form 2030 - Disclosure of Compensation of Attorney for Debtor • Payments to attorneybefore filing reported on Form 2030 (formerly Form 2016b) MUST match amount onSoFA No. 16 and all amounts on Form 2030 must match the Plan!
Means Test 122C-1 CMI-Pay Stubs • Calculate carefully • If above median or close • Provide pay stubs (including YTD amounts) for: • The last payday in the month preceding the CMI period • The last pay stub for the end of the CMI period • If CMI is October to March Provide stubs from: • The last pay date in September • The last pay date in December (or W-2) • The last pay period in March • This way no “extra” stubs are missed • Example Trustee Calculation
Trustee Calculation of CMI • Example 6 month period November – April (case filed in May) • Watch for more than or fewer than 13 biweekly or 26 weekly pay period in CMI 6 month period • Watch for raises during or after CMI period • Watch for bonuses: • Within 6 month CMI period, negative Lanning adjustment to back out ½ of annual bonus • Outside of 6 month CMI period, positive Lanning adjustment to add in ½ of annual bonus
Means Test 122C 1-CMI • Remember to include all income • Child support - does it match Schedule I? • Net business and rental income • Contributions by nondebtors to household expenses • Unemployment income • Ask debtor about VA disability benefits • NOT debtor’s social security
Means Test 122C-1 CMI • Line 13 Marital adjustment • Use should be RARE • If used, do not double dip the expenses • If you deduct NFS car payment it cannot also be deducted on 122C-2 • Have an itemization of what expenses are claimed • Household size • Should match dependents on Sch. Jand tax returns • If not, be prepared to explain • Divorced/blended family where a child or children are only claimed every other year • Generally OK to count on 122C-1 • Use correct Median income tables and other means test tables • Tables change periodically – Keep software up to date
Means Test 122C-2 Expenses • 122C-2 Expenses – forward looking • Vehicles • 1 person = 1 car • If debtor does not own, lease or regularly use a car, debtor cannot take operating expense deduction • Might be able to claim public transportation expense • If no car loan or lease payment, then no car ownership expense deduction (Supreme Court case in Ransom. )
Means Test 122C-2 Expenses • Line 16 taxes • Follow case law – actual tax • Generally last years tax with adjustments, if needed • Provide proof if needed • Use schedule I income • Calculation example (next slide) • No line 33 deduction for surrendered or lien stripped property • Watch if plan is amended to surrender something pre-confirmation • Line 19 Child or spousal support payments • Should be pro-rated if it ends within 5 years
Means Test Tax Calculation • FICA/Medicare 7.65 % of gross on Schedule I (minus health insurance, HSA, flex medical deductions)x 12 months; plus • Use actual income tax from state and federal tax returns if income about the same • Line 63 of 2016 Form 1040 • Line 39 of WI 2016 Form 1 • Total tax and then divide by 12 months for amount on line 16 (monthly tax)
Tax Calculation-Income Unchanged • Debtors made $64,661 in 2016 • Project the same on schedule I (so monthly gross amount on schedule I is $64,661/12 months) • $64,661 x 7.65% (FICA/Medicare) $4,947 • Actual tax from federal return + $4,601 • Actual tax from state tax returns + $2,578 • Total tax $12,126 • Divide total by 12 months = $1,010.50 on line 30
Tax Calculation-Income Changed • Debtors made $94,000 in 2015 • Project only $74,000 for future income on schedule I • $74,000 x 7.65% (FICA/Medicare) $5,661 • 2015 Federal income tax on $94,000 +$9,706 • 2015 State income tax on $94,000+$4,958 • Total $20,325 • Calculate tax difference on decreased income • Income difference $20,000 • 6.5% State tax plus 25% marginal Federal tax rate x31.5% • Total income tax difference $6,300 • $20,325 minus $6,300 = $14,025.00 / 12 months = $1,169.00
Means Test 122C-2 Expenses • Read the instructions for the unusual lines • Maximum amount for line 20 education expense • Proof for amounts on some lines is required • Do not forget priority debt deduction • Line 40 do not forget to back out the child support • Line 41 Trustee will compare amounts for retirement contribution pay stubs • You should too • Line 41 Retirement plan loan deduction • Needs to be pro-rated
