Objection to Confirmation of The Plan…Now what?

Roughly 30 days after filing your chapter 13 case you will have to attend a meeting of the creditors where you will meet with the chapter 13 Trustee Thomas P. Gorman. In 99 percent of cases no creditors will be present at this meeting and you will spend about two minutes answering a few questions by Mr. Gorman. After the hearing concludes most clients want to know: Now what? The answer is it depends.

The ball is now in the hands of the chapter 13 trustee. If he has absolutely no objections to your case (for example, you filed a “100 percent plan” and crossed all of your “t’s” and dotted all of your “I’s”) then things remain quite for about one month and then the case is confirmed by the bankruptcy judge. Confirmed simply means that the payment structure that you chose in your chapter 13 plan is approved by the bankruptcy court. A confirmation order will then be issued by the bankruptcy court.

On the other hand, if the chapter 13 trustee has a “problem” with your case he will file an Objection to Confirmation of the Plan. He will usually do this within about two weeks after the meeting of creditors takes place. The trustee must file his objection to confirmation no later than seven days prior to the confirmation hearing date. If he does not do so then the case gets confirmed.

The typical objections that the trustee will assert is that he simply does not believe that you are proposing to pay enough money to the creditors in light of your disposable income, that the plan is underfunded due to the fact that your monthly payments are not enough to pay out all the creditors the amount that you are proposing, or you have a feasibility problem. Meaning, despite your good intentions, he simply does not believe that it is realistically possible for you to pay your creditors the amount proposed since you simply do not have the income to support such payments.

The important thing to remember is that an Objection to Confirmation of The Plan by the trustee does NOT mean that your case is doomed or is about to get dismissed! If you feel that the trustee’s objections are improper or unfounded then you can respond in writing to the objections and appear in court on the date of confirmation and explain to the bankruptcy judge why the trustee is wrong. If the judge agrees with you then the objections by the trustee will be overruled and the case will get confirmed by the judge.

On the other hand, if you agree with the objections by the trustee you can consent to denial of confirmation which means that when the case appears before the judge the plan will be denied, BUT with leave to amend within 21 days thereafter. In other words, at the confirmation hearing the judge will give you up to 21 days to file an amended plan and to get the amended plan confirmed. If the amended plan is once again met by objection(s) by the trustee then you can file a second amended plan in order to get your plan confirmed. And if the second amended plan is met with objection and denied confirmation then….

The point is that an objection to confirmation is not fatal! You will get a second, third or even fourth bite at the apple in order to get your plan confirmed by the court. The cases will drag on for months and months during this process. However, keep in mind that all good things do come to an end. If the objections to confirmation simply cannot be cured –because you lack the income for example- then the case will eventually get dismissed or you will have to convert to a chapter 7 bankruptcy.

TAX RETURNS, TAX LIABILITY AND TAX REFUNDS IN CHAPTER 13 CASES.

One of the things that is required of you while you are in chapter 13 bankruptcy (at least here in Alexandria, Virginia) is that you file your federal and state tax returns by April 15 during each and every year that you are in bankruptcy. Extensions are not permitted and the chapter 13 trustee Thomas Gorman will expect to receive copies of your returns by May 1st of each year. Otherwise expect him to file a Motion to Dismiss your case if you fail to do so. Copies of your tax returns should be sent to his Alexandria office located at 300 North Washington Street, Suite 400, Alexandria, Virginia 22314. No need to send them to me as well.

As for tax refunds, and the issue of having to turn over those refunds in excess of $250.00 to his office, here are a few things to keep in mind. First, if your case ends with the letters “RGM” which are the initials of Judge Mayer then you do not have to worry about turning over your tax refunds regardless of the amount during the 3/5 years that you are in bankruptcy. If your case number however ends with “BFK” which are the initials for Judge Kenney, then unfortunately those refunds will have to get turned over. It is just a matter of luck in other words. There are just two judges in the bankruptcy court in Alexandria, Virginia so your odds are 50/50. And to make matters worse, the answer is “no,” as in the tax refund that you turn over will not go towards paying down the amount you owe so as to get you out of bankruptcy sooner. Think of the refund as a bonus for the creditors.

Second, typically the very first refund that you get while in chapter 13 bankruptcy can typically get exempt/protected so you will not need to turn over that first refund during year one or year two of your case. Also, if yours is a 100% chapter 13 plan, then no need to worry about turning over your tax refunds.

