Tag Archives: Chapter 13 Bankruptcy

Student Loan Claims Should Be Treated In A Separate Class In Chapter 13 Bankruptcy Plans


By Ryan C. Wood

The following discusses listing and treating student loan claims in chapter 13 bankruptcy cases as a separate class and separate claim all by itself in a chapter 13 plan.  By creating a separate class the treatment of the student loan claims will be different than NOT substantially similar general unsecured claims like credit cards or medical debts.  The advantage of this is designating more of the plan payment to a not dischargeable debt, student loans, than debt that is dischargeable credit cards, medical debt or personal loans for the benefit of the bankruptcy filer.  Arguably the plain, unambiguous language of the Bankruptcy Code allows this.  “If the language has a plain meaning or is unambiguous, the statutory interpretation inquiry ends there.”  CVS Health Corp. v. Vividus, LLC, 878 F.3d 703, 706 (9th Cir. 2017) (citation omitted).

First Let Us Talk Bankruptcy – Broadly Speaking That Is

The filing of bankruptcy is for debtors; the bankruptcy filers.  Not creditors or other parties-in-interest.  Bankruptcy proceedings are intended to give debtors a “fresh start.” Goudelock v. Sixty-01 Ass’n of Apartment Owners, 895 F.3d 633, 637 (9th Cir. 2018) (citing Grogan v. Garner, 498 U.S. 279, 286 (1991)); Dept. of Health Servs. v. Jensen (In re Jensen), 995 F.2d 925, 928 (9th Cir. 1993).  Bankruptcy proceedings are intended to grant debtors a “fresh start,” Grogan v. Garner, 498 U.S. 279, 286 (1991), and, as a result, the Bankruptcy Code “is to be construed liberally in favor of debtors,” In re Devers, 759 F.2d 751, 754 (9th Cir. 1985).

It is less and less likely the Bankruptcy Code will be construed liberally in favor of debtors.  This is a generalization and of course there are plenty of examples of liberal interpretation for the benefit of debtors.  Just like in the real world in which corporations that do not live, breath or die dominate the argument for the almighty buck.  A profit before people is the name of the game and it is pervasive.  How can bankruptcy be immune from this when the largest financial institutions are the main creditor players?  It cannot be.  Interpretations are more and more in favor of large multi-billion conglomerates.

Model Chapter 13 Plans 

Model chapter 13 plans were created and are universally used from jurisdiction to jurisdiction.  Some vary widely while others mirror the national model chapter 13 plan.  Unfortunately most model chapter 13 plans do not provide for a separate class listing for student loans.  Some plans do include a section that provides language such as: Class 6 includes designated nonpriority unsecured claims, such as co-signed unsecured debts, that will be treated differently than the other nonpriority unsecured claims provided for in Class 7. The claim holder of each Class 6 claim and the treatment of each claim shall be specified in section 7, the Nonstandard Provisions.  The low hanging fruit is a student loan that is co-signed.  This article does not address this circumstance given there should be no argument that co-signed student loans may be listed in a separate class with different treatment then general unsecured creditors.

As always the time and money to make the argument student loans may be listed in a separate class and treated different than general unsecured creditors could be substantial.  I cannot work for free and almost no client can afford to pay me to make this argument on their behalf.  If it goes bad then the only option is to appeal requiring even more time and money.  So what client of mine has the money to do that?  Try none.  There are always bigger fish to fry for bankruptcy filers and there are absolutely no moral victories.  There is either food on the table or there is not food on the table. 

Additional Provisions of a Model Plan

The additional provisions section of chapter 13 plans is where the terms of the chapter 13 plan can be varied based upon the bankruptcy filers circumstances.  This section was created to bankruptcy attorneys could not sneak in provisions or treatment of claims that are not supported by the Bankruptcy Code.  It is good and bad.  The result is if there are any nonstandard or provisions you need to add to actually present your client well the language is front and center for scrutiny.

If you include language in the “Additional Provisions” section of your model chapter 13 plan the chapter 13 trustee’s office will most likely object to the language and not recommend confirmation of the chapter 13 plan.  Sometimes judges will preapprove certain additional provision additions for issues that come up over and over again to streamline the process and allow chapter 13 trustee’s to recommend confirmation of a chapter 13 plan without a formal hearing.  Otherwise, the trustee’s office will force there to be a confirmation hearing and the bankruptcy judge assigned to the case will make a decision as to whether the language in the additional provision can be confirmed as part of the plan.  This will probably happen even though every creditor was served with the chapter 13 plan and no creditor objected to their treatment in the plan.  What you say!?  If a creditor does not accept their treatment they have to object right?  You would think creditors should have to object to chapter 13 plans and not accept their treatment in a chapter 13 plan.  No, no.  Why hire and pay an attorney to file an objection to confirmation when the trustee and court will do it for you?  At the same time chapter 13 trustees’ and the Court have a duty to uphold the law.  Also, some creditor attorneys do things to just earn a buck that are not necessary and only increase costs of administration of bankruptcy cases.  So I am torn on whether I want creditor participation in a chapter 13 case or not.   I do believe creditors should have to object to their treatment in chapter 13 plans though.       

