Bankruptcy Law LAP 235 Mike Brigner, J.D.

1. 1 Chapter 13 Bankruptcy Law � LAP 235 Mike Brigner, J.D.

2. 2 Chap 13 vs. Chap 7 See Text, Chapter 6 Chap 7 is for liquidation: lose all assets except exemptions & discharge debts Chapter 13 = �Adjustment of Debts of an Individual with Regular Income� Chapter 13 is for reorganization: keeping assets & paying most or all debts over a period of time, from future earnings

3. 3 Why Make Payments? A Chapter 13 debtor is usually trying to cure defaults on secured debts, because they would lose the property in Chapter 7 Protect home from foreclosure Protect car from repossession Allows arrearages to be spread out over time And protects co-debtors from collection activity

4. 4 Best Interest of Creditors Test A Chap 13 debtor must pay to unsecured creditors no less than they would have received if debtor had filed a Chap 7 Thus if a liquidation would yield $7500 after exemptions, debtor must pay at least that amount to unsecured creditors in Chap 13

5. 5 Eligibility Individuals only Regular income to make payments Unsecured debts under $270,000 Secured debts under $890,000 Required: all documents filed in a Chap 7 PLUS a Chap 13 Plan See Text, p. 327

6. 6 Stays Automatic stay applies the instant of filing, just as in Chap 7 Also in Chap 13 a �Co-Debtor Stay� is invoked As to all consumer debts Not business debts Prevents collection from any co-signer

7. 7 Property of the Estate Includes ALL property of debtor, just as in Chap 7 Plus all postpetition earnings of debtor during Plan is also included in bankruptcy estate But possession & control of all property remains with the debtor, & is not turned over to Trustee Exemptions: same as in Chap 7

8. 8 Chapter 13 Plan Mandatory provisions Debtor will pay sufficient sums into plan that it will be performed Must provide for Trustee supervision & control of future income! Full payment of all priority claims Payment to unsecured creditors must = Chap 7 payout 3 years, unless court approves longer period, up to 5 years

9. 9 Chapter 13 Plan Permissive provisions Assume or reject contracts & leases Create classes of unsecured creditors (more likely to be used in Chap 11) May modify rights of secured creditors Ex: Reduce monthly payment on car loan But cannot modify terms of secured home loans, except to cure loan arrearage

10. 10 Sample Chap 13 Plan Note: It is a proposed plan until bankruptcy court confirms it See sample, Text pp. 343-346 Debtor must start making payments into Plan (to Trustee) within 30 days of filing No payment = dismissal or conversion

11. 11 Feasibility / Good Faith Court (trustee) & creditors compare income & expenses Is Plan financially feasible? Can debtor afford proposed payments and still meet expenses? Is Plan filed in good faith? Does it propose to commit most or all of debtor�s disposable income above necessary expenses? (Read case, Text p. 348)

12. 12 Secured Claim Options Debtor required to decide: Avoid lien Fixed payment Pro rata Long term, in plan Long term, outside plan Surrender property

13. 13 Other Classifications of Claims Unsecured, priority Arrearage Unsecured general non-priority Unsecured, special class, paid 100% And don�t forget: Attorney fees, filing fees Lump sum payments into Plan Wage deduction information Unsecured, priority � taxes, support Arrearage � overdue payments on any debt Unsecured general non-priority � lowest priority Unsecured special class paid 100% -- balance due on your denturesUnsecured, priority � taxes, support Arrearage � overdue payments on any debt Unsecured general non-priority � lowest priority Unsecured special class paid 100% -- balance due on your dentures

14. 14 Clerk�s Notice Different from Chap 7. See text p. 341 Meeting of Creditors (341 Meeting) 20 to 50 days after notice Purpose to examine debtor under oath Good opportunity for debtor, creditor, attorneys, and trustee to work out any issues & reach agreements

15. 15 Chapter 13 Trustee One standing trustee in court district Duties: Investigate financial affairs of debtor Examine POCs & object if necessary Oppose discharge of debtor if advisable Furnish info to interested parties Collect all payments due from debtor & distribute per terms of Chap 13 Plan Make final report & accounting

16. 16 Confirmation Hearing Formality depends on local court Attorney may be required to summarize plan for court Trustee may advise on problems, feasibility, suggest modifications, & whether Plan may be confirmed Plan must comply with law and be proposed in good faith

17. 17 Discharge If Plan successfully completed, debtor gets �full compliance discharge� Discharge applies to all debts Even fraud debts, which cannot be discharged in a Chapter 7! Discharge does not apply to: Claims not covered by Plan Debts where final payment is due after plan is completed (home mortgage balance) Priority debt balance: support, taxes, educational loans, debts from DUI, restitution for a crime

18. 18 Chapter 13 Concluded Thank you Mike Brigner, J.D.