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
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!).
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:||$___________|
|Other ordinary and necessary business expenses*:|
|Monthly Net Income:||$___________|
*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.
“I’ve Changed My Mind – I Want to Surrender My House”: What Effect Does Post-Confirmation Surrender Have on the Debtor’s Discharge?
If a confirmed plan provides that the debtors will cure arrearages through the plan and maintain ongoing payments on a mortgage or long-term car loan, and the debtors complete plan payments and get a discharge, those section 1322(b)(5) debts are not discharged per section 1328(a)(1). The debtors still have personal liability on those debts after discharge, just as if the debtors signed reaffirmation agreements in chapter 7 cases.
But what happens if after confirmation the debtors change their mind – they can’t afford the house or the car, and they let the creditor get relief from stay. Is the claim still a 1322(b)(5) claim that is excepted from discharge?
Even if a creditor gets relief from stay on a 1322(b)(5) claim after confirmation, the creditor’s claim remains a 1322(b)(5) claim according to In re Holman, 2013 WL 1100705 (Bankr. E.D. Ky. 2013). Taken to its logical conclusion, any resulting deficiency claim would not be discharged.
What about a post-confirmation plan modification to surrender the house or car – will that change the claim from one provided for under 1322(b)(5) into something else? Is such a plan modification permitted under the Sixth Circuit Adkins/Nolan doctrine? The debtors can try to modify the plan, but it may not be sufficient to protect the debtor from post-discharge collection calls and letters. See In re Spata, Case No. 09-52154 (Order Entered April 22, 2016, Doc. #122) (Bankr. E.D. Ky. 2016).
Is there a solution to protect the debtors? Maybe. Try including something like the following special provision in the original plan:
In the event that relief from stay is granted to any creditor addressed in Section II, or in the event that the Debtor surrenders the collateral to the creditor after confirmation, any resulting deficiency, after liquidation of the collateral, shall be classified and paid only as a general unsecured claim, but only up to the amount of said deficiency. Any amount unpaid on said deficiency claim shall be discharged upon completion of the plan. This special provision is intended to cover any and all secured claims, whether payment on the claims are to be made through the plan by the Trustee or to be made directly by the Debtor.
A plan with this provision was confirmed when no creditor objected. See In re Ratliff, Case No. 14-21064, Order entered Nov. 10, 2014, Doc. #43 (Bankr. E.D. Ky. 2014). The adequacy of the provision has not yet been tested, but it’s (probably) better than nothing. However, if a creditor objects to the provision, who knows what the result will be.
For a more detailed discussion, click here for a handout I prepared on Postconfirmation Mortgage Issues Affecting Discharge for a recent seminar. Part I of the handout discusses this issue (Part II discusses an issue mentioned in an earlier post, that a debtor who is delinquent in postpetition mortgage payments may not be able to get a discharge at all).
This is a more complex issue than what I’ve described here. Creditors’ attorneys, don’t assume that you and your clients have a free pass to collect on these 1322(b)(5) debts after discharge, because it’s not that clear. Debtors’ attorneys, be aware of the issues, and counsel your clients on the risks of changing their minds after confirmation.
NOTE: SAVE THE DATE – THE UK JUDGE JOE LEE BIENNIAL BANKRUPTCY INSTITUTE WILL BE JUNE 8-9, 2017, at the Campbell House in Lexington.
I see A LOT of what I call “fixit” court orders: orders directing parties to fix something or to do something. What really surprises me is the number of show cause orders entered when the parties don’t comply with the first order. If you think this doesn’t apply to you, read on.
I wonder whether attorneys are aware of how frequently they are the subject of fixit orders or show cause orders. If they are, why do they continue to ignore (or allow staff to ignore) court orders? If they aren’t aware of it, shouldn’t they be so they can take corrective action?
Here are some simple tips to help attorneys identify and prevent some common recurring errors:
First, determine if you have a problem. For debtors’ attorneys, spot-check the docket in a few cases you’ve filed within the past six months. Creditors’ attorneys, look at the docket in some cases in which you have recently filed motions or objections. If you’ve had one or more fixit orders (or heaven forbid, show cause orders) in several cases, you have a systemic problem that needs to be fixed. You and your staff are wasting time and money.