The Bankruptcy Code

So this is all about interpreting the Bankruptcy Code as it exists.  Arguably the plain language of the Bankruptcy Code provides student loans should be listed as a separate class with their own treatment.  Let me explain.

Section 1322(b)(1) provides:

(b) Subject to subsections (a) and (c) of this section, the plan may— (1) designate a class or classes of unsecured claims, as provided in section 1122 of this title, but may not discriminate unfairly against any class so designated; however, such plan may treat claims for a consumer debt of the debtor if an individual is liable on such consumer debt with the debtor differently than other unsecured claims;

The plain language provides designation of a class or classes of unsecured claims.  So more than one class of unsecured claims can be part of a chapter 13 plan.  Then it says as provided in section 1122.

Section 1122 Classification of Claims or Interests provides:

(a) Except as provided in subsection (b) of this section, a plan may place a claim or an interest in a particular class only if such claim or interest is substantially similar to the other claims or interests of such class.

(b) A plan may designate a separate class of claims consisting only of every unsecured claim that is less than or reduced to an amount that the court approves as reasonable and necessary for administrative convenience.

Section 1122 as referenced in 1322(b)(1) only allows classes of claims of the same nature or character, substantially similar to the other claims or interests of such class.  This is language is plain, taking the ordinary meaning of the words and is unambiguous right?  Okay wonderful; moving on now to defining the key term in the language above.  What is the definition of substantially similar?  Might we have case law on the definition of “substantially similar?”  Yup. 

Various Courts have defined “substantial similarity” to mean the legal nature of the respective claims.  See In re McKenzie, 4 B.R. 88 (Bkrtcy.W.D.N.Y., 1980, Creahan, B. J.); In re Iacovoni, 2 B.R. 256 (Bkrtcy.D.Utah, 1980, Mabey, B. J.); In re Montano, 4 B.R. 535 (Bkrtcy.D.D.C. 1980, Whelan, B. J.); In re Barnes, 7 B.C.D. 961 (D.D.C. 1981). 

So for claims to be listed in the same class they must have the same legal nature of the respective claims.  Student loans are not substantially similar to credit card, personal loans or medical debts in anyway and therefore should not be listed in the same class.

Student loans are really non-consumer debt given student loans are incurred to further ones education and seek higher income.  Student loans are therefore incurred for income purposes or business purposes rather than consumer goods and services. 

Student loans are by law are NOT dischargeable.    

How can student loans possibly be in the same class as dischargeable general unsecured claims like credit card, personal loan or medical debts?  There is nothing substantially similar as to the legal nature of the claims.  So student loans must be listed in a separate class with their own treatment.

(a) Except as provided in subsection (b) of this section, a plan may place a claim or an interest in a particular class only if such claim or interest is substantially similar to the other claims or interests of such class.

“…. in reliance of the 15th Ed. Collier’s comment on § 1122, the court held that all unsecured creditors with claims of the same nature or character have a similar right to the assets of the estate.  See  In re Iacovoni, 2 B.R. 256 (Bkrtcy.D.Utah 1980)  Conversely claims of a different nature or character have different rights to assets of the estate.

Plain Language of Bankruptcy Code Is Clear

You have read it for yourself.  How can a not dischargeable debt incurred for entirely different reasons be substantially similar to general unsecured claims like credit cards, medical debts or personal loans?  Clearly the Bankruptcy Code says different types of claims should be listed in separate classes with arguably different treatment.  Furthermore, if you propose a chapter 13 plan with a separate class for student loans and no creditor objects to the plan what is the problem?  If a creditor does not object to their treatment they are accepting the terms of the chapter 13 plan. 

Confirmation of A Chapter 13 Plan With Student Loans Listed As A Separate Class

As mentioned above the chapter 13 trustee’s office will most likely object to confirmation of the chapter 13 plan if the plan lists student loans as a separate class with a separate treatment in the additional provisions section.  See below and Bankruptcy Code Section 1325(b)(1)(B).  As long as the plan is paying all of the debtor’s projected disposable income to be received in the applicable commitment period to unsecured creditors the chapter 13 plan should be confirmed.  A chapter 13 plan with student loans listed in a separate class will still meet the requirement for confirmation as provided in Section 1325(b)(1)(B).       

