Satisfy Your Credit Counseling Requirement Before Filing Bankruptcy

1 After Filing
Personal Financial Management Instruction

In re Short, No. 08-11224,2008 WL 5751873, at *6 (Bankr. S.D. Ohio Sept. 11,2008) (Morgenstern-Clarren) (Citing In re Alexander, 344 B.R. 742 (Bankr. E.D.N.C. 2006), and Money v. Kagenveama (In re Kagenveama), 541 F.3d 868 (9th Cir. 2008), projected disposable income for debtor with CMI less than applicable median family income is CMI less amounts reasonably necessary to be expended projected over applicable commitment period; when debtor has no disposable income, there is no projected disposable income.

“If the § 1325(b)(2) calculation of disposable income is not used to determine projected disposable income under § 1325(b)(l)(B), then both the definition of disposable income and CMI would be superfluous. . . . [W]hen determining the projected disposable income of a below median income debtor, the court is required to use form 22C to ascertain the debtor’s current monthly income, from which reasonably
necessary expenses must be deducted to arrive at the debtor’s disposable income. The disposable income figure is then projected over the applicable commitment period of the debtor’s plan, under § 1325(b)(4), to arrive at the debtor’s projected disposable income.”).

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In re White, 393 B.R. 436, 443 (Bankr, N.D. Miss. 2008) (Houston) (Citing In re Ransom, 380 B.R. 799 (B.A.P. 9th Cir. 2007), debtor with CMI greater than applicable median family income is not entitled to Local Standards transportation ownership deduction for car free of debt. “[T]his court believes that the language in § 1325(b)(l)(B) simply does not contemplate an ‘artificial’ deduction when there is no underlying debt. This is consistent with one of the primary objectives of BAPCPA which is to ensure that debtors repay as much of their debt as reasonably possible…. Refusing to permit the debtors to deduct an ownership expense when there is no actual underlying debt results in an increased distribution to unsecured creditors, even if only for a temporary period, with monies that are actually available.”).

In re Young, 392 B.R. 6 (Bankr. D. Mass. 2008) (Hillman) (Summarizing at least seven different positions in reported cases, debtor with CMI greater than applicable median family income is allowed Local Standards housing and utilities expense that exceeds actual rent and transportation ownership expense for unencumbered, operational vehicle.).
See Also: Chapter 7 Bankruptcy

Woltman v. PNC Bank (In re Woltman), No. l;07-bk-01647MDF, 2008 WL 5157477 (Bankr. M.D. Pa. Nov. 18, 2008) (France) (Binding effect of confirmation prevents debtors from avoiding judgment lien when confirmed plan provided that lien would be paid in Ml; failure to adequately investigate lien prior to confirmation does not overcome binding effect.).

Jones v. Regional Acceptance Corp. (In re Jones), No. 08-40027-JJR, 2008 WL 4830538 (Bankr. N.D. Ala. Nov. 4, 2008) (Robinson) (Debtors are bound by confirmed plan that provided for payment in full of car lender’s secured claim without reserving TILA action.).

Boday v. Franklin Credit Mgmt. Corp. (In re Boday), 397 B.R. 846, 851 (Bankr. N.D. Ohio 2008) (Speer) (Binding effect of confirmation required mortgage creditor to split claim under § 1322(b)(5) into prepetition arrearages and ongoing mortgage payments. Confirmed plan “provided that the Defendant was required to adjust its record so as to indicate that all arrearages had been paid, and that the amount due should correspond to the Parties’ original amortization schedule.” Creditor is ordered to adjust its records to reflect that prepetition arrearages had been paid and debtors have cured prepetition defaults.).

