Miscellaneous Hot Topics in the EDKY

This post briefly discusses the following topics: Amended Federal Rules of Bankruptcy Procedure eff. 12/1/16; Motions to Incur Debt for Purchase of Vehicle; Motions to Compel Debtors to File Notices of Address Changes; and the 2017 Judge Joe Lee Bankruptcy Institute.

AMENDED FEDERAL RULES OF BANKRUPTCY PROCEDURE BECAME EFFECTIVE 12/01/2016:  Of particular importance to creditors’ attorneys is Rule 3002.1(a), which governs notices relating to claims secured by a security interest in the debtor’s principal residence.  The rule is now applicable to claims “for which the plan provides that either the trustee or the debtor will make contractual installment payments.”  The amended rule also provides that unless the court orders otherwise, the notice requirements of Rule 3002.1 cease to apply when an order terminating the stay is entered.

All practitioners should note that Rule 9006(f) removes the 3-day additional time for taking action if service is by electronic means.

MOTIONS TO INCUR DEBT FOR PURCHASE OF VEHICLE NEED TO INCLUDE MORE INFORMATION:  If you’ve attended a court hearing in the last month, you know that the judges are concerned about allowing debtors to go into debt while they are in a chapter 13 case.  For several years, I have reviewed debtors’ requests to incur debt primarily from the standpoint of whether the debtors can afford to make the new car payment and their plan payment.  I have assumed that the market is limited, and I’ve looked only at the debtor’s cash flow.  However, the court is correct to re-assess its practice of allowing debtors to purchase new or replacement vehicles without additional information concerning the terms of the loan.  We should be looking at whether a car loan with a 20+% interest rate (for example) and payments spread over 6, 7, or even 8 years is in the debtors’ best interest financially, and debtors’ attorneys now need to provide that information in their motions.  Here are some suggestions (subject to change as we learn more from the court):

  • Make sure the motion adequately explains not only why the debtor needs a new (or different/additional/replacement/whatever) car, but why they need a car in the requested price range as well.
  • Set forth the proposed interest rate of the loan, and the loan’s proposed term.   If the loan has a high interest rate or is for a long term, explain to the court whether the debtor shopped around or if that was the only loan available to them.
  • If the debtor is replacing an existing car being paid through the plan, explain why it must be replaced, why it can’t be repaired instead, how the debtor intends to dispose of the existing car, and how the remaining balance owed on the secured claim is to be treated.  This might require a motion to modify the plan.
  • Finally, as always, you need to show the debtor can afford to make the projected car payment without negatively impacting their ability to make plan payments, which necessitates the preparation and filing of an amended Schedule I and J to support the debtor’s representation of ability to pay.

I have not updated the form motion to incur debt that has been used for several years, and without further direction from the court I am reluctant to do so.  In the meantime, I suggest the motion be more of a narrative rather than a fill-in-the-blank form so that all relevant information can be presented to the court.

WATCH FOR NEW MOTIONS TO COMPEL DEBTORS TO FILE CHANGE OF ADDRESS NOTICES:  We get a fair amount of returned mail that can’t be delivered to debtors at their last known address.  We then email debtors’ attorneys requesting a current address – with mixed results.  We also get quite a few informal written notices of new addresses – often written on a sticky note attached to a check the debtor has sent to the lockbox.  In the past we have changed the debtor’s address pursuant to these written notices, but then our records show an address for the debtor that is different from the court’s records.  So, from now on, if we get mail returned as undeliverable, or if we get an informal notice of address change, we will file a motion to compel the debtor to file with the court a notice of address change.  Debtors’ attorneys, please watch for these motions, contact your clients, and promptly file a notice with the court so we all have the most current mailing address for debtors.