Second, review your procedures and make sure you and your staff have a basic understanding of certain local rules and the administrative procedures manual. Make a checklist, or print and highlight relevant provisions of the local rules if you have to. To avoid some common fixit orders, you should know, at a minimum, that:
- You must attach a proposed order to every motion (or objection if that’s the form of your initial request for relief);
- If a motion is filed on notice and opportunity (N&O) and you object to the motion, you have to notice your objection for an actual hearing (date, time, and location);
- Whenever you do a notice of hearing or N&O, the hearing date or deadline for objections that you put in your document must match the hearing date or deadline for objections you enter in ECF;
- You have to give at least 14 days’ notice on all motions or objections, unless:
- There is a longer period required in the federal rules;
- You file a motion to shorten the notice time; or
- Your request is listed in KYEB-LBR 9013-1(c) as one that does not require notice;
- When you file a chapter 13 plan, you must serve it on all creditors and file a certificate of service.
Add to your checklist that the “Chapter 13 Order to Debtor to Turn Over/Produce Documents” entered in every case requires documents to be provided to my office within 14 days of the petition. This is a court order and should not be disregarded, even if you are not “show-caused” for failure to comply.
Third, implement a procedure for promptly dealing with all orders and make sure everyone in your office is aware of the importance of complying with orders of the court.
- Understand that many docket entries are in fact court orders.
- The docket text will say “This Notice of Electronic Filing is the Official ORDER for this entry. No document is attached.”
- If you or your staff think that’s not a “real” order (and more than one attorney has told me that!), pretend you are standing in the courtroom while the judge is reading that docket text to you. Then respond accordingly.
- When you get any order, read it immediately. If it applies to you or your client, calendar the deadline, and do what the order says before the deadline. If you need more time to comply (particularly if you are waiting for information from your client), file a motion for an extension of time.
- If you get a show cause order for failing to comply with the first order, fix the problem immediately, file a response, and show up for the hearing (unless the matter is remanded). If you get a show cause order for failing to show up at a show cause hearing, you’ve got a huge problem.
Of course, deadlines get missed on occasion. Clients don’t always do what the attorney tells them to do. Spam filters eat ECF notices. A key staff person gets sick and the email inbox gets overloaded. Mistakes happen. But take steps to prevent recurring mistakes, which are time-consuming (for all of us) and costly.
Try to get things done correctly and timely the first time. Use checklists. Calendar deadlines. Train staff. Read and follow the rules. Do ECF training again if necessary.
But if you get an order to do something, even if it starts with “Deficiency – Action Required,” comply with it.
This is my last post on practice tips and “OMG!” lessons we picked up at the NACTT Annual Conference a couple of weeks ago, and it’s to give debtors’ attorneys some practical information from the session on tax issues in chapter 13 cases.
- Learn how to get information from and communicate with the IRS on behalf of the debtor by using Form 8821 (“Tax Information Authorization”), Form 2848 (Power of Attorney), the fax number for the IRS (in the instructions for each form), and the Practitioner’s Priority Hotline, 1-866-860-4259.
- Learn how to request and read a “record of account transcript” from the IRS.
- The transcript will show information that is not reflected on the tax return, such as whether there are any missing tax returns, or what collection efforts have been made (which might toll the time periods for determining whether a tax debt is priority or nondischargeable).
- Also get the IRS Transaction Codes Pocket Guide for assistance in reviewing the tax transcript.
- If you file the petition without getting an account transcript from or otherwise communicating directly with the IRS to verify that the client has filed all required tax returns, schedule the IRS and the state taxing entity. If you don’t give notice to the taxing entities, you have no opportunity to deal with tax problems, and all tax debts will be nondischargeable. (Is there any reason not to give notice to the IRS and state taxing entity in every chapter 13 case?).