In re Bletsch, No. 07-17417, 2008 WL 657858 (Bankr. N.D. Ohio Mar. 6, 2008) (Harris) (unpublished) (In claims objection litigation, prepetition default judgment in foreclosure proceeding is notpreclusive. Ohio law would not enforce default entered in Common Pleas court when no evidence exists that issues were actually litigated.).
In re Cranston, 387 B.R. 480, 485 (Bankr. D. Md. 2008) (Lipp) (Debtor rebutted prima facie validity of $300,000 proof of claim for breach of contract in construction of home; $79,210.48 damages allowed. “[T]he major component of the damages recoverable by the Claimants is the cost they incurred in completing the construction of their new home as contemplated by the Contract and any agreed upon amendments thereto.”).

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In re Slater, No. 08 B 72714, 2009 WL 1220270, at *2 (Bankr. N.D. 111. Apr. 30, 2009) (Barbosa) (Plan that would pay 100% of unsecured debt in less than 60 months satisfies § 1325(b)(l)(A); debtors need not commit
all projected disposable income to also satisfy § 1325(b)(l)(B). Plan proposed to pay “100% of the unsecured creditors’ claims” in 56 months. Trustee objected arguing that correct calculation of projected disposable
income would pay unsecured debt in 42 months. “[T]he plain language of section 1325(b)(l) requires compliance with either subsection (A) or (B), but it does not require that the debtor meets both subsections…. [AJccording to the plain language of § 1325(b)(l), when the debtor’s plan provides for payment of all unsecured claims in full during the term of the plan, the Chapter 13 trustee’s objection shall be
overruled. . . . Debtors’ amended plan provides for payment of all unsecured claims in full by the end of the plan period. Thus, according to the plain language of § 1325(b)(l), Debtors’ plan complies with subsection A of§1325(b)(l).”).

In re Smith, No. 07-43853, 2008 WL 4964720, at *3 (Bankr. W.D. Wash. Nov. 14, 2008) (Snyder) (Citing Maney v. Kagenveama (In re Kagenveama), 541 F.3d 868 (9th Cir. 2008), secured debts contractually due at the petition are reasonable and necessary expenses for debtor with CMI greater than applicable median family income notwithstanding that plan surrenders collateral. “The statute is not ambiguous and for an above median debtor, expenses are to be determined solely by § 707(b)(2). Thus, if a given expenditure is allowed by § 707(b)(2), it is by definition ‘reasonably necessary to be expended’ for purposes of calculating ‘disposable income’ under § 1325(b)(2). The Court is unwilling to read into the language of § 1325(b)(3) an additional threshold requirement that the expenses also be reasonably necessary, or for a debtor’s maintenance or support. Although such an interpretation will surely lead to a more equitable result in this case and in the future provide greater discretion to bankruptcy courts, in light of Kagenveama this Court will not apply a strained interpretation when the language of § 1325(b)(3) is clear and unambiguous…. As with ‘disposable income,’ the term ‘amounts reasonably necessary to be expended’ appears only twice in § 1325; once in § 1325(b)(2) and then in § 1325(b)(3). If the Court were to require an additional requirement that the expense also be necessary for a debtor’s ‘maintenance or support,’ it would likewise render as surplusage the clear direction in § 1325(b)(3) as to how ‘amounts reasonably necessary to be expended’ shall be determined.”).

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In re Butler, 403 B.R. 5, 14-15 (Bankr. W.D. Ark. 2009) (Barry) (Plan must propose equal monthly payments to personal-property-secured lender, but equal monthly payments need not begin at confirmation so long as adequate protection payments are made. With respect to equal monthly payments and the payment of administrative expenses: “the trustee is not bound by the equal payment provision of § 1325(a)(5)(B)(iii)—Sections 1322 and 1325 concern the contents ofa plan and what a debtor must do to have a plan confirmed.” Accordingly, adequate protection payments and administrative expenses are paid before equal monthly payments to a lienholder.).
In re Gray, No. 07-07380-ESL, 2008 WL 5068849 (Bankr. D.P.R. Nov. 25, 2008) (Lamoutte) (Balloon payment of short-term mortgage does not satisfy equal monthly payment requirement of § 1325(a)(5)(B)(iii)(I).).
In re Hill, 397 B.R. 259, 268-69 (Bankr. M.D.N.C. 2007) (Waldrep) (Equal monthly installments need not begin at confirmation; plan can pay attorney fees concurrently with adequate protection payments and equal monthly payments sufficient to amortize secured debt can begin afterpayment of attorney fees. “[PJarsing Section 1325(a)(5)(B)(iii)(II) demonstrates that the phrase ‘during the period of the plan’ modifies ‘adequate protection,’ not ’such payments.’ The language of the statute simply cannot be read to dictate any specific time for the equal monthly payments to begin. . . . [EJqual monthly payments need not begin immediately after confirmation. Once they do begin, they must continue until the creditor is paid in full or the debtor receives a discharge at the end of the plan.”).