REGISTER NOW FOR THE JUDGE JOE LEE BANKRUPTCY INSTITUTE:  The 18th Biennial Judge Joe Lee Bankruptcy Institute will be held on Thursday and Friday, June 8 & 9, 2017, at The Campbell House in Lexington, Kentucky.  Topics of interest to consumer practitioners  include:  Kentucky’s New Voidable Transfers Law; Medical Practices and Health Care Facilities in Bankruptcy; What Bankruptcy Practitioners Need to Know about the CFPB; the Bankruptcy Code and the UCC; LLC’s in Bankruptcy; Bankruptcy Appeals; and two hours of Ethics.   You cannot find a seminar of this caliber for the low price of $340 anywhere else.  Click here http://128.163.184.63/ukcle/Bankruptcy/2017/JoeLee17_Brochure.pdf for the program brochure and registration information, or go to www.ukcle.com.  Register early before the seminar sells out.

 

Retainer Agreements, Fee Disclosures, and the EDKY Rights and Responsibilities of Debtors’ Attorneys

fee-disclosure-intro

Are you adequately and accurately disclosing to your clients and to the court what your fee agreement is for representing debtors in chapter 13 cases in the EDKY?  Many attorneys, I fear, are not.

Debtors’ attorneys as debt relief agencies under BAPCPA must have written agreements with their clients explaining what services will be provided and the fees for those services.

Attorneys are required to file with the court a disclosure of compensation paid or agreed to be paid for services rendered  or to be rendered in connection with the case.

In the EDKY, if an attorney chooses to accept the presumptively reasonable fee (a/k/a the “no-look fee”), the attorney and the debtor must agree to the Rights and Responsibilities of Chapter 13 Debtors and Their Attorneys, and the attorney must certify that such agreement has been made and that a copy of the Rights and Responsibilities has been given to the debtor.

So in the EDKY, there are two written agreements between the debtor and the debtor’s attorney (the retainer agreement and the Rights and Responsibilities), and there are two disclosures the attorney makes to the court regarding services to be provided and the agreed-upon compensation (the fee disclosure and the certification regarding Rights and Responsibilities).

In your office, are your retainer agreement, your fee disclosure, and the Rights and Responsibilities consistent with each other?  If you have not updated your retainer agreement since January 1, 2012 (when the court adopted the no-look fee and Rights and Responsibilities), the answer is probably no.

What about your fee disclosures – are you accurately disclosing to the court what your retainer agreement covers?  Look at this commonly used fee disclosure:

fee-disclosure-01

This cookie-cutter language has been around for years (maybe it’s the default example in your software program?), and it is used by the majority of practitioners in the EDKY.  Is it accurate in your practice?  If you are using the same retainer agreement for chapter 13 cases that you use for chapter 7 cases, I can kind-of understand why you are telling the court in a chapter 13 case that your fee covers reaffirmation agreements.  Otherwise, the use of this particular disclosure doesn’t make sense to me.

Also, notice the exclusion above for “judicial lien avoidances.”  However, in the EDKY, the no-look fee covers “motions to avoid liens on real or personal property,” so the fee disclosure contradicts what the attorney has agreed to do in the Rights and Responsibilities.

I came across the following fee disclosure, which at least makes an effort to be consistent with the attorney’s retainer agreement, but it isn’t much a disclosure to the court since the retainer agreement is not attached.

fee-disclosure-03

In the following disclosure, the attorney states services performed after confirmation will be billed separately, yet it is inconsistent with the Rights and Responsibilities, which requires the attorney to provide certain post-confirmation services in exchange for the no-look fee (which this attorney is requesting).

fee-disclosure-04

Many of you need to go back to the proverbial drawing board.  Reread the Rights and Responsibilities and compare it to your retainer agreement.  Then work on the disclosure you make to the court.

Bankruptcy Form 2030 (the Disclosure of Compensation of Attorney for Debtor) is a “Director’s Form” that can be modified.  The default language is as follows:

fee-disclosure-b2030

The instructions for Form 2030 provide in part: fee-disclosure-instructions

In looking at various fee disclosures, I found a few that have been tailored to be consistent with the Rights and Responsibilities.  Some of these  could use some tweaking (one uses an old form with the paragraphs numbered 6 & 7 instead of 5 & 6; another still incorporates the language about reaffirmation agreements and judicial lien avoidances that I complained of above).  But I commend the attorneys for being attentive to the importance of the Rights and Responsibilities and the need for accurate fee disclosures.  Here are some examples:

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fee-disclosure-06

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fee-disclosure-07

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fee-disclosure-08

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fee-disclosure-09

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I think it is important for attorneys to make sure their retainer agreements with chapter 13 debtors adequately inform the clients of the services the attorney will provide for the agreed-upon fee; that the retainer agreement is consistent with the Rights and Responsibilities (if the no-look fee is being requested); and that the attorneys’ fee disclosures to the court are accurate.  I hope to see at least a few attorneys change their fee disclosures (and if necessary, their retainer agreements) after reading this.