Bankruptcy Code Section 1325(b)

 (1) If the trustee or the holder of an allowed unsecured claim objects to the confirmation of the plan, then the court may not approve the plan unless, as of the effective date of the plan—

(A) the value of the property to be distributed under the plan on account of such claim is not less than the amount of such claim; or

(B) the plan provides that all of the debtor’s projected disposable income to be received in the applicable commitment period beginning on the date that the first payment is due under the plan will be applied to make payments to unsecured creditors under the plan.

Of course there is more.

Unfair Discrimination

Bankruptcy Code Section 1322(b)(1) provides:

(b) Subject to subsections (a) and (c) of this section, the plan may— (1) designate a class or classes of unsecured claims, as provided in section 1122 of this title, but may not discriminate unfairly against any class so designated; however, such plan may treat claims for a consumer debt of the debtor if an individual is liable on such consumer debt with the debtor differently than other unsecured claims;

Now that we have separate classes you may not discriminate unfairly against any class so designated.  If you are bankruptcy attorney practicing in the Ninth Circuit undoubtedly the case of In re Wolff, 22 B.R. 510 (9th Cir. BAP 1982) will be cited.  This is an absolutely horrible case that really should not be applied to listing student loans as a separate class with a separate treatment.  In Wolf the debtor proposed to treat creditors with exactly the same types of claims and rights differently in the chapter 13 plan.  In Wolf the plan proposed to pay just two general unsecured creditors while paying nothing to all other general unsecured creditors.  Yeah, that is unfairly discriminating against creditors based upon those facts.  In Wolf the debtor treated two creditors more or less as “Critical Vendors” but failed to provide evidence of why the debtor would fail without the different treatment of exactly same type of claim/creditor.  In Wolf the Court provided: “We believe that the better result is that there will be occasions where unsecured claims might be classified and treated differently, even though the legal character of the claims is identical and the treatment is discriminatory, but not unfairly so.”  In re Wolff, 22 B.R. 510, 512 (9th Cir. BAP 1982).  Wolf brought us the following: In re Kovich, 4 B.R. 403 (Bkrtcy.Mich. 1980), and refined in In re Dziedzic, 9 B.R. 424 (Bkrtcy.Tex. 1981), more reasonably sets forth the interpretation to be placed upon § 1322. The test is (1) whether the discrimination has a reasonable basis; (2) whether the debtor can carry out a plan without the discrimination; (3) whether the discrimination is proposed in good faith; and (4) whether the degree of discrimination is directly related to the basis or rationale for the discrimination.

So list student loans as a separate class with the exact monthly amount as general unsecured creditors receive and there will be no discrimination at all; just equal payments to separate classes paying unsecured creditors all of the debtor’s projected monthly disposable income.  Done, chapter 13 plan confirmed leaving the debtor’s right to a fresh start intact and the Bankruptcy Code being liberally interpreted for the benefit of the bankruptcy filer. 

American Chopper: The Latest About Paul Teutul, Sr. Chapter 13 Bankruptcy Case

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There are a number of updates below with a more detailed history of this chapter 13 bankruptcy filing.  There is no shame in merely following the law to seek relief in bankruptcy.  Please keep in mind that Mr. Paul Teutul Sr. is paying 100% of his debts in his chapter 13 debt adjustment or reorganization case. There are many myths and fake news floating around about bankruptcy and Mr. Teutul’s bankruptcy case.  I am confident what follows is the most accurate analysis of what has taken place to date.  In this case Mr. Paul Teutul, Sr. proposed and the Court approved the sale of his 38 acre estate to pay ALL allowed creditor claims.  This is Bankruptcy Case No. 18-35310 filed in the Bankruptcy Court for the Southern District of New York on February 27, 2018.

As of November 15, 2019

On July 1, 2019, the Court entered an order approving the sale of Mr. Paul Teutul Sr.’s New York 38 acre property along with some personal property for $1.5 million.  The sale included some of the equipment to maintain the property such as a couple plastic boats, an ATV, bulldozer and JD tractor.  So that is more or less that assuming the sale is closed.