The Code provides several exceptions to the stay. Before BAPCPA, the Code itemized 17 exceptions. BAPCPA added an extra 10 exceptions, bringing the total to 27. [362(b)] It also added several other new subsections that amount to relief from the stay, even if not formally designated as such. Of these, perhaps the most important are two:

• Criminal proceedings. [362(b) (1)] The debtor has to obey the criminal law just like anyone else, and he can’t suspend his criminal trial just by filing for bankruptcy. There is a bit of uncertainty around the edges of this rule. For example, suppose the prosecutor brings charges against anyone who passes a bad check at the supermarket, but drops the case once the debt gets paid. Is the prosecutor acting as a prosecutor and therefore free to proceed, or as a collections agent and consequently stayed? Many courts have held that he is not stayed, though it would be easy to argue that he is.

• “Regulatory” cases. [362(b) (2)] Again, the debtor is bound by general laws, so for example, a hearing before the state Environmental Protection Agency ought to be able to go ahead as planned. The trouble starts when the “regulator” starts to impose money “remedies.” Is he just “regulating,” or is he trying to collect as a pre-bankruptcy claim? There is a lot of case law on this one, and it is not easy to provide a quick summary. Note also that the “regulator” may only “regulate:” he has no power actually to take money or property from the estate unless/until he
gets relief from the stay.

The new exceptions cover a great miscellany of cases, some of which were probably
“excepted” all along under older and more general rules. Generally, life is made easier for landlords and for employers implementing wage-deduction orders.

The BAPCPA amendments added several provisions calculated to address a particular problem that arose after the advent of the broad self-executing stay in 1978. This is the problem of so-called “successive filing.” Consider Desmond, about to lose his house to BigBank in a mortgage foreclosure. Ten minutes before the hammer falls, Desmond files for bankruptcy. BigBank gets relief from the stay and again starts to foreclose. Ten minutes before this “second try,” Desmond files again. And so forth.

Nobody defends this gambit. The code now seeks to deal with this problem in several ways. For example, a new rule addresses the debtor who had a case pending within the previous year. In his new case, the stay will terminate after 30 days unless the court orders otherwise. [362 (c) (3)] Another rule addresses the instance of a debtor who has had more than one case within the previous year. In this scenario, the stay will not go into effect unless the court says otherwise.

Of course, Desmond may not file the second case himself. The second case may show up in the name of a new debtor, who took title to (say) one-one-hundredth of Blackacre—minuscule, but still enough to stop a foreclosure. Further, a new section permits the court to lift the stay against real property if it finds that the filing was part of a fraudulent scheme. [362 (d) (4)] Indeed, the Code says the judge may go further; he may declare that his order be binding in any case filed during the next two years.

Finally, a word about scope. Generally, the stay protects only the debtor, not people other than the debtor. Consider Grandma’s Pie Co., of which John C. Grandma is president and majority stockholder. The Pie Co. is a limited-liability entity, separate from John C., so John C. is not liable for Pie Co.’s debts. But it turns out that John C. made a contract personally to guarantee the loan made by BankCo to the Pie Company. If Pie Co. files for bankruptcy, BankCo is stayed against efforts to collect from Pie Co., but BankCo may still pursue John C. There is an important exception: The stay does protect co-debtors in chapter 12 or 13. [1201 (a); 1301 (a)]

See Also: Bankruptcy Lawyers Boston