 

 

Trustee’s Policy Change Affecting Attorneys’ Appearances at Court Hearings

“Will you inform the court that we have agreed to continue the hearing?”  “Now that we’ve reached a resolution, will you tell the judge?”  “Do I need to come to the hearing?”  “Do I need to stay around until my case is called?”

Attorneys make these requests to avoid spending time in court for a chapter 13 docket call.  I get it – time is money to attorneys, and if you have only one or two cases on the docket, you don’t want to travel to the courthouse and sit around until your case is called just to ask for a continuance or to tell the court that you will be converting the case, for example.

In the past, I and my staff attorneys have tried to be accommodating by relaying such information to the court on the attorney’s behalf, but the requests are becoming too much.  Taken to the extreme, why should any attorney (particularly debtors’ attorneys) appear in court if I can inform the court of the status of their cases and prepare all of the necessary orders?

Last week I made a tough decision:  I and my staff attorneys will no longer make representations to the court on behalf of an attorney who cannot or chooses not to appear at a hearing.  No more courtesy announcements of continuances, settlements, agreements, withdrawals, or the like for absent attorneys.

This doesn’t mean that you must attend every hearing.  There are alternatives.  Here are some suggestions:

  • If it’s a confirmation hearing – fix the plan to get it confirmable.  Be proactive.  Review secured claims.  Hound your clients about filing tax returns or getting necessary documents to you.  Discuss settlement with objecting creditors.  File the amended plan nine (9) or more days before the hearing.  Once I recommend confirmation, the case comes off the docket.
  • If it’s a motion to dismiss for failure to make plan payments – take advantage of the agreed order process (click here to find forms and instructions).
  • If you file a motion to modify a plan in response to my motion to dismiss, file it more than 2 days before the hearing, and I’ll renotice the motion to dismiss to the next month.  By then, the objection time will have run on your motion to modify, I’ll withdraw the motion to dismiss, and no hearing will be necessary.
  • If I file an objection to your motion to modify and on further review you agree with the objection, withdraw your motion.  That moots my objection and gets the matter off the docket.  Then you can file a new motion to modify.
  • If you want a continuance of a hearing, draft and submit to my office for approval an agreed order continuing the hearing (especially confirmation hearings), and then file the proposed order with the court in time for the court to process and enter the order before the hearing.
    • It is rare that I will refuse to continue a hearing as long as I know the case is progressing towards confirmation or a resolution of the matter.
    • Get the agreed order done at least 2 days before the hearing.  Waiting until late on the day before the hearing is not a good idea, because the agreed order might not be entered in time to get the case off the docket.
    • If the case is still on the docket, appear or face the consequences.  Don’t expect me to ask for a continuance on your behalf.  Sorry, but I am not going to make it easy for attorneys to avoid a hearing if they are waiting until the last minute to do what could have been done days earlier.  It just isn’t fair to those of you who get things done in a timely manner or who do come to court.
    • Don’t forget to put the date, time, and location of the continued hearing in the agreed order.
  • If you must wait until the last minute, file a motion to continue the hearing, as long as you put in your motion some valid reason why the continuance is necessary.  Tender an order with the motion and request that the order be entered without notice and hearing pursuant to local rule 9013-1(c)(v).  Again, your proposed order must state the date, time, and location of the continued hearing.
  • Have another attorney appear on your behalf to request a continuance, explain the status of the case, or confirm that the matter has been resolved.
  • Finally, come to the hearing.  Until your case is called, you can read, text, email, work on a laptop or tablet, or just listen to what’s going on in other cases.  You can learn a lot from listening to and observing the judges as they ask questions or make oral rulings.

