Chapter 13 – General Issues

Chapter 13 – General Issues2020-08-10T20:04:35-07:00

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CHAPTER 13 – GENERAL ISSUES

IMPORTANT: THIS FIRM MAKES NO REPRESENTATIONS AS TO THE ACCURACY OR CURRENT STATUS OF ANY LAW, CASE, ARTICLE OR PUBLICATION CITED HEREIN OR LINKED TO.  WARNING – SOME OF THESE REFERENCES ARE PRE-BAPCPA.

Reference guide, by Beverly M. Burden, Chapter 13 trustee, EDKY, updated October 18, 2017.

SUCCESS IN A CHAPTER 13 WITHOUT AN EXPERIENCED ATTORNEY IS “PRACTICALLY IMPOSSIBLE” ACCORDING TO JUDGE AND COURT STATISTICS.

Of all cases filed only 38.8% of chapter 13 debtors complete a plan and receive a discharge. At, 41.5%, the odds are slightly higher if represented by counsel. Completion of a plan that results in a discharge when the chapter 13 debtor is pro se (without an experienced chapter 13 attorney) is practically impossible – 2.3%.

(Statistics taken from Ed Flynn, Success Rates in Chapter 13, Am. Bankr. Inst. J., August 2017, at 38, 39).

In Hamilton v. Lanning, 130 S. Ct. 2464 (2010), the Supreme Court summarized the key features of a Chapter 13 bankruptcy proceeding: Chapter 13 . . . provides bankruptcy protection to “individual[s] with regular income” whose debts fall within statutory limits. 11 U.S.C. §§ 101(30), 109(e). Unlike debtors who file under Chapter 7 and must liquidate their nonexempt assets in order to pay creditors, see §§ 704(a)(1), 7126, Chapter 13 debtors are permitted to keep their property, but they must agree to a court-approved plan under which they pay creditors out of their future income, see §§ 1306(b), 1321, 1322(a)(1), 1328(a). A bankruptcy trustee oversees the filing and execution of a Chapter 13 debtor’s plan. § 1322(a)(1); see also 28 U.S.C. § 586(a)(3).

[I]f a trustee or an unsecured creditor objects to a Chapter 13 debtor’s plan, a bankruptcy court may not approve the plan unless it provides for the full repayment of unsecured claims or “provides that all of the debtor’s projected disposable income to be received” over the duration of the plan “will be applied to make payments” in accordance with the terms of the plan. 11 U.S.C. § 1325(b)(1); see also § 1326(b)(1) (2000 ed.). Id. at 2468-69.

Supreme Court’s recognition that bankruptcy courts possess flexibility to look beyond a mechanical application of § 1325(b)’s calculations in order to account for variations readily apparent in the record, even after the BAPCPASee In Hamilton 130 S. Ct. at 2471-78; see also id. at 2478 (“[W]hen a bankruptcy court calculates a debtor’s projected disposable income [under § 1325(b)], the court may account for changes in the debtor’s income or expenses that are known or virtually certain at the time of confirmation.”).


Ransom v. FIA Card Services, N.A (aka Ransom vs MBNA)., 131 S16, 178 L. Ed.2nd 603 (2011) (2011 BL 6640) (9th Cir.) the Supreme Court’s decision, while referencing the IRS’s explanatory guidelines to clarify a point regarding how another aspect of § 1325(b) should be interpreted, expressly “emphasize[d] . . . that the statute does not ‘incorporate’ or otherwise ‘import’ the IRS’s guidance.” Id. at 726 n. 7. The Supreme Court found that the Chapter 13 debtor in this case could not take a vehicle ownership deduction on the bankruptcy “means test” that is required in order to determine the amount of disposable income that a debtor has available to repay debt. The debtor in this case owned his car outright and did not have car loan; thus, the Court found that there was no ownership expense and any excess income that would have gone towards a vehicle ownership expense had to be paid to creditors. On the other hand, if a debtor has a car loan, he or she is allowed to take the vehicle ownership deduction on the means test under the theory that such a car payment reduces the amount of disposable income available to repay creditors.

Holding: A debtor in bankruptcy who does not make loan or lease payments may not take the deduction that is otherwise available for ownership of an auto.

Plain English Holding

A debtor in bankruptcy who does not make loan or lease payments may not take the deduction that is otherwise available for ownership of an auto.


