Filing Chapter 13 Bankruptcy in Orlando

The Plan – The Chapter 13 plan is a written explanation of how the debtor intends to straighten out his financial mess. The plan describes paying priority and secured creditors in full or in accordance with the original contract terms. As long as the debtor makes all payments in accordance with the confirmed plan, he can remain under the protection of the bankruptcy court. The monthly plan payment is made directly to the Chapter 13 trustee, who disburses the money to creditors in accordance with the confirmed plan.

What Goes In the Plan?

        (a)   Length of Plan – A plan that proposes to pay less than 100% to unsecured creditors must be a minimum of 36 months. Any plan that proposes to pay unsecured creditors in full can be as short as the debtor wants. The maximum plan length is 60 months. The shorter the plan period, the larger the monthly payments. The longer the plan period, the smaller the monthly payments. The ideal plan length is the shortest plan with the monthly payment the debtor is absolutely certain he can afford. Don’t bite off more than you can chew!

        (b)   Administrative Expense – An administrative expense is money owed by the debtor to a non-creditor for the administration of the bankruptcy case. These obligations are paid first.

            (i)   5% Trustee’s Expense – Douglas Neway’s office is paid 5% of every plan payment before disbursing money to creditors. That means in calculating the actual plan payment, your attorney will add in the trustee’s fee on top of the creditor payments. Over the course of the plan, the trustee’s administrative expense is usually greater than your attorney’s fee.

            (ii)   Your Attorney’s Fee – Most of the quoted attorney’s fee is usually paid though the plan. So, while Parker & DuFresne, P.A. charges $3,500 to file a Chapter 13 bankruptcy, most of that fee is paid through the plan, adding $30 to $50 per month to the plan payment.

        (c)   Creditor Proof of Claims – In order to receive payment, or other treatment, in the plan, a creditor must file a Proof of Claim. The debtor then has the opportunity to file an objection to that Proof of Claim, and if the creditor does not respond to the objection in writing within 30 days, the claim is stricken or modified in accordance with the objection. If the creditor does respond, the objection is scheduled for a hearing in front of the judge, and the claim is considered valid until the debtor proves that it is not.

            (i)   Priority Creditors – The plan must pay all priority creditors in full, unless there is a written agreement or court order that allows the debtor to pay the obligation over a longer period of time. Priority creditors do not have a security interest in any of the debtor’s property.

1. 1. I.R.S. – Typically, since there is no state income tax in Florida, the I.R.S. is the only taxing authority that is given priority status. Keep in mind that if the debtor owes property taxes to the county tax collector, that debt is secured by real estate and is included in the plan as a secured claim.
2. Support Arrearages – This is a potential problem lurking out there for some debtors. Claims filed by or on behalf of support creditors (i.e. alimony or child support) are priority claims and must be paid in full. However, if there is already an order in place that establishes the repayment of support arrears over a period of time longer than the plan length, then that lower monthly payment can be paid through the plan.

            (ii)   Secured Creditors – A secured creditor is a creditor that holds a perfected security interest in something owned by the debtor known as collateral. The most obvious examples are a house or a car. A Chapter 13 plan must either surrender the collateral back to the secured creditor, or it can repay the secured debt over the life of the plan.

1. Long Term – Typically the debtor’s house – If the remaining term under the secured note is longer than the plan period, the debtor typically chooses to pay the regular monthly payment. This means that the debt will not be paid in full at the end of the plan. This also means that the debtor cannot modify the interest rate. This is typically what happens with house payments. Any past-due balance on the mortgage, known as the arrearage, is spread over the life of the plan.
   
   
2. Short Term – Typically the debtor’s car – If the remaining term under the secured note is shorter than the plan period, the debtor must pay the entire obligation in the plan. The really good news is that the debtor can usually reduce the contracted rate of interest and spread the payments over the entire plan period. The monthly payment to automotive finance companies is usually reduced so much that it can offset the arrearage owed on the debtor’s home. The net effect is that the plan payment is sometimes no greater than the original monthly payments on the house and car, even though the mortgage arrearage is being paid in the plan as well. Sounds confusing? It really isn’t.