 

Making Chapter 13 Plan Payments in the E.D. Ky. – New Online Payment Option

Debtors can now make their chapter 13 plan payments in EDKY online (for a fee) through www.TFSbillpay.com (“TFS”).  Debtors’ attorneys, here is what you need to know about this new service.

First, payment by payroll deduction is still required by KYEB-LBR 3070-1, unless otherwise ordered by the court or agreed to by the trustee.

I generally agree to waive the payroll deduction requirement for debtors who:  do not receive regular income from wages; have seasonal employment; work part-time and don’t earn enough to cover the plan payment; or change jobs often.

Even if a debtor is making regular plan payments by payroll deduction, payments for tax refunds, bonuses, other lump-sum payments, or to catch up delinquent plan payments will not be made by payroll deduction.

In all of those instances, debtors might prefer to make online payment via TFS rather than paying by check, money order, or ACH bank draft.  Some of the benefits of using TFS:

  •  The fee for using TFS is comparable to or cheaper than sending bank checks or money orders by mail.  The fee is based on the amount of the debtor’s plan payment and generally ranges from $1 to $9.  It’s definitely cheaper than sending a payment via overnight mail to try and avoid a probation dismissal.
  •  TFS keeps accurate records of the debtor’s chapter 13 plan payments so they don’t have to worry about keeping money order receipts or searching for cancelled checks to show they made their plan payments if I file a motion to dismiss.
  •  TFS gives debtors more flexibility in scheduling their payments so they don’t have to choose either the 10th or the 25th as the date on which their payment will be deducted from their bank account via ACH.
  •  TFS offers customer service options such as text or email reminders when plan payments are due, or the ability to stop or change a scheduled online payment by phone.
  •  Debtors can use TFS to make payments through any MoneyGram location (a flat $9 fee), so they don’t even need a bank account.
  •  TFS has an attorney portal (http://attorney.tfsbillpay.com), so attorneys can help their clients get set up with TFS, access clients’ TFS payment histories, and even request alerts to make sure their clients are staying on track.

TFS might not work for everyone, but it is an option for debtors who want it.

The Chapter 13 Trustee’s office has contracted with TFS to provide an online payment option but otherwise is not affiliated with TFS and does not receive any compensation from TFS for the use of its services.  The website www.TFSBillPay.com  is not hosted by the Trustee’s office.  Contact TFS for website support.

Nondischargeable Debts in Chapter 13 Cases

We all know that section 523 contains exceptions to discharge, but some of those nondischargeable debts, including 523(a)(6) debts (for willful and malicious injury) CAN BE discharged in a chapter 13 case when the debtor completes plan payments.   If you represent creditors, you need to know how and when to seek nondischargeability under 523(a)(6) in chapter 13 cases.

Look at the first sentence in 523(a):  “A discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual debtor from” the debts listed in 523(a).

There are two discharge options in a chapter 13 case:

  • the debtor can get a discharge upon completion of plan payments under 1328(a); or
  • if the debtor has not completed plan payments, s/he can still get a so-called hardship discharge under 1328(b) if certain conditions are met.

Read the first sentence of 523(a) again – those 523(a) debts are nondischargeable only if the debtor gets a discharge under 1328(b) – the hardship discharge.  So what can be nondischargeable if the debtor completes plan payments?

The list of nondischargeable debts in completed chapter 13 cases is contained in 1328(a).  Upon completion of plan payments, if the debtor certifies that s/he is current on DSO payments, the debtor gets a discharge of all debts provided for by the plan except debts:

  • (1) Provided for under 1322(b)(5) (cure defaults and maintain payments on long-term debts);
  • (2) Of the kind listed in:
    • 523(a)(1)(B) (taxes owed under late-filed returns)
    • 523(a)(1)(C) (taxes from fraudulent tax returns or tax evasion)
    • 523(a)(2) (fraud; false financial statements)
    • 523(a)(3) (unscheduled or late-scheduled debts)
    • 523(a)(4) (fraud or defalcation as a fiduciary; embezzlement)
    • 523(a)(5) (DSO’s)
    • 523(a)(8) (student loans)
    • 523(a)(9) (death or personal injury from DUI);
  • (3) For restitution or criminal fine included in a debtor’s conviction; or
  • (4) For willful or malicious injury that caused personal injury or death of another person.