Third, just because your case was assigned to Judge Kenney does not mean that you need to despair. One fairly simple “trick” to employ is to modify the number of withholding that you claim on your pay checks and reduce the amount in payroll taxes that you pay during the year, thus reducing or eliminating your tax refund. You may not get the usual refund that you are accustomed to, but then again you will have more money in your pocket during the year.

And what if during the duration of your chapter 13 bankruptcy you happen to owe taxes one year? Fortunately the IRS, the gentle giant that it is, will allow you to pay off that liability during the remaining months that remain in your chapter 13 bankruptcy case. They will file an amended claim to reflect the new amount owed instead of forcing you to write one big check. They will only grant you this courtesy just once however. If you end up owing taxes yet again during the life of your case they will expect you to make arrangements to pay it outside the confines of your chapter 13 plan. As for the state of Virginia, their policy is different. Any tax liability incurred after the filing of your chapter 13 case must be paid by you outside of the chapter 13 plan.

Finally, in case you are wondering, the IRS and Virginia cannot intercept your tax refunds while you are in a chapter 13 and apply it to a tax debt that existed prior to the filing of your case since that would violate the automatic stay. But, if you incur tax liability after the filing of your case and then in a subsequent year obtain a refund, then the post filing refund can be applied to the post filing debt.

 

Which bankruptcy and who must file to stop a foreclosure

In this day and age the internet is abound with articles that advise you that if you want to stop a foreclosure on your home then filing for bankruptcy is an effective way of doing that. As now retired Judge Mitchell of the Alexandria, Virginia Bankruptcy Court was fond of saying bankruptcy is “the cheapest injunction in town.” However, what is easy to overlook is which person or entity must file the bankruptcy in order to stop the foreclosure and what bankruptcy needs to be filed in order to stop the foreclosure.

First rule to keep in mind: only the person or entity that owns the piece of real estate headed for foreclosure can protect the real estate by filing for bankruptcy. So, with the proliferation of corporation and especially LLCs these days it is important to recognize that if the real estate is owned by a company then it is the company –the LLC for example- that must file for bankruptcy protection. And it is the deed (not the deed of trust or the promissory note) that will tell you who owns the property. Same goes for married couples. One cannot always assume that both own the home. Again, look at the deed to the house.

For those of you who are intellectuality curious the reason for that is that when a bankruptcy case is filed the “automatic stay” goes into effect-that’s the injunction that Judge Mitchell was talking about. And the automatic stay applies to all “property of the estate.” The property of the estate is just about every conceibale thing that you, the individual or entity that files for bankruptcy owns on the day you file your bankruptcy case. In short, the bankruptcy “shield” only applies to the property that is owned by the debtor.

Second thing to keep in mind is which bankruptcy you select to file matters. Chapter 13 cases can virtually always be voluntarily dismissed by the person who files for bankruptcy. But, that is not the case with chapter 7 cases; there is no automatic right to dismiss such cases once they have been filed. So, if the house happens to have a substantial amount of equity, and you are just looking to buy yourself a few more months do not make the mistake of filing a chapter 7 bankruptcy.  Why? Because the chapter 7 trustee is going to want to sell your house for the benefit of your creditors! In other words, you may find that exiting the bankruptcy arena is not nearly as easy as it is to enter it. So choose carefully!!

And if the mortgages on the house(s) that you are trying to save from foreclosure are in excess of about $1,150,000 dollars then be prepared to have to file an individual chapter 11 case. And here too dangers lie ahead for those who own real estate with equity and are just trying to buy themselves a few months while they work things out with the bank.  As with chapter 7 bankruptcy filings there is no automatic right to have your case dismissed. In other words, you cannot just tip your toe in the water if you decide to file an 11. If you are in it, you are in for the long run if you have equity in your home(s).

And speaking of chapter 11, if a corporate entity owns the real estate, like an LLC, then that particular LLC must file a chapter 11 case (a chapter 7 bankruptcy rarely makes sense for an LLC and chapter 13 is for individuals only) to save the property from getting foreclosed on. Again, here too caution must abound since there is no right to automatically dismiss the chapter 11 case. If the property has significant equity the court may be inclined to allow the case to be converted to a chapter 7 which will result in the real estate being sold by the chapter 7 trustee for the benefit of the creditors of the LLC.

Final point, for spouses who own the home jointly it may be beneficial to not file a joint case in order to leave the door open for the other spouse to file a bankruptcy at a later time if the circumstances prove necessary. This can buy the couple a great deal of time, put the foreclosure off for a very long time and avoid the whole “serial filing” issue.