- Review federal tax liens to ensure the IRS sent the required Notice of Federal Tax Lien to the debtor’s last known address in the time required under the statute. If not, the debtor may have grounds to challenge the validity of the tax lien. A recent report found that the IRS did not have procedures in place to update last known addresses for purposes of sending notices of tax liens.
- Understand that certain prepetition events such as short sales, foreclosures, and repossessions result in “cancellation of debt” (COD) income. Debtors’ attorneys need to be able to counsel their clients on the tax impact of those events and should make the review of possible COD income part of their intake procedures.
Although there were really no “OMG!” lessons in the session on representing debtors with tax issues in chapter 13 cases, there were some great practical tips in the session. To order a video of any of the presentations at the seminar, go to www.considerchapter13.org. Mark your calendars for July 12-15, 2017, for the next NACTT annual conference in Seattle, WA.
Don’t ignore this topic; it’s important for bankruptcy practitioners to know about the Consumer Financial Protection Bureau (CFPB) and educate their clients (whether consumers or creditors). Here are a few tips we learned about the CFPB at the 2016 NACTT Conference a couple of weeks ago.
- Consumers, debtors’ attorneys, and creditors’ attorneys really need to know about the CFPB!
- The CFPB has supervisory, regulatory, and enforcement authority over various consumer financial services and laws.
- Activities and entities covered include: debt collection, credit reporting, mortgage servicers, private student loan lenders and servicers, payday lenders, and many others.
- The CFPB website (www.consumerfinance.gov) has lots of useful information.
- Debtors’ attorneys might want to print out some of the brochures and give them to their clients.
- Everyone should peruse the Consumer Complaint Database to see what some of the hot issues are (like collection of medical debts). Consumer complaints are very effective.
- Creditors’ attorneys need to follow CFPB enforcement actions. Consent orders may not be binding on other parties but they offer guidance on what conduct the CFPB finds improper or unlawful.
- Recent CFPB consent orders with debt buyers and sellers offer guidance on issues that might be grounds for objecting to claims in bankruptcy. For example, one consent order demonstrated how a debt buyer took collection action against consumers based on inaccurate account records.
- The CFPB is expected to issue new rules governing debt collection (and on July 28, 2016, announced its proposal. http://www.consumerfinance.gov/about-us/newsroom/consumer-financial-protection-bureau-considers-proposal-overhaul-debt-collection-market/).
- In the long run, the quality of claims filed in bankruptcy cases should improve due to the actions of the CFPB in its oversight of the debt buying and selling industry.
- OMG!: Attorneys are not necessarily exempt from CFPB oversight and enforcement.
I’m sharing a few practice tips and “OMG!” lessons we picked up at the NACTT Annual Conference last week in Philadelphia. This post is on two important case decisions affecting the debtor’s chapter 13 discharge (both warranted “OMG!” reactions from my staff attorneys and I).
- OMG!: The discharge injunction does not prevent the collection of a DSO claim that was disallowed by the bankruptcy court, which had sustained the debtor’s objection to a portion of the DSO claim, per a recent decision of the 8th Cir. BAP.
- The court held that a DSO claim is nondischargeable in chapter 13, whether or not the claim is allowed or disallowed.
- Even though the debtor paid the allowed DSO claim in full through the plan and received a discharge, the child support enforcement agency did not violate the discharge injunction by garnishing the debtor’s wages for the disallowed portion of the claim.
- OMG!: A debtor who is making mortgage payments directly (“outside” the plan) and who is delinquent in those postpetition mortgage payments at the end of the chapter 13 case is not entitled to receive a discharge of any debts because the debtor has not completed all payments under the plan as required by section 1328, per a recent decision of the Fifth Circuit Court of Appeals.
- The issue arises when the mortgage lender files its Response to the trustee’s Notice of Final Cure under Bankruptcy Rule 3002.1(f) and (g). If there is an unpaid postpetition amount reported in the creditor’s response, courts so far have unanimously ruled that the debtor gets NO DISCHARGE AT ALL. Scary stuff.
- Debtors’ attorneys need to counsel their clients on the risks of not making postpetition mortgage payments.