Note that 523(a)(6) debts are not excepted from discharge if the debtor completes plan payments under 1328(a).  Those can be discharged (unless they are for willful or malicious injury that caused personal injury or death under 1328(a)(4)).  Also, the 60-day deadline for filing a 523(a)(6) complaint doesn’t apply.

Yes, section 523(c)(1) and Bankruptcy Rule 4007(c) require the creditor to seek a determination of nondischargeability under 523(a)(2), (a)(4), and (a)(6) by filing a complaint no later than 60 days after the first date set for the 341 meeting.

But look at Rule 4007(d), “Time for Filing Complaint Under § 523(a)(6) in a Chapter 13 Individual’s Debt Adjustment Case; Notice of Time Fixed.”  When the debtor files a motion for a discharge under section 1328(b) (the hardship discharge), the court shall enter an order fixing the time for filing a complaint under 523(a)(6) and shall give no less than 30 days’ notice of the deadline.

Creditors attorneys, when you have a claim for willful and malicious injury to property, such as a claim that the debtor sold collateral and failed to pay the proceeds to the secured creditor, use caution in filing a 523(a)(6) complaint in a chapter 13 case just because you are accustomed to the 60-day deadline in chapter 7 cases.  Think about Rule 9011(b)(2), that when you file the complaint you are representing to the court that the claims and legal contentions are warranted by existing law (or you have a nonfrivolous argument for changing existing law or establishing new law).

There may be reasons why a 523(a)(6) complaint would be filed early in a chapter 13 case.  For example, where the same facts support a 523(a)(2) and a 523(a)(6) determination, or if the 523(a)(6) complaint is intertwined with an objection to plan confirmation, it makes sense to have one trial and resolve all factual matters.  But I think it would be prudent to acknowledge in the complaint that a finding of nondischargeability under 523(a)(6) would be effective only if the debtor gets a hardship discharge.  Then let the court decide whether the matter is ripe or not.

 

 

The E.D. Ky. Chapter 13 Plan – Tips for Creditors’ Attorneys

Our local rules mandate the use of a form chapter 13 plan, Local Form 3015-1.  Here are a few notes to assist creditors’ attorneys and their clients in their review of plans filed in the EDKY.  The tips are also useful for debtors’ attorneys and their staff in preparing the plan.

Secured Claims Valued Under § 506 (Section II.A.2. of the Plan).

This section of the plan serves as a motion to value collateral.  The plan provides that the claim “shall be paid through the plan until the secured value [in the plan] or the amount of the claim, whichever is less, has been paid in full.  Any remaining portion of the allowed claim shall be treated as a general unsecured claim.”

The creditor should object if it believes the plan undervalues the collateral.  If necessary, the court will set the matter for an evidentiary hearing on valuation.  Other reasons to object might be if the interest rate is inadequate, the plan is inadequately funded to pay the claim in full within five years, or if the creditor wants a particular fixed monthly payment amount (otherwise, I pay secured claims pro rata).

If the plan provides for a secured value of $0, that means the claim will be paid as a general unsecured claim because there is no value in the collateral to secure the claim under section 506.  A claim that is underwater and is being stripped off should be listed in this section of the plan with a secured value of $0.  See my blog post on lien-stripping.  If the creditor believes there is value to support the claim, object to confirmation.

Secured Claims Not Subject to Valuation Under § 506 (Section II.A.3. of the Plan).

 If a claim is listed under this section of the plan (910-claims should be listed here), the plan shows the estimated amount of the claim, but the plan provides that the claim “shall be paid through the plan until the amount of the claim as set forth in the Creditor’s proof of claim has been paid in full.”

[Claims not subject to valuation (such as 910-claims)] “shall be paid through the plan until the amount of the claim as set forth in the Creditor’s proof of claim has been paid in full.”