            (iii)   Unsecured Creditors – The unsecured creditors are those creditors who don’t have a perfected security interest in the debtor’s property. Examples of general unsecured creditors are credit cards and medical bills. This type of debt is paid from a remaining pool of money after paying everyone else. Actually, it’s more like a small puddle than a pool. This small left-over sum is spread evenly across the unsecured creditors. This is known as a pro-rata payment. Unsecured creditors are rarely paid in full over the life of the plan, and are often paid as little as 5% of the balance due. Upon completion of the plan, the remaining balances are wiped out or discharged.

Requirements to Confirm Plan

In order for a judge to approve or “confirm” the debtor’s plan, the debtor and his plan must satisfy certain requirements. The Chapter 13 Trustee monitors the case on behalf of the creditors and will object to confirmation if any of the requirements are not met. Creditors may also object to confirmation of the debtor’s plan. In the Orlando Division, the two judges handle confirmation differently. Judge Proctor makes the debtor take the stand and testify that these requirements have, in fact, been satisfied. Judge Funk does not usually require the represented debtor to attend confirmation as long as his attorney appears and as long as the debtor is current with the plan payments.

            (a)   Adequate treatment of priority and secured creditors – All priority and secured creditors must be treated fairly. See above.

            (b)   Proposed in good faith – This is self-explanatory.

            (c)   Unsecured creditors receive better treatment than in Chapter 7 – Under most Chapter 7 cases, unsecured creditors receive no distribution, so even a 5% payment toward unsecured creditors satisfies this requirement.

            (d)   Using all disposable income to fund plan – Disposable income is the difference between monthly income and monthly expenses. This is frequently a contested point between the debtor and the Chapter 13 Trustee. The Trustee often scrutinizes the debtor’s monthly expenses in an effort to increase the amount paid to general unsecured creditors.

            (e)   Still have enough money for living expenses – This is known as feasibility. If, after making the plan payment, the debtor does not have enough money for monthly living expenses, the trustee argues the plan is not feasible. The judge will never deny confirmation based upon feasibility, as long as the debtor is making the plan payments and is keeping support payments current. As the judges say, “The proof is in the pudding.” In other words, if the debtor is actually making the plan payment, then the plan is feasible regardless of what the stated monthly expenses are.

            (f)   Financial circumstances substantially unchanged since filing case – This requirement confirms that the debtor is using all disposable income.

            (g)   If applicable, all court ordered child support and alimony payments which have come due since the filing date are current. This is new under BAPCA, and it is a potential pothole on the road to confirmation. BAPCA requires that all child support payments be kept current from the date of filing forward. The logic is that support is a monthly obligation, and if the debtor is unable to pay this obligation and the plan, the plan fails the feasibility requirement. Even before BAPCA, both Judge Funk and Judge Proctor made this a requirement. The difference now is that, before BAPCA, it was only raised if the support creditor objected to confirmation. Now, the debtor must automatically testify as to the status of current payments.

ii)   Chapter 13 Trustee – The Chapter 13 Trustee is charged with overseeing the Chapter 13 process and enforcing compliance with the Bankruptcy Code. It is a complex and thankless job. Although the Chapter 7 Trustee and Chapter 13 Trustee both want to see creditors get “top dollar” from the debtor, the Chapter 7 trustee focuses on the debtor’s assets, and the Chapter 13 Trustee focuses on the debtor’s income. The Chapter 13 trustee also administers confirmed plans, which includes receiving payments from debtors and disbursing funds to creditors. Although there is oversight from the United States Department of Justice, the Chapter 13 Trustee operates as a private business funded by a 5% administrative fee paid by the debtor with each plan payment.

If you are considering filing Chapter 13 Bankruptcy in Orlando, Florida contact Attorneys Parker & DuFresne at 904-733-7766 today to discuss your options.