- Don’t assume you’ll find out about a postpetition mortgage arrearage before the end of the case from a creditor’s motion for relief from stay; many creditors are choosing not to seek stay relief during the case.
- One speaker suggested that debtors’ attorneys might want to send annual Requests for Information under RESPA on behalf of their clients to find out if the debtors are postpetition delinquent so the issue can be dealt with before the end of the case. (Sounds onerous to me).
- Is the only real solution conduit mortgage payments through the trustee?
Stay tuned for more practice tips and OMG! lessons from the NACTT annual conference, and mark your calendars for July 12-15, 2017, for the next NACTT annual conference in Seattle, WA.
I want to share a few practice tips and “OMG!” lessons we picked up at the NACTT Annual Conference last week in Philadelphia. I’ll break this out into four posts over the next few days: student loans, discharge issues, tax issues, and the CFPB.
STUDENT LOAN ISSUES:
- OMG!: $100,000 in student loans at 8% interest will grow to almost $149,000 at the end of a 60-month chapter 13 case.
- OMG!: If a federal student loan is in default (no payments for more than 270 days), there is an assessment of collection costs of up to 18.5% (and could be 25% in some instances) of the outstanding principal and interest.
- Use caution when proposing to make student loan payments directly “outside” the plan:
- When a debtor files chapter 13, the Department of Education puts student loans in “administrative forbearance” which is like a deferment, but interest continues to accrue.
- OMG!: The Department of Education (and maybe other lenders or servicers) may refuse to accept payments from the debtor even though the plan says the debtors will make student loan payments directly. They think the payments should be coming from the trustee. Chances are the debtors don’t tell their attorneys and think they don’t have to make any student loan payments while they are in chapter 13, not realizing how much interest (and collection costs) can accrue in the meantime (all of which are nondischargeable).
- Plans may need to have more specific provisions to require the student loan lenders/servicers to accept payments and apply payments per the contract. At a minimum, debtors’ attorneys need to warn their clients about these issues.
- Should the trustee make conduit payments on federal student loans to protect the debtor?
- The Department of Education does not permit chapter 13 debtors to participate in any income-driven repayment (IDR) plans available to non-bankruptcy borrowers, unless the chapter 13 plan contains certain specific provisions. See, for example, the “Buchanan Provisions” negotiated by North Carolina attorney Ed Boltz and the Department of Education. http://ncbankruptcyexpert.com/2015/10/02/student-loan-options-and-chapter-13-bankruptcy/
Stay tuned for more practice tips and OMG! lessons from the NACTT annual conference, and mark your calendars for July 12-15, 2017, for the next NACTT annual conference in Seattle, WA.
What To Do With Insurance Proceeds When a Car Securing a Claim Being Paid Through the Plan Is Damaged or Destroyed
What do you do when there are insurance proceeds payable on the loss of a car that secures a claim being paid through the plan?
Here’s the setup: The chapter 13 plan provides for the payment of a claim secured by the debtor’s car through the plan. Months after confirmation, the car is wrecked, and there are insurance proceeds from a full coverage policy. The secured creditor has a lien on the proceeds and is a named loss payee on the policy. The debtor has an exemption, and in addition has acquired equity in the car by paying down the debt through the plan.
Who gets the proceeds? How much does each party get? What law determines each party’s entitlement to the proceeds? Does it matter if the claim has been bifurcated (split into a secured claim and an unsecured claim based on the car’s value) or if it’s a “910-claim”? What if the debtor needs a replacement vehicle?
This is an incredibly common occurrence. I don’t have all of the answers to every situation, but I can tell you how I think the issues are best resolved. The short answer is that there needs to be an order from the Bankruptcy Court directing how the insurance proceeds are to be paid.
In the attached document, Insurance Proceeds on Car Securing a Claim Being Paid Through Plan – EDKY, I give Tips for Debtors’ Attorneys and Tips for Creditors’ Attorneys on how to deal with insurance proceeds. I hope it helps, but don’t forget my disclaimer at Read This First.