Monthly Archives: September 2013

Will In re Flores Finally Settle the Applicable Commitment Period Question When Filing Chapter 13 in the 9th Circuit?

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On August 29, 2013, the Ninth Circuit Court of Appeals (En Banc) issued their opinion in the matter of Cesar Ivan Flores and Ana Maria Flores, No. 11-55452. Hopefully this opinion will finally put to rest how long the applicable commitment period is when seeking reorganization under Chapter 13 of the Bankruptcy Code. That is, how long does a Chapter 13 Plan have to be? The Ninth Circuit issued this opinion “En Banc” which is significant given that prior inconsistent opinions were issued by a divided panel of Ninth Circuit Judges. All Judges of the Ninth Circuit participated in this opinion, so the Flores opinion is binding.

So what is the applicable commitment period for a Chapter 13 Plan? It is how long the Chapter 13 Plan of reorganization will last or how many monthly Chapter 13 Plan payments a debtor has to make before receiving a discharge of their remaining debts. The Bankruptcy Code says the applicable commitment period is either 3 years or not less than 5 years if the debtors current monthly income when multiplied by 12 is not less than the median annual family income in the applicable state. Each state has different median incomes to compare to a debtors income. Your bankruptcy attorney should know the median incomes for your particular state. In California the median incomes by number of people in a household right now are follows:

Household of 1 $48,415 per year or $4,035 per month
Household of 2 $63,030 per year or $5,253 per month
Household of 3 $48,415 per year or $5,617 per month
Household of 4 $63,030 per year or $6,305 per month
Household of 5 $48,415 per year or $6,980 per month
Household of 6 $63,030 per year or $7,655 per month
Household of 7 $48,415 per year or $8,330 per month
Household of 8 $63,030 per year or $9,005 per month

In the Flores case the debtors’ income was not in dispute and it was over the median income based upon the number of people in their household. So the applicable commitment period should arguably be five years. The Flores’ and their bankruptcy lawyer proposed a plan of three years though given that their Chapter 13 Statement of Monthly Disposable Income resulted in either $0.00 or negative monthly disposable income. Here is where the different decisions from different jurisdictions comes into play. The Kagenveama case led to confusion or an argument that if a debtors projected monthly disposable income was negative there is no applicable commitment period and a three month plan in theory could be confirmed/approved. So the Ninth Circuit in Flores tells us that “in light of the statute’s text, purpose, and legislative history, we now hold that the temporal requirement of §1325(b) applies regardless of the debtor’s projected disposable income. What does that mean? It means if your average income for the six months prior to filing for Chapter 13 protection is above the median income in California as listed above you will have to file a 5 year Chapter 13 Plan of reorganization. If you live in another state the median incomes will be different. It appears we are now back to how things were prior to the Kagenveama and Lanning cases to determine the term or length of Chapter 13 Plans.

As the former staff attorney for a Chapter 13 Trustee I can tell you that in most cases the commitment period is not an issue. The majority of cases filed include a Chapter 13 Plan of reorganization that is 60 months or five years because it makes the monthly Chapter 13 Plan payment less than if the Chapter 13 Plan was proposed for only 36 months. A debtor may choose to propose a 60 month Chapter 13 Plan even though their income is less than the median income in their state. For example, if a debtor has $15,000 in priority taxes they are paying back in a Chapter 13 Plan the 36 month payment would be about $416.67 per month and a 60 month payment would be $250.00 per month. The debtor may not be able to afford to pay $416.67 a month and have to file the 60 month plan anyway. Many bankruptcy attorneys pushed the envelope though and tried to propose plans that were only 6 months long or 12 months long. Their clients had negative projected monthly disposable income so arguably there was not a required applicable commitment period.

What Happens if a Claim is Disallowed in My Bankruptcy Case? It the Claim also Discharged?

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If you filed a Chapter 13 or Chapter 11 bankruptcy case then you know that the claims process is an important part of reorganizing your debts. What is the result if you object to the allowance of a claim and the claims is disallowed in its entirety? Is the claim therefore discharged when the plan of reorganization is completed? Does the creditor have a right to seek payment of the disallowed claim after you receive your discharge and the case is closed? The answer is it depends upon the type of claim that was disallowed. Make sure you give your bankruptcy lawyer as much information as possible prior to objecting to a claim.

The first case to discuss involves student loans. Student loans are not dischargeable pursuant to Section 523(a)(8). In Cruz the debtors objected to the claim of Educational Credit Management Corporation (“ECMC”.) ECMC did not respond to the objection and the court entered an order that said the claim was disallowed in its entirety and the claim was paid in full. After the debtors completed their chapter 13 plan and obtained a discharge ECMC intercepted the debtors’ post-discharge tax refund to satisfy the student loan held by ECMC. The debtors bankruptcy attorney reopened the bankruptcy case and filed a motion for sanctions against ECMC. The court found that ECMC’s claim was not discharged and ECMC had a right to intercept the debtors’ tax refund.

The disallowance of a claim does not necessarily mean the underlying debt is discharged. See Bell v. ECME 236 B.R. 426 (N.D. Ala. 1999) or In re Shelbayah 165 B.R. 332, 335 (Bankr. N.D. Ga 1994) holding that the allowance or disallowance of claims is unrelated to the dischargeability of those claims under section 523. In the Cruz case the underlying debt was not dischargeable, a student loan. Therefore even though the claim was not allowed the underlying debt was not discharged.

General Unsecured Claims

What if the underlying claim was that of a credit card company? If you object to a credit card claim and the claim is disallowed in its entirety is it also discharged? A general unsecured claim should be discharged upon completion of the plan of reorganization.

Vehicle Loan Lien

What about a car loan company that believes it has a valid lien on your vehicle at the time you file for bankruptcy? In National Capital Management v. Gammage-Lewis, No. 12-2286 (June 6, 2013) the court held that a car loan companies lien was extinguished when the debtor’s received their discharge given the car loan companies failure to provide the appropriate documents to prove it had a perfected security interest. The disallowance of the claim of a lien made the lien void under Section 506(d) of the Bankruptcy Code. The court held that the objection to the claim was sufficient to provide the car loan company the necessary notice and opportunity to be heard regarding their claim. In most circumstances an adversary proceeding must be initiated to determine the validity, priority or extent of a lien.

The bottom line whether a claim that is disallowed is also discharged depends upon the type of claim and the circumstances under which it was disallowed.