American Chopper’s Paul Teutul, Sr. is now free to hit more home runs.  Yes, home runs.  See, Mr. Paul Teutul, Sr. keeps swinging the bat.  He hit some home runs and then struck out a couple of times.  He then followed the law to seek relief from his creditors to sell his house to pay off all his debts and move on.  It is just that simple.  It is impossible to hit a home run each time you come to the plate.  You do have to keep swinging or you will never hit a home run.  Keep swinging Paul Teutul Sr.  Keep swinging!!!!!!

June 20, 2019 Update

On June 5, 2019, a Fourth Amended Chapter 13 Plan was filed to incorporate terms governing the sale of Mr. Teutul’s real property.  As required as part of the chapter 13 plan and required by the Bankruptcy Code, on May 20, 2019, a motion to sell Mr. Teutul’s 38 acre estate was filed, and on June 18, 2019, a hearing was held regarding Mr. Teutul’s motion to sell his 38 acre property and sell other personal property along with it to fund his chapter 13 plan of reorganization.  I am please to report the court granted the motion to sell.  Unlike some other articles with click-bait titles this chapter 13 case is not a nightmare and the case was never neglected.  Sure, no one really wants to file for bankruptcy protection.  It is the law though and Mr. Teutul just like anyone else seeking bankruptcy protection is just following the law.  Many times bankruptcy is a last resort and that means bankruptcy cases get filed at the last second or without months and months of planning.  Large corporations filing chapter 11 cases to reorganize their debts even have agreements with creditors already worked out prior to the chapter 11 even being filed.  For us small fish that is not how it goes down.  Nevertheless, Mr. Paul Teutul, Jr. is now waiting for his Fourth Amended Chapter 13 Plan filed on June 5, 2019, to be confirmed or approved by the bankruptcy court.  The chapter 13 plan should be wrapped up in August or September 2019 now that the motion to sell was granted and the plan can be funded.  There should not be too many more issues in this case.  Congratulations Mr. Paul Teutul, Jr. and we wish you well in your future endeavors.

May 27, 2019 Update

This might be a little premature, but I would like to congratulate Mr. Paul Teutul, Sr. on successfully reorganizing his debts.  Sadly most of the mainstream media will just provide that Mr. Teutul filed bankruptcy without any real information about what took place.  These are sadly click-bait type articles that I see all the time.  So, this might be a little premature, but I have the pleasure to report Mr. Teutul, Sr. filed a motion to sell his real property 38 acre estate to fund the proposed chapter 13 plan in which his creditors will be paid in full on May 20, 2019.  The hearing on the motion to sell the property is scheduled for June 18, 2019, at 10:30 a.m.  Assuming the motion to sell the real property is granted and the chapter 13 plan will fund as a result this case is all but wrapped up.  Unfortunately prior to the motion to sell the real property was filed the chapter 13 trustee filed a motion to dismiss the case for undue delay that is prejudicial to creditors pursuant Section 1307(c)(1).  I really do not like these motions filed by chapter 13 trustee’s given in reality no creditor is complaining and no creditor is prejudiced.  The successful completion of and funding the chapter 13 plan on file in this case is the single most efficient and quickest ways creditors of Mr. Paul Teutul, Sr. will get paid what they are owed at this point.  Creditors have filed claims to be paid what they are owed and do not have to continue to pursue their claims under state law.  This will save the creditors thousands and thousands of dollars in attorneys’ fees and costs with a guarantee of payment of the amounts they are owed.  The problem is this case was timing though.  It took too long for the real property to be sold and fund the proposed chapter 13 plan.  So arguably creditors are or were prejudiced.  I just do no like chapter 13 trustee’s stepping into the shoes of creditors and making this argument and filing a motion to dismiss a case.  At the same time a chapter 13 case cannot just be out there barring creditors from seeking payment if there is no reasonable likelihood of a chapter 13 plan being confirmed or approved.  It is a delicate balance and creditors should enforce their rights and seek dismissal of cases rather than the chapter 13 trustee; my two cents.  Hopefully the court in this case will continue the hearing on the motion to dismiss the case and allow the hearing on the motion to sell Mr. Teutul, Sr.’s real property so the chapter 13 plan can fund and be approved……….

February 1, 2019 Update

Two issues were resolved recently. The first is regarding Leonite Capital, LLC. See below for more information about their claims. On December 19, 2018, the bankruptcy court entered an order denying Leonite Capital, LLC’s late filed proof of claim. The state court lawsuit against Orange County Choppers will continue though.