Do not file an objection to confirmation if the only basis is that the plan underestimates the amount of the claim.  I pay according to the claim amount.  You may still object to confirmation if the interest rate is inadequate, the plan is inadequately funded to pay the claim in full within five years, or if the creditor wants a particular fixed monthly payment amount.

Curing Defaults and Maintaining Payments on Mortgages and Other Secured Debts (Section II.B.1. of the Plan).

Similarly, the plan asks for the ESTIMATED arrearage amount but states:  “[A]ny allowed claim for prepetition arrearages shall be paid through the plan until the amount of the arrearage as set forth in the Creditor’s proof of claim has been paid in full.

 “[A]ny allowed claim for prepetition arrearages shall be paid through the plan until the amount of the arrearage as set forth in the Creditor’s proof of claim has been paid in full.

It is not necessary to object to confirmation on the grounds that the plan understates the arrearage amount.  The arrearage amount in the creditor’s proof of claim controls.

If the debtor’s plan payment is insufficient to cure the arrearage within a reasonable time as required by section 1322(b)(5), then an objection may be warranted.  I look at whether the plan will pay secured and priority claims in full within 5 years.  It’s up to the creditor to determine whether the time for curing defaults is reasonable.

Special Provisions (Section VII. of the Plan).

Read the last section of the plan to see if there are any special provisions that might apply to the creditor’s claim.  Also watch for special provisions regarding the sale of property in which the creditor has a mortgage or security interest.  Pay close attention to any plan provision that requires the creditor to release its lien at some point in time and make sure such a provision is justified.

I hope these tips help. Feel free to post comments on the blog, or email me privately.

Are You Avoiding a Lien or Stripping It Off? There Is a Difference

There is a difference between avoiding a lien under section 522(f) and treating a secured claim as wholly unsecured based on the value of the collateral.  The latter is colloquially referred to as lien-stripping, but often it is erroneously considered a lien avoidance action, which causes confusion as to how the claim is to be treated in the plan.

Lien Avoidance Under 11 U.S.C. § 522(f).

The debtor may use section 522(f) to avoid a lien –

  • to the extent the lien impairs an exemption;
  • and only if the lien is –
    • a judicial lien (in Kentucky, judgment liens on real property); or
    • a nonpossessory, nonpurchase-money security interest in household goods and other property described in 522(f)(1)(B).

Section 522(f)(2) sets forth the arithmetic formula for determining whether a lien impairs an exemption and can be avoided.  The judgment lien does not necessarily have to be junior to all other non-avoidable liens.

In the EDKY, the form chapter 13 plan has a place for listing creditors whose liens are to be avoided under § 522(f) (Section II.E. of Local Form 3015-1).  By listing the creditor in the plan, the claim will be treated as unsecured, but that does not actually avoid the lien.  The debtor must file a separate motion and get an order avoiding the lien.

avoided-liens

Local Rule 4003-2 requires very specific information to be included in the motion and in the order avoiding the lien.  If it’s a judgment lien to be avoided, the motion must identify not only the creditor, but the filing date, county, book and page number of the judgment lien as well (which should make it easier to get the lien released after the debtor gets a discharge).  The motion also needs to show the calculation required by section 522(f)(2) (in other words, you have to “show your math”).

Even if the information were not required by local rule, it’s a good practice to follow.

Lien Stripping.

The Code does not refer to cramdown, strip down, strip off, lien-stripping, or any other familiar, descriptive terminology, but these terms generally refer to the process of valuing the collateral under 11 U.S.C. § 506 to determine the amount of the creditor’s secured claim, then dealing with the claim accordingly in the chapter 13 plan (or appropriate motion).

Section 1322 provides that a plan may modify the rights of holders of secured claims (except a claim secured only by a security interest in real property that is the debtor’s residence) or of unsecured claims.

To determine the amount of an allowed secured claim, go to section 506(a)(1) (“Determination of Secured Status.”).  An allowed claim is secured only to the extent of the value of the property to which the lien attaches; the remainder of the claim is considered unsecured.  If there is a junior lien that is “underwater” – in other words, there is no value for the junior lien to attach to – it is entirely unsecured.

For example, property worth $100,000 is encumbered by a 1st mortgage in the amount of $120,000 and a 2nd mortgage of $10,000.  There is no value in the property to which the 2nd mortgage can attach.  It is a wholly unsecured claim under § 506(a).

How should a claim be treated in the plan if there is no value in the collateral for the lien to attach to?  Don’t make the mistake of listing it in the section on avoiding liens under 522(f).  You are not using section 522(f) to avoid the lien.  List it in the section of the plan called “Secured Claims Valued Under § 506” (which is Section II.A.2. of Local Form 3015-1).

secured-claims-valued

What is the value of the secured claim of the lienholder who is totally underwater?  $0.  The claim is treated as wholly unsecured.

Here, we are talking about whether there is value in the property for a lien to attach to.  The debtor’s exemption in the property plays no role in this analysis.  Liens that can be stripped off could be second or third mortgages; second liens on cars; judgment liens on property that is already fully encumbered.

Creditors might argue that it takes an adversary proceeding to strip off a lien, and some courts have so held.  Other courts require a separate motion to value collateral and strip off a lien (WDKY).  In the EDKY, the plan provision for valuing collateral constitutes a motion, and the lien can be stripped through plan confirmation.

Treating the claim as unsecured in the plan does not necessarily get the lien released at the conclusion of the case.  There is no federal or local rule describing how to actually make the lien go away after the debtor gets a discharge.  A well-crafted plan or motion will contain language in the Special Provisions section that requires the creditor to file a release of its lien within x days after the debtor’s discharge is entered.

In a future post, I’ll discuss what happens when a lien is not properly perfected, or is perfected during the 90-day prepetition period, or is perfected postpetition.  In those instances, the trustee (and in some instances the debtor either directly or derivatively) has the power to avoid transfers, including the granting of a security interest or the perfection of a lien.

Make sure you understand the difference between avoiding a lien under 522(f) and treating the secured claim as unsecured because of the collateral’s value.  Use the proper plan provision.  File the appropriate motions and tender clear, direct orders.  Give good notice to creditors.  Then at the end of the case, make sure the affected creditors release their liens.

 

Free NACTT Academy Webinar – FDCPA Claims in Chapter 13 Cases

The first Academy webinar of Fall 2016:   Making Money with  ‘Consumer Rights’ Claims in Chapter 13

Friday –  September 23rd
1:30 Eastern/12:30 Central

Chapter 13 Trustee Jody Bledsoe, Debtors’ Attorney Craig Shapiro, and Thomas Hooper, Staff Attorney to Chapter 13 Trustee Russell Simon, will discuss objecting to claims using the FDCPA.

This webinar is directed primarily to attorneys who represent debtors, although attorneys who represent creditors, trustees and attorneys who represent trustees will also be interested.

Click here to register.  (Registration for the webinar automatically places registrant on the Academy’s email list)

Send questions or comments to Questions@ConsiderChapter13.org

Quick Reference Guide to Critical Deadlines in Chapter 13 Cases

I have to confess – sifting through the Federal Rules of Bankruptcy Procedure is not my strong suit, especially when I’m trying to find a deadline or grounds for an extension of time in a hurry.  That’s why I first wrote a Quick Reference Guide to Critical Deadlines in Chapter 13 Cases a few years ago for the NACTT Academy‘s Toolbox (plus, right after BAPCPA, some of the rules were more restrictive in terms of when the court could grant extensions of time, and practitioners needed to know which rules were unforgiving).

This version of the Quick Reference Guide to Critical Deadlines in Chapter 13 Cases is updated and includes a few comments and local rule references specific to the Eastern District of Kentucky, but for the most part the guide can be used by chapter 13 debtors’ attorneys and creditors’ attorneys practicing in any jurisdiction (I’ll soon be updating the version on the NACTT Academy’s website without the local rules).

There are 4 sections to this 10-page Quick Reference Guide (all related to chapter 13 cases only):

  • Deadlines Applicable Primarily To Actions Taken By Debtors;
  • Deadlines Applicable Primarily To Actions Taken By Creditors Or Trustee;
  • Deadlines Applicable To Actions Taken By Any Party; and
  • Rules Applicable To Extensions Of Deadlines.