United Student Aid Funds, Inc. v. Espinosa, 130 S. Ct. 1367 (2010) (3/23/10). Supreme Court Refuses to Void Confirmation of Plan Discharging Student Loan.

In that case Espinosa (9th Cir), a chapter 13 debtor, sought to discharge the accrued interest on his student loan while paying the principle through the plan.  He did not initiate an adversary proceeding to determine undue hardship, but included the student loan in his plan.  Although the student loan creditor received actual notice of the plan, it did not object to the partial payment.  The bankruptcy court confirmed the plan, the debtor complied with it, and the debtor was discharged in 1997.  Several years later, USAF attempted to collect the unpaid interest on the loan.  Espinosa sought to have the bankruptcy court enforce the discharge and USAF counterclaimed with a motion to void confirmation of the plan under Fed. R. Civ. P. 60(b)(4).

The Supreme Court found that Rule 60(b) relieves a party of a final judgment only in the rare circumstance that the “judgment is premised either on a certain type of jurisdictional error or on a violation of due process that deprives a party of notice or the opportunity to be heard.”  The Court began its analysis with the finding that the statutory requirements of undue hardship and the initiation of an adversary proceeding are not jurisdictional.  The issue then, was whether USAF received adequate notice to satisfy due process.  The Court found that the existence of actual notice, albeit not the type of notice proscribed by the bankruptcy rules, was sufficient to satisfy due process.

The Court addressed USAF and the Amicus, U.S. government’s, argument that the bankruptcy court’s order is void because it went beyond the court’s power.  Although the Court found the failure to comply with §§ 523(a)(8) and 1328(a) before confirming the plan was “legal error,” that error did not rise to the level necessary to void a final judgment.  This was especially so as the creditor had actual notice and was not permitted to “sleep on its rights.”

The Court disagreed with the aspect of the Ninth Circuit’s decision, however, insofar as it held that a bankruptcy court could confirm a plan which would discharge a student loan without an adversary proceeding so long as the creditor did not object.


Till v. SCS Credit Corp. (US Sup Ct 05/17/04 – No. 02-1016) Four justices conclude that the “prime-plus” or “formula rate” best meets the purposes of the Bankruptcy Code’s cram down provision; because the proposed 9.5% interest rate is higher than the risk-free rate, it is sufficient to account for the time value of money, which is all 11 U.S.C. section 1325(a)(5)(B)(ii) requires.


Harris v. Viegelahn, 14-400, The Supreme Court (on May 18, 2015) held that a debtor who converts to a chapter 7 is entitled to return of any post-petition wages not yet distributed by the chapter 13 trustee. In this 9-0 decision, the court ruled that the moment the Chapter 13 plan is terminated, the deal is immediately off with the Trustee and creditors and all money not paid out is due back to the debtor right away.

In Hamilton v. Lanning, 130 S. Ct. 2464 (2010), the Supreme Court summarized the key features of a Chapter 13 bankruptcy proceeding: Chapter 13 . . . provides bankruptcy protection to “individual[s] with regular income” whose debts fall within statutory limits. 11 U.S.C. §§ 101(30), 109(e). Unlike debtors who file under Chapter 7 and must liquidate their nonexempt assets in order to pay creditors, see §§ 704(a)(1), 7126, Chapter 13 debtors are permitted to keep their property, but they must agree to a court-approved plan under which they pay creditors out of their future income, see §§ 1306(b), 1321, 1322(a)(1), 1328(a). A bankruptcy trustee oversees the filing and execution of a Chapter 13 debtor’s plan. § 1322(a)(1); see also 28 U.S.C. § 586(a)(3).

[I]f a trustee or an unsecured creditor objects to a Chapter 13 debtor’s plan, a bankruptcy court may not approve the plan unless it provides for the full repayment of unsecured claims or “provides that all of the debtor’s projected disposable income to be received” over the duration of the plan “will be applied to make payments” in accordance with the terms of the plan. 11 U.S.C. § 1325(b)(1); see also § 1326(b)(1) (2000 ed.). Id. at 2468-69.

Supreme Court’s recognition that bankruptcy courts possess flexibility to look beyond a mechanical application of § 1325(b)’s calculations in order to account for variations readily apparent in the record, even after the BAPCPASee In Hamilton 130 S. Ct. at 2471-78; see also id. at 2478 (“[W]hen a bankruptcy court calculates a debtor’s projected disposable income [under § 1325(b)], the court may account for changes in the debtor’s income or expenses that are known or virtually certain at the time of confirmation.”).

In re Ragos  (5th Circuit)– Holding that social security benefits are not disposable income in chapter 13 and it is not bad faith to exclude such income from calculating disposable income.  In re Cranmer  (10th Circuit) – Same as Ragos.

DEBT LIMIT IN 13 and CONTINGENT or UNLIQUIDATED:

LEIANN TONI FOUNTAIN, Debtor/Appellant, v. DEUTSCHE BANK, Appellee. BAP No. HI-19-1173-GLB.  Debtor objects to unsecured note over $1M. Issue revolves around an ‘unliquidated’ and ‘contingent’ claim and calculating chapter 13 debt limit and disputed liability on unsecured claim.  Debtor asserts creditor’s claim is barred by statute of limitations. Judge Gan pointed out that a disputed claim is still a “claim” under Section 109(e). He went on to say that the section “does not exclude debts which are merely disputed.”  Judge Gan said that the amount of the claim was liquidated and properly included in the Section 109(e) analysis because it was “readily determinable by reference to the note.”

Good case to review the elements of ‘unliquidated’ and ‘contingent’.


DEBT DISCHARGED IN 7 IS NOT COUNTED IN LATER 13 FOR ELIGIBILITY

In re Washington, BAP NO. CC-18-1206-LKuF (July 30, 2019) Debtor Gwendolyn Washington obtained a chapter 7 discharge, which extinguished her personal liability on the debt secured by a junior lien on her residence. About five years later, she filed a chapter 13 case; she obtained an order valuing at zero the junior lien held by Option One Mortgage Corporation, serviced by Real Time Resolutions, Inc. (“RTR”). RTR filed an unsecured claim in the full amount of the debt it believed it was owed; Ms. Washington objected on the ground that her personal liability had been discharged. The bankruptcy court overruled the objection, concluding that the discharge did not fully eliminate the claim and that the plain language of § 506(a) required the allowance of RTR’s unsecured claim in the amount of $307,049.79. We REVERSE.  BAP finds that a debtor may employ so-called chapter 20 to strip off an underwater subordinate mortgage while simultaneously avoiding personal liability for the debt.


Debtors can only file for Chapter 13 if their total unsecured and secured debts are less than certain statutory amounts (11 U.S.C 109(e)). The Bankruptcy Code provides for an increase of the Chapter 13 debt limits every three years. The new debt limits for Chapter 13 were published on February 12, 2019. Beginning April 1, 2019, the Chapter 13 debt limit increased to (a) $419,275 for a debtor’s noncontingent, liquidated unsecured debts, and (b) $1,257,850 for a debtor’s noncontingent, liquidated secured debts. This increase is about 6 percent, which is roughly double the increase in 2016.


In re Hernandez, (9th Cir BAP 4/17/17)  Debtor filed chapter 7 – listing both first and second mortgages on her residence.  Then filed chapter 13 in order to lien strip the second.  She listed the second in Schedule D as “0” and in Schedule F for the full debt.  Creditor, Asset Management Holdings objected to confirmation for lack of good faith and moved to dismiss the chapter 13 case on eligibility grounds (over the secured debt limit). “The bankruptcy court ruled that Debtor’s debts did not place her over the eligibility limits because the debt to AMH did not need to be included in the eligibility calculation. The court found that the debt should not be treated as secured because the lien was avoidable under § 506(a), nor should it be treated as unsecured because Debtor’s personal liability on the debt had been discharged in her prior chapter 7 case. The bankruptcy court also found that the plan was filed in good faith. Accordingly, the court denied the motion to dismiss and confirmed the plan, and AMH appealed.  We AFFIRM.

While criminal restitution is non-dischargeable under section 523, it is not one of the listed priority debts in section 507 (the same problem as with educational loans). Therefore, any attempt to pay that unsecured debt in full in the plan without the same percentage payback to other unsecured creditors would likely cause the trustee to object. Instead, try to get the agency to whom the restitution is owed to agree to a long term payback of the restitution–longer than the Ch 13 plan’s duration . Then, using section 1322(b)(5), pay the restitution outside the plan as a budget expense.

Bankruptcy Court Form 3180W Chapter 13 Discharge (12/18)

Some debts are not discharged.  Some examples of debts that are not discharged are:

  • debts that are domestic support obligations;
  • debts for most student loans;
  • debts for certain types of taxes specified in 11 U.S.C. §§ 507(a)(8)(C), 523(a)(1)(B), or 523(a)(1)(C) to the extent not paid in full under the plan;
  • debts that the bankruptcy court has decided or will decide are not discharged in this bankruptcy case;
  • debts for restitution, or a criminal fine, included in a sentence on debtor’s criminal conviction;
  • some debts which the debtors did not properly list;
  • debts provided for under 11 U.S.C. § 1322(b)(5) and on which the last payment or other transfer is due after the date on which the final payment under the plan was due;
  • debts for certain consumer purchases made after the bankruptcy case was filed if obtaining the trustee’s prior approval of incurring the debt was practicable but was not obtained;
  • debts for restitution, or damages, awarded in a civil action against the debtor as a result of malicious or willful injury by the debtor that caused personal injury to an individual or the death of an individual; and
  • debts for death or personal injury caused by operating a vehicle while intoxicated.

In addition, this discharge does not stop creditors from collecting from anyone else who is also liable on the debt, such as an insurance company or a person who cosigned or guaranteed a loan.

This information is only a general summary of a chapter 13 discharge; some exceptions exist. Because the law is complicated, you should consult an attorney to determine the exact effect of the discharge in this case.

Using Till in chapter 13, shortly after discharge in chapter 7:  Till could be used for the plan, but the problem is that without a discharge a lien remains in place unless the debt is paid pursuant to non-bk law. 1325(a)(5)(B)(i).  Lien strip-offs are OK because there is no allowed secured claim (per 506), but here you are talking about some 506 value, so there is an allowed secured claim. Thus, you could pay Till if you need to in order to make the plan feasible, but the lien has to be retained and will be in default (for non-payment of the interest) once the plan completes.  But see this additional argument:  If this is a Chapter 20, the Debtor’s personal liability on the car loan was discharged in the first Chapter 7.  This would include a discharge on any interest claim over and above the Till rate in the subsequent Chapter 13.  Therefore it seems that one can do a cram down on the rate in the subsequent 13 without problem.   But, a third thought:  the issue is neither the personal discharge or the cramdown rate. The issue is whether the contract interest rate survives as a lien against the vehicle after the completion of the 13.  Must the lender release the title after being paid less than whats owed under the contract ? In addition to the contract interest “surviving”, what about the lenders fees and expenses in getting advice about the surviving contract interest rate ?

In re Sobczak, 369 B.R. 512 (9th Cir. BAP 2007). In a case arising out of Arizona, the BAP reversed the Bankruptcy Court’s dismissal of the debtor’s case, holding that (a) the debtor in a case converted from Chapter 7 to Chapter 13 had standing to move for dismissal of his bankruptcy, but (b) dismissal of the debtor’s bankruptcy in the circumstances presented was improper. The BAP found that the debtor’s realization that in bankruptcy he was limited by §522 to Ohio’s $5,000 homestead exemption, rather than the Arizona $150,000 exemption that would apply if he were not in bankruptcy, was not a proper basis for allowing the debtor to move under §1307 to dismiss his case.

Facts: Wife files chapter 13, but husband does not file, but owes on a defaulted credit card.  It is a community debt–although husband acquired the credit card while married, wife is NOT named on the account.

Question: Does the filing of the chapter 13 by wife make a subsequent lawsuit against husband a violation of the co-debtor stay?

Answer: Yes.  But contact the Creditor/Creditor Attorney pointing out the automatic stay of a co-debtor.  Most Judges want some written notice making a demand to cease and desist.   Actual notice has always been an issue in contempt actions.

Question: Can the creditor lift the stay under 1301(c)(2) if the plan does not propose to pay 100% of the claim?

Answer: No. Because the Estate contains the community assets including non-filing spouse’s income. Normally the stay can only be lifted in order to enforce an existing judgment against separate property of the non-filing spouse.

In re Weber, 719 F.3d 72 (2nd Cir. May 8, 2013): In our view, the plain language of section 542 (directing that those in custody of assets of the estate “shall deliver” them to the trustee); the approach of the Whiting Pools Court to equitable interests and bankruptcy estates; and the broad language of the 1984 Amendments enlarging the scope of the automatic stay point unmistakably away from any Congressional desire to impose such an additional burden on debtors seeking bankruptcy protection.

Defendant SEFCU, a lender, appeals from a judgment of the United States District Court for the Northern District of New York (Suddaby, J.) reversing an order of the United States Bankruptcy Court for the Northern District of New York (Littlefield, J.) and remanding the case to the Bankruptcy Court for further proceedings. The District Court concluded that SEFCU violated the automatic stay provision of the Bankruptcy Code, 11 U.S.C. § 362, when, after lawfully repossessing a vehicle belonging to the debtor, plaintiff Christopher Weber, it failed to deliver the vehicle to him notwithstanding its knowledge of the debtor’s pending petition under Chapter 13 of the Bankruptcy Code. The District Court affirmed, holding that, by declining to surrender the vehicle absent a turnover order and protection SEFCU considered adequate, the lender wrongfully “exercised control” over the vehicle in contravention of section 362 and was liable for Weber’s related damages, attorneys’ fees, and costs.  We AFFIRM the judgment of the District Court.

Johnson v. Zimmer, — F.3d —-, 2012 WL 2819463 (4th Cir., July 11, 2012) Affirming In re Johnson, 2011 WL 5902883 (Bankr. E.D. N.C., July 21, 2011) on direct appeal, the Fourth Circuit Court of Appeals, in a matter of first impression for the circuit courts, held, in a 2-1 panel decision, that the bankruptcy court did not err in employing the “economic unit” approach to determine a Chapter 13 debtor’s “household” size for the purpose of Code § 1325(b), and in counting children who were part-time residents of the debtor’s household as fractional persons for the purpose of the calculation. Under this method, a debtor’s “household” would include individuals who operate as an “economic unit” with the debtor: those the debtor financially supports and those who financially support the debtor. In other words, persons whose income and expenses are interdependent with the debtor’s are part of his or her “household” for purposes of § 1325(b). The dissent, by Circuit Judge Wilkinson, objects to the “startling conclusion” that the statutory terms “individuals” and “dependents” “can encompass fractional human beings.”

BAPCPA did not render Chapter 20 debtors ineligible to void liens permanently.

In re Blendheim D.C. No. 2:11-cv-02004-MJP Washington (9th Cir Ct Appeals, 10/1/15)  Affirming in part and vacating in part the district court’s judgment, the panel held that an amendment to the
Bankruptcy Code¯barring debtors from receiving a discharge at the conclusion of their Chapter 13 reorganization if they received a Chapter 7 discharge within four years of filing for Chapter 13 relief¯does not render such “Chapter 20” debtors ineligible for Chapter 13’s lien-avoidance mechanism, which allows a debtor to void or modify certain creditor liens on the debtor’s property, permanently barring the creditor from foreclosing on that property.

The panel held that the bankruptcy court properly voided a creditor’s lien under § 506(d) of the Bankruptcy Code. The panel held that under § 506(d), if a creditor’s claim has not been “allowed” in the bankruptcy proceeding, then a lien securing the claim is void. The panel held that the voiding of the creditor’s lien was permanent such that the lien would not be resurrected upon the completion of the debtors’ Chapter 13 plan. Agreeing with the Fourth and Eleventh Circuits, the panel held that 11
U.S.C. § 1328(f), enacted as part of the Bankruptcy Abuse Prevention and Consumer Protection Act in 2005, did not render Chapter 20 debtors ineligible to void liens permanently.


In re Boukatch,  2:14-bk-04721-EPB, BAD AZ-14-1483 (July 9, 2015) Debtor could not strip off valueless lien on home in “chapter 20” case.  BAP overturned: We conclude that § 1328(f)(1) does not prevent Debtors’ ability to strip off MidFirst’s wholly unsecured junior lien in heir chapter 13 plan, because nothing in the Bankruptcy Code prevents chapter 20 debtors from stripping such liens off their principal residence under §§ 506(a)(1) and 1322(b)(2). We further conclude that plan completion is the appropriate end to Debtors’ chapter 20 case. Unlike a typical chapter 13 case, the lien avoidance will become permanent not upon a discharge, but rather upon completion of all payments as required under the plan. In re Davis, 716 F.3d at 338; In re Frazier, 469 B.R. at 900; In re Blendheim, 2011 WL 6779709, at *6; In re Okosisi, 451 B.R. at 99-100; In re Frazier, 448 B.R. at 810; In re Tran, 431 B.R. at 235.
We conclude that the bankruptcy court erred when it denied the Lien Strip Motion on the basis that Debtors were not eligible for a chapter 13 discharge.
VI. CONCLUSION For the foregoing reasons, we REVERSE the decision of the bankruptcy court and REMAND for further proceedings consistent with this opinion.