Motion for Relief from the Automatic Stay&Chapter 7 bankruptcy cases

First thing first, what does a motion for relief from the automatic stay actually mean? It means that at this time you are several months behind on your car or mortgage payment and the bank is requesting permission from the bankruptcy court in order to eventually repossess/foreclose on your car/home. It really should be called motion seeking permission to repossess/foreclose on property, but lawyers like to use all kind of “fancy talk.” The whole motion, summarized into one sentence really states the following: “Dear bankruptcy judge, the following individual is now “xyz” months on their mortgage/car payment and therefore we would like your blessing to commence a repossession/foreclosure on this property.”

Keep in mind that when you file a chapter 7 bankruptcy case, or any type of bankruptcy for that matter, the “automatic stay” goes into effect. The “Stay” is the “Shield” that prohibits creditors from further pursuing their collection efforts like filing a lawsuit, garnishing, repossession or foreclosing. In light of that, secured lenders (the bank that gave you your car loan or mortgage) will need to seek permission from the bankruptcy court before they can continue with their efforts of foreclosing for instance. They will need to file a motion seeking relief from the Stay before they can continue down the path of foreclosure.

And here is why this Motion seeking relief from the stay is virtually meaningless in the context of a chapter 7 case (it has plenty of meaning in chapter 11 or chapter 13 cases!) and why you should not worry if the mortgage company files this motion in your chapter 7 bankruptcy case: The automatic stay in bankruptcy terminates when the discharge is granted. So, in your typical chapter 7 bankruptcy case, roughly 100 days after your file for chapter 7 bankruptcy the discharge order is entered, the cases closes, and the stay is terminated. The foregoing makes sense. Now that your bankruptcy case has concluded the “Shield” goes away. The banks of course know this. They of course also know that once the chapter 7 case closes they have the right to foreclose on you home if you are behind on your mortgage if no loan modification has been worked out. They know that they can sit back, wait about three months, and then pick up where they left off as far as the foreclosure goes. But instead they file this scary motion, notice it for hearing, go before the judge, and with about three weeks before the cases concludes they get the judge to sign off on this motion. Then they wait about three more weeks after your chapter 7 case has closed and initiate foreclosure. It is nonsense. It is a waste of time and paper. Why? Because the filing of this motion does not speed of the foreclosure.

To put it differently, in the past decade I have never once seen a bank foreclose on a home during the 100 days that the bankruptcy was open even though the judge granted the motion and gave them the “green light” to foreclose. The foreclosure, in chapter 7 cases, if it is going to happen, always happens after the bankruptcy case closes. And since most people in this kind of situation have either given up on the house and are planning on “walking away” or they are planning on filing a chapter 13 bankruptcy shortly after their chapter 7 case closes (AKA “chapter 20”) they have nothing to worry about. They can safely ignore this motion.

AFTER THE BANKRUPTCY, ORDER YOUR CREDIT REPORT

This is a follow up to my previous article titled How To Rebuild Your Credit After Bankruptcy. Step one involves ordering your credit report from all three credit bureaus. The information may be correct on the credit report provided by Experian, but incorrect by Expedia for example. And you never know which bureaus a particular creditor relies upon to get their information on you. Hence the need to order and go over all three to ensure accuracy.

How do go about ordering your credit report?

In today’s society just about everything is done online, and while www.annualcreditreport.com is the only legitimate site out there, do not be tempted by the ease and convenience of downloading your credit report from this site. DO NOT ORDER YOUR CREDIT REPORT ONLINE!!! Instead, obtain your credit report the old fashion way by filling out this very simple one page form (which you can find here http://www.consumer.ftc.gov/articles/pdf-0093-annual-report-request-form.pdf) and mail it in. The credit reports will be mailed to you in about two weeks.

Why you should never order your credit report online after your bankruptcy?

Well, that’s because if you do so you will be walking in to the credit bureau’s trap. That trap is called Arbitration. Once online, before you know it, you will inevitably hit “I accept.” As in, in the event that I decide to sue you, the credit bureau, in order to “force you” to fix my credit report after bankruptcy, I will have to take my case before an arbitrator (Latin for referee in case you are wondering) instead of before a judge or a jury. What’s the problem with that? The arbitrator is supposed to be fair and impartial, but he won’t be. Why? Because the bulk of his business and his income comes from the credit bureaus, that’s why.

So again, after at least 60 days have passed since obtaining your bankruptcy discharge the first thing you should do is order your credit reports from all 3 credit bureaus. Just make sure you order your credit report by mail and NOT ONLINE!