Means Test 122C-2 Expenses • If actual priority debt or secured debt claims are significantly lower than scheduled Trustee will require • Amended 122C-2 • Amended plan with increased amount to the general unsecured creditors • If priority or secured debt claims are significantly higher than scheduled • 122C-2 may be amended to lower the amount required to general unsecured creditors • Make sure amount paid in plan to unsecured creditors matches what is required • DMI on line 45 x 60 months = amount required to be paid to general unsecured creditors, including attorney fees
Model Plan & Payments • Use the Model plan and the model amended plan • Required by local rules • Note: model plan does not allow changes to any of the language – use special provisions to change • Chapter 13 plan payments • Cases are ALWAYS more successful if there is a payroll order • Plan should state which debtor (husband, wife or both), and how often; weekly, bi-weekly, semi-monthly, or monthly • Make sure you have a complete payroll address • Trustee will look in schedule I if nothing in the plan • If information incomplete, trustee will issue a direct pay order • If income seasonal, consider payment skip plan, or step up/step down plan for debtors with seasonal income • Common occupations are teachers and construction
Plan Basics • Check the correct box on over/under median income and correct box regarding tax refunds • If under median, plan gets ½ refunds unless 100% in 36 months or less • If a 60 month plan is proposed - does it have to be? • If under–median consider shorter term plan if debtors can afford those payments • If debtor is below median income, consider adding plan term “shortening language” to special provisions • Use check boxes on model plan to state if the plan or claim controls • Best practice to avoid objections • Check that the claim controls the amount of the claim and amount of the mortgage arrearage • Check that the plan controls the valuation of collateral and interest rate
Plan-Attorney Fees • Make sure all attorney fee amounts match on: • Plan • Form 2030 • SoFANo. 16 • Attorney fees will be paid 50% of available funds, if pro-rata payments, if no further instruction given. • If there are fixed payments: • Fixed payments of secured debt will be paid before attorney fees • Watch this, you may leave little or nothing for attorney fees monthly depending on the amount of fixed payments • Be sure described method for paying attorney fees is possible if plan also requires fixed monthly payments • Recheck attorney fees special provision if plan amended to provide for fixed monthly payments
Plan-DSO • Make sure DSO is listed in the plan • If you choose to use the options to pay less than in full under Sec. 1322(a)(2) • Make sure you get the required agreement, otherwise priority debt must be paid in full • If you choose to use the option under 1322(a)(4) • Only the 507(a)(1)(B) government DSO can be paid less than 100% • Debtor must remain in plan for 60 months, even if below median income • Tell the Trustee how much to pay if less than 100% • The same as general unsecured creditors • All available funds after administrative, secured, & priority • Practice pointer • If one spouse has a large DSO claim, or you think they will have trouble staying current, consider filing for only one debtor, and the spouse with the DSO obligation as a NFS
Plan-Taxes • Property Tax claims are SECURED, not priority debt • Sec. 511 requires statutory interest - 12% • Should be in real estate arrearage section of the plan, not the personal property section • Can either put interest rate in the box with the mortgage arrearage amount or in the special provisions • IRS/WDOR/DWD claims could be secured • Check tax transcripts for lien • If secured, also entitled to interest – IRS is 4%, WDOR is 12%, DWD for unemployment taxes (not overpaid unemployment benefits) is 9%, all as of now, but can change. IRS can adjust quarterly • Use rate as of expected day of confirmation
Plan-Personal Property • Don’t forget pre-confirmation adequate protection payments for PMSI secured debt • Personal property – not real estate • Only purchase money security interest (PMSI) • Not for household good loans • Non-PMSI = no pre-confirmation adequate protection (and then more money available for attorney fees when the case is confirmed) • Real Estate is not personal property • No pre-confirmation adequate protection payments • That is why debtors make ongoing mortgage payments directly