Click here to open/download/print a PDF copy of the Quick Reference Guide to Critical Deadlines in Chapter 13 Cases.  I hope you find it useful, but remember – I might be wrong; I might change my mind about my interpretation of the relevant rules, so do your own research (but please let me know if you find an error in the Guide!).

 

Practice Tips: Rental Properties in Chapter 13

It is not unusual for a chapter 13 debtor to own one or more rental properties or to have an interest in an LLC that owns the properties.  Rental properties can complicate issues affecting plan confirmation, such as liquidation, disposable income, and feasibility.  Attorneys need to be particularly attentive to a review of documents and preparation of Schedules.  Here are some tips to help you avoid a few common problems I see in my review of Schedules and documents:

  • First, be aware that if the property is owned by an LLC, the property is not property of the estate in the individual debtor’s chapter 13 case.  The debtor’s interest in the LLC is property of the estate (see Q.19 on Schedule A/B), but the assets of the LLC are not.
  • If the debtor has a fractional interest in the rental property, Schedule A/B must show the value of the property as a whole and the value of the debtor’s interest.
  • As you review the deeds and prepare Schedules, try to include the DB/page reference in the description of the property listed in Part 1 of Schedule A/B.
  • Note the property address or other identifying information on the copy of each deed you’re providing to my office so we can easily match the deeds to the scheduled properties.
  • Schedule all encumbrances against each property on Schedule D – not just mortgages, but delinquent property taxes, judgment liens, tax liens, etc. (and don’t forget that property taxes are secured claims under Kentucky law, not priority claims).
  • As you did with the deeds, note the property address or other identifying information on the copy of each mortgage you’re providing to my office so we can match mortgages, scheduled debts, and actual claims.
  • Determine if there is a liquidation issue as to each property (not just aggregate property values minus aggregate liens against all properties).  If the case were a chapter 7 case, the chapter 7 trustee could sell the properties with nonexempt equity and abandon those properties that are underwater.  That’s why you need to look at liquidation on a property-by-property basis.  The plan will need to be funded to satisfy the liquidation test.
  • Now start working on income and expenses.  Question #5 of the SOFA asks for actual gross income.  You will probably get that information from the debtor’s tax returns.

5. Did you receive any other income during this year or the two previous calendar years? Include income regardless of whether that income is taxable. Examples of other income are alimony; child support; Social Security, unemployment, and other public benefit payments; pensions; rental income; interest; dividends; money collected from lawsuits; royalties; and gambling and lottery winnings. . . .List each source and the gross income from each source separately.

  •  On Schedule I, report net income but attach the required separate statement showing the calculation of that net income.  Follow the instructions for Line 8 of Schedule I:

8. List all other income regularly received:               8a. Net income from rental property and from operating a business, profession, or farm.  Attach a statement for each property and business showing gross receipts, ordinary and necessary business expenses, and the total monthly net income.

The statement of business income and expenses does not need to be on any specific form in the Eastern District of Kentucky, but it should be detailed enough to show some basic information as to each property.  For example:

 

 Monthly average gross rental income:  $___________
Expenses:
Mortgage payments: $___________
Property taxes: $___________
Insurance: $___________
Maintenance expenses: $___________
Utilities: $___________
Other ordinary and necessary business expenses*:
_____________ $___________
_____________ $___________
_____________ $___________
Total Expenses: $___________
 Monthly Net Income:  $___________

*Don’t include “phantom” expenses like depreciation.

  • The aggregate monthly net income from all properties should go on Line 8a of Schedule I.
  • If the expenses for a rental property exceed the income (negative cash flow), consider whether it is feasible for the debtor to keep the property.  I usually object to the retention of these properties because it is the unsecured creditors who are affected when the plan payment is calculated based on the expenses exceeding income.  But if the debtor has some equity in the property to justify retaining it, they will need to increase the plan payment to cover the operating loss.

Follow these tips and you increase the likelihood of smooth sailing towards confirmation of your chapter 13 plan in the EDKY.