The other major development was Paul Teutul Sr. and JTM Motorsports entered into a settlement agreement for up to $30,000 after going through mediation. An initial payment of $11,726.15 will be paid to JTM upon the Court approving the settlement. After that invoices for parts totaling approximately $6,273.85 will be submitted to Paul Teutul Sr.’s bankruptcy attorney for payment. The remaining portion of the settlement amount will be held in trust to potentially pay other alleged outstanding invoices JTM is allegedly liable for unless the invoice holders provide releases saying JTM is not responsible for paying the invoices…….. Paul Teutul Sr. was supposed to pickup the 2009 Corvette ZR1 around January 19, 2019.

Issues Remaining

Mr. Paul Teutul Sr.’s chapter 13 debt adjustment or reorganization case is progressing and is running into an issue that is not uncommon under his circumstances. There are a number of ways to fund or pay a proposed Chapter 13 Plan and to meet obligations to creditors. The most common way is from normal monthly income. The bankruptcy filer makes a payment each month to the Chapter 13 Trustee assigned to the case and then the Chapter 13 Trustee disburses the funds to creditors according to the terms of the chapter 13 plan. The second most common way to fund a chapter 13 plan is by selling assets like real property. That is what Mr. Paul Teutul Sr.’s chapter 13 plan has turned into after unsuccessfully seeking to modify the terms of the secured loan on his property. The problem is you will only get so long to sell the asset to fund the chapter 13 plan. This is a jurisdictional and circumstantial issue so I will not get into how long someone will have to sell property, but generally it is not an open ended proposition. Part of filing for bankruptcy is bringing certainty to right to payment of debts so there generally will be no approval or confirmation of a plan to sell an asset to fund a plan that is indefinite.

December 13, 2018 Update

I wrote a previous article about American Chopper and Orange County Chopper’s Paul Teutul Sr.’s chapter 13 bankruptcy filing. There are various updates below as things have played out. You may have read that Paul Teutul, Jr. filed bankruptcy and I can confirm that it is technically true. Unfortunately the mass media does almost no research anymore and just spits out half-truths as fact. I have reviewed the bankruptcy documents filed and can tell you firsthand the filing is by who we all know as Paul Teutul, Sr., aka “Senior” but senior is actually legally a junior. The voluntary petition for bankruptcy protection under Chapter 13 of the Bankruptcy Code does not contain a scribers error and says Jr. because Paul Teutul, Sr. is actually a Jr. This case as it has progressed turned into a sale case and creditors will receive 100% of their allowed claims. This means Mr. Paul Teutul Sr. is paying all his debts according to bankruptcy code and applicable non-bankruptcy law through the sale of his real property.

December 13, 2018 and Summary of Ongoing Issues

Here Comes Leonite Capital, LLC

A new development is Leonite Capital, LLC, storming onto the scene alleging an equity stake in Orange County Choppers. Uh oh, this could be trouble. It is kind of like plugging leaking holes, one with your left hand, another with your right hand, another with your right foot and then bam, Leonite comes in and you are standing on your left foot trying to plug the next leak. So Leonite provides it sued Orange County Choppers Holdings, Inc. for at least $500,000.00 plus interest in damages. Leonite alleges it was not given proper notice of Paul Teutul, Sr.’s bankruptcy proceeding and was not listed as a creditor. This is technically true given Leonite did business with OCC, a separate legal entity from the individual, Paul Teutul, Sr. Leonite alleges it has a senior secured promissory note on OCC with right to equity in OCC. Leonite is objecting to confirmation/approval of Paul Teutul Sr.’s amended chapter 13 plan as it may negatively effect their claim. Paul Teutul Jr. filed an opposition to the allowance of Leonite’s claim with many great arguments. The most compelling I think is that Leonite filed its objection to confirmation on May 14, 2018, but failed to file a proof of claim until five months later. Also, the claim of Leonite is unliquidated, contingent and disputed and unlisted. Paul Teutul, Jr. argues the disallowance or not allowing Leonite’s late filed claim does nothing since the claim cannot be discharged given it was unlisted or scheduled in the petition. We shall see what happens…..

The next hearing date for all continued matters is now December 20, 2018.

JTM Motor Sport, Inc.’s Alleged Secured Claim and Pending Mediation of Controversy
Paul Teutul’s chapter 13 bankruptcy is still progressing albeit with some issues not being resolved yet. The issues with JTM Motorsport, Inc’s alleged secured claim is still not resolved. As provided in more detail below JTM Motorsports, Inc. performed work in Mr. Teutul’s 2009 Corvette. The 2009 Corvette is being held hostage for payment for the work performed resulting in the alleged secured claim of JTM Motorsport’s Inc. The only thing that has changed is on October 30, 2018, a hearing was held on Mr. Teutul’s objection the JTM’s alleged secured claim and JTM requested mediation. Paul Teutