Articles Posted in Chapter 13

A recent Jacksonville case allowed a debtor to pay for a mortgage in his sister’s name on a house in which he had a 50% ownership interest. As long as the debtor has a legitimate ownership interest in the property, the debtor can pay any lien on the property (including any arrears on that lien) in a Chapter 13 repayment plan.

This case occurred when a sister executed a mortgage on her home, transferred that home to her mother only to have the mother die shortly thereafter. Because the mother died intestate, the ownership in the house was then split amount her ten children evenly. One son wanted to live in the home and because the sister had not paid on the mortgage in some time, four of the other siblings transferred their interest in the house to that son. He then had a 50% interest on a home that was now facing foreclosure. In an effort to cure his sister’s arrearage no the mortgage, he filed a Chapter 13 case and submitted a payment plan that included his sister’s mortgage.

The sister, for unknown reasons, filed an objection to her brother paying off her mortgage. She argued that because the mortgage was not in his name, he could not pay it. Interpreting the bankruptcy code, the Judge ruled that the debtor had the ability to pay on any lien encumbering property in which the debtor had an interest. As a result, the son was able to pay his sister’s mortgage through a Chapter 13 case.

On 06/25/10, Mark Brunell, ex-quarterback for the Jacksonville Jaguars filed for Chapter 11 bankruptcy protection. In a Chapter 11 bankruptcy a debtor proposes a repayment plan that includes all of their creditors. Those creditors then get to approve of the plan if their rights are infringed. Once all creditors infringed are satisfied with the proposed plan, it can be confirmed. Mr. Brunell’s plan was confirmed yesterday by Jacksonville’s very own Judge Jerry A. Funk.

Consumer debtors who earn more than the median income for their family size cannot file Chapter 7 Bankruptcy. Often, this results in their filing of a Chapter 13, however Chapter 13 has a “debt ceiling”. This “debt ceiling” limits the dollar amount owed by any debtor who wishes to file this chapter. Currently, the debt ceiling is $360,475 for unsecured debts and $1,081,400 for secured. If a debtor makes more than the median income, but owes more than the debt ceiling, their only recourse may be to file Chapter 11, just as in this case.

Creditors in a Chapter 11 must retain their existing rights in the proposed plan, or consent to having those rights modified by the plan or get at least as much in the plan as they would if the debtor was liquidated in a Chapter 7 bankruptcy. Because Mr. Brunell owned $350,000 in assets that would be unexempt (and therefore liquidated) in a Chapter 7, so his plan requires that $350,000 will be paid to his unsecured creditors by June 30, 2012.

Jacksonville bankruptcy filers are required to take a credit counseling course before filing bankruptcy as well as a “debtor education” course during their bankruptcy before they can obtain a discharge of their debts. When George Bush signed the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, there was a feeling that those filing bankruptcy must be doing so because they do not know how to properly budget money. This feeling lead to the creation of 11 U.S.C. §109(h) and 11 U.S.C. § 727(a)(11) which require the counseling and education courses.

In the past, the primary reasons for filing bankruptcy were varied, the Chicago Tribune states that the primary drivers of bankruptcy are illness, divorce and loss of employment. While this used to be true, it seems that the vast majority of the people I consult with have only one issue, what to do with a home that is more underwater than it is worth and a bank that won’t budge when it comes to modification.

When an underwater home is the reason for bankruptcy, no amount of budget knowledge is going to help, yet it is still required. Fortunately, there are Debtor Education providers like Dave Ramsey, who give more useful tips on growing wealth than how to simply balance a checkbook.

Tax time is coming soon. Employers are required to get W2s to their employees by January 31st so that they can file their federal income taxes. According to the website Bankrate, 30% of those getting tax returns plan to use it to “pay down debt”. Some of those tax returns will be used to fund bankruptcies.

One of the biggest benefits to filing bankruptcy just after receiving your tax return is that you have the opportunity to spend your return on reasonable and necessary things instead of turning it over to the bankruptcy trustee. You see, if a debtor was to file bankruptcy in July, they would have already earned 1/2 of their tax return for that year. The trustee would then ask for half of their tax return once it was received. As long as the debtor spends the return on reasonable and necessary things and then files bankruptcy, the money is both well spent and protected.

While I’d still argue that it’s Better to File Your Bankruptcy Before the Holidays, attorney’s fees do count as reasonably necessary expenditures which are allowed just before a bankruptcy. Many debtors have difficulty coming up with money to pay an attorney to file their case. A tax return gives them the opportunity to come up with that money in one lump sum. A New Year and hopefully a new financial life with a bankruptcy discharge.

Before receiving a discharge in bankruptcy, debtors must first take a Debtor Education Course (or it’s equivalent) per 11 U.S.C. § 707(b). There are hundreds of Debtor Education providers out there for a variety of prices from free to $50.00. They can be in person, over the internet or telephone. People tend to go for the least expensive one just to get it over with, but I wanted to see what they might get out of such a course so I decided to take a couple of them myself.

A few weeks ago I went to Douglas W. Neway’s free debtor education course for Jacksonville’s Chapter 13 filers. This class was informative and gave debtors the opportunity to ask questions directly to the trustee’s staff, however it was mostly engineered to help debtors get through the Chapter 13 process rather than budget and survive life after the bankruptcy.

Dave Ramsey also provides debtor education. He’s energetic, intelligent and best of all, he’s been there. Back in the late 80’s Dave went through a bankruptcy and has made multiple millions since. His course covers every topic, negotiating purchases, insurance, home mortgage interest, car purchases, credit reports, etc. He even provides short comprehensive quizzes after each section.