Branigan v. Davis, No. 12-1184 (4th Cir. 05/10/2013) Confirmation orders entered by the bankruptcy court stripping off junior liens against debtors’ residences in so-called “Chapter 20 cases”, is affirmed, where: 1) the Bankruptcy Abuse Prevention and Consumer Protection Act does not bar the orders entered by the bankruptcy court; and 2) the stripping off of valueless liens is otherwise consistent with the Bankruptcy Code. There is a dissent.  Read more…

In Re: Mansaray-Ruffin, No. 05-4790 (U.S. 3rd Circuit Court of Appeals, June 24, 2008)
A debtor in a Chapter 13 bankruptcy case did not invalidate a lien on her property by providing for it as an unsecured claim in her confirmed plan, without initiating an adversary proceeding as required by the Federal Rules of Bankruptcy Procedure.

Differing opinions on whether to use date of filing or date of plan confirmation: In a real estate climate where values are quickly changing, the question arises when is the value of the residence determined? The date of filing of the Chapter 13 petition, the date of confirmation, the date of the hearing on for determining the value or some other day?

§ 506(a) provides: “Such value shall be determined in light of the purpose of the valuation and of the proposed disposition or use of such property, and in conjunction with any hearing on such disposition or use or on a plan affecting such creditor’s interest.” The various approaches all prefer their approach as meeting this standard.

For the proposition that the date of valuation is the date of hearing/confirmation see In re Crain, 243 B.R. 75 (Bankr. C.D. Cal 1999); In re Boyd, 410 B.R. 95, 100 (Bankr.N.D.Cal. Aug 04, 2009). See also In re Zook, 2010 WL 2203172 (Bankruptcy D. Ariz. 2010) [Chapter 11 proceeding in front of Judge Haines.] For the date of filing, see In re Dean, 319 B.R. 474 (Bankr.E.D.Va.2004) In re Young, 390 B.R. 480 (Bankr.D.Me.2008).

Some Courts ruled in favor a “flexible approach” or a determination of the “totality of circumstances.” In re Aubain, 296 B.R. 624, 636 (Bankr.E.D.N.Y.2003); Wood v. LA Bank (In re Wood), 190 B.R. 788, 794-96 (Bankr.M.D.Pa.1996) [Using an eleven factor analysis].

In re Brown, 346 B.R. 868 (Bkrtcy.N.D.Fla. 2006) LEWIS M. KILLIAN JR., Bankruptcy Judge Creditor holding PMSI not entitled to deficiency claim in chapter 13 where debtor surrenders vehicle in full satisfaction of debt § 1325(a)5) (hanging paragraph), § 506, 502

Debtor proposed to surrender a motor vehicle subject to a PMSI and purchased for personal use within 910 days of filing the petition, in full satisfaction of the under-secured debt. Creditor objected.

The court first held that despite language in § 1325(a) (hanging paragraph) that Code § 506 does not apply to a PMSI debt, the debt is still a secured debt. The court ruled that “just because § 506 does not apply does not mean that there is no secured claim. Section 506(a) simply provides for the bifurcation of claims into secured and unsecured portions in accordance with the value of the collateral; it does not form the basis for a secured debt.” The court essentially held that § 502 is the section that determines the secured status of a claim.

The court then observed that “Secured creditors, like every other party to a bankruptcy case, have to take both the good and the bad,” held that . . . the Hanging Paragraph following § 1325(a)(9) allows the Debtor to surrender his vehicle, which is the subject of a 910 claim, in full satisfaction of the debt owed to Wells Fargo.”

In re Sparks, 346 B.R. 767 (Bkrtcy.S.D.Ohio 2006) J. VINCENT AUG, JR. Bankruptcy Judge Creditor holding PMSI not entitled to deficiency claim in chapter 13 where debtor surrenders vehicle in full satisfaction of debt § 1325(a)(5)

The court held that where a vehicle is subject to a PMSI and was purchased for the debtor’s personal use within 910 days of filing the petition the Code prohibits a “cram-down” but does not prohibit the debtor from surrendering the vehicle in full satisfaction of the debt, with no unsecured portion remaining to be treated in the plan. In other words, the anti-cramdown provision acts restricts both the creditor and the debtor from treating the claim as a cram-down or strip-down for a partially secured claim

In re Pennington, 348 B.R. 647 (Bkrtcy.D.Del. 2006) MARY F. WALRATH, Bankruptcy Judge Court could dismiss chapter 13 for “abuse” notwithstanding the debtor’s income was below state median

Threshold for “abuse” where the means test per se does not apply is 25% of unsecured debt. § 707(b)(1)

Debtor’s income was below the state median but actual disposable income at the time of the hearing to dismiss or convert was sufficient to pay 42% of the unsecured debt over a 3-year plan. The court noted that the surplus income was more than enough to pay more than 25% of the unsecured debt, which was the “threshold were abuse is presumed under the means test”, even though the means test is not applicable.

◙ In re Boardwalk holds that late charges and interest must be reasonable and bankruptcy judge can reduce; any authority for once 13 filed, that no default or late fees on post-petition payments can accrue.

Ransom v. FIA Card Services, N.A (aka Ransom vs MBNA)., 131 S16, 178 L. Ed.2nd 603 (2011) (2011 BL 6640) (9th Cir.) the Supreme Court’s decision, while referencing the IRS’s explanatory guidelines to clarify a point regarding how another aspect of § 1325(b) should be interpreted, expressly “emphasize[d] . . . that the statute does not ‘incorporate’ or otherwise ‘import’ the IRS’s guidance.” Id. at 726 n. 7. The Supreme Court found that the Chapter 13 debtor in this case could not take a vehicle ownership deduction on the bankruptcy “means test” that is required in order to determine the amount of disposable income that a debtor has available to repay debt. The debtor in this case owned his car outright and did not have car loan; thus, the Court found that there was no ownership expense and any excess income that would have gone towards a vehicle ownership expense had to be paid to creditors. On the other hand, if a debtor has a car loan, he or she is allowed to take the vehicle ownership deduction on the means test under the theory that such a car payment reduces the amount of disposable income available to repay creditors.

Holding: A debtor in bankruptcy who does not make loan or lease payments may not take the deduction that is otherwise available for ownership of an auto.

Plain English Holding

A debtor in bankruptcy who does not make loan or lease payments may not take the deduction that is otherwise available for ownership of an auto.

QUESTIONS: Can a debtor purchase a vehicle while in a chapter 13?Does the debtor need court approval?

ANSWER: Depending on the policy of the chapter 13 trustee it might not be necessary to get the quote before filing the motion to incur new debt.  Will need to prepare the motion and have the trustee sign it, then file with the court.  No specific length of time for the court to sign, but normally done in a few days.  Once the order is signed the Debtor takes it to the car dealer and purchases the vehicle.

File a new plan including intent to surrender the old vehicle.  Depending on the trustee the plan may need to include the new vehicle payment, or file an amended J with new payment.  If you do not know the exact amount then use the highest guideline vehicle payment allowed and adjust when the payment amount is settled and adjust the final Plan payment accordingly when preparing the SOC.

Talk with the trustee in order to determine what you will need.

The original lender will still need to file a motion for relief from stay even if the amended/modified plan provides for surrender of the vehicle.   So, if possible, it is best to have specifics about the new car before the old car is surrendered.

In re Pattullo (11/21/01 – No. 99-17615)(9th Cir. Ct App) Appeal court lacks jurisdiction to hear appeal from a Chapter 13 proceeding when lower court dismissed the proceeding even if the court allowed debtors to file a new petition.

WARNING PRE-BAPCPA

Randolph v. IMBS, INC. (05/12/04 – No. 03-1594, 03-2185, 03-2340, 03-3182, 7th Cir) The Bankruptcy Code does not “preempt” the Fair Debt Collection Practices Act (FDCPA) when the act alleged to transgress the FDCPA also violates the Code. Dunning letters issued to debtors in Chapter 13 bankruptcy must be reconsidered in light of FDCPA section 1692.

WARNING PRE-BAPCPA:

In LVNV Funding, LLC v. Harling, 852 F.3d 367 (4th Cir. 2017), as amended (Apr. 6, 2017), the Fourth Circuit addressed whether claim objections filed after a Chapter 13 plan had been confirmed are barred by the res judicata effect of the confirmed plan. Here, LVNV Funding filed unsecured proofs of claim that it conceded were barred by the statute of limitations. However, LVNV Funding argued that because the debtors’ Chapter 13 plans were confirmed before the debtors filed their claim objections, the Chapter 13 plans had a res judicata effect on all creditor claims filed prior to the issuance of the confirmation order.

CONCLUSION: post-confirmation claim objections to secured claims are barred by res judicata, while post-confirmation claim objections to unsecured claims are not barred by res judicata.

IN RE: PAUL E. KLAAS; Nos. 15-3341 & 16-3482 (3rd Cir Court Appeals, W.D. PA.  6/1/17) The Bankruptcy Code sets certain limits on the amount of time that debtors may be required to remain in Chapter 13 proceedings and make payments on their debts. This case presents two questions of first impression among the Courts of Appeals: whether bankruptcy courts have discretion to grant a brief grace period and discharge debtors who cure an arrearage in their payment plan shortly after the expiration of the plan term, and if so, what factors are relevant for the bankruptcy court to consider when exercising that discretion.  Because we conclude the Bankruptcy Code does permit a bankruptcy court to grant such a grace period and the Bankruptcy Court did not abuse its discretion in granting one here, we will affirm the rulings of the District Court, which in turn affirmed the relevant order and judgment of the Bankruptcy Court.

Bankruptcy Rule 1016 provides the relevant authority pertaining to the chapter 13 estate of a deceased debtor:
Death or incompetency of the debtor shall not abate a liquidation case under chapter 7…. In such event, the estate shall be administered and the case concluded in the same manner, so far as possible, as though the death or incompetency had not occurred.
If a reorganization, family farmer’s debt adjustment, or individual’s debt-adjustment case is pending under chapter 11, chapter 12, or chapter 13, the case may be dismissed; or if further administration is possible and in the best interest of the parties, the case may proceed and be concluded in the same manner, so far as possible, as though the death or incompetency had not occurred.

The debtor’s attorney needs to discuss the options with the heirs in order to determine the best interest of the parties.  A hardship discharge might be an option, depending on the circumstances.

See ABI article on the topic

In re Jessica Hayden, 4:15-BK-12619-BWM After Harris v Viegelahn (US Supreme Court, 2015): (6/26/18) Judge Whinery entered an order granting payment of attorney’s fees in a case that converted PRIOR to confirmation of a plan. So, in the narrow circumstance of a case converting prior to plan confirmation, Judge Whinery will enter orders allowing the payment of fees that may be on hand with the Trustee, rather than sending those funds back to the debtor as under the Harris case when a case dismisses or converts after a plan is confirmed.

Judge Gan’s initial reaction three years ago (but he has not been presented with the issue formally) was that he thought Harris would not allow the payment of fees under this circumstance.

In re Mangaoang, 9th Cir BAP, 8-13-19 Bankruptcy court (ND Cal.) denied chapter 13 debtor’s motion to extend automatic stay in her second chapter 13 case. Debtor appealed to BAP for 9th Circuit.Facts:Debtor filed chapter 13 case to stay foreclosure on home. Secured creditors and chapter 13 trustee opposed debtors proposed plans. Debtor’s unstable income was unable to fund a feasible plan. Bankruptcy court dismissed case. Creditors re-scheduled foreclosure.

Debtor filed second chapter 13 case on eve of foreclosure. Because second case was filed within one year of dismissal of prior case, the automatic stay was set to expire 30 days after filing. Debtor moved to extend stay. Secured creditor opposed, asserting presumption of bad faith, no change in income instability, and no feasible plan. Bankruptcy court denied extension of stay. Debtor timely appealed to BAP. While appeal was pending, secured creditor completed foreclosure sale. Bankruptcy court dismissed case five months later, while appeal was pending.

In re Evans, 19-40193, (BK Idaho 2/13/20) This Court believes the correct interpretation falls in line with the reasoning of Acevedo, Dickens, and Lundy. Section 586(e)(2) directs the trustee to collect and hold the payments pending plan confirmation and the source from which to collect the percentage fee, while § 1326(a)(2) tells the trustee when and how to disburse payments before or after confirmation. Accordingly, the trustee must hold the payments in her possession until confirmation or denial of confirmation. If a chapter 13 case is dismissed preconfirmation, as in this case, the trustee shall return any such payments not previously paid and not yet due and owing to creditors to the debtor, including the trustee’s percentage fee. Debtor’s objection to the Trustee’s final report and account is sustained.

Is a personal guarantor still liable and subject to a lawsuit being file when the principal has filed a Ch. 13.

Answer – probably – see 11 USC 524(e ).  But, then see 11 USC § 1301 if the guaranteed obligation is a consumer debt.  And RFS can be granted even with respect to a consumer debt to the extent that the debt is not paid under the Chapter 13 Plan, among other things.  §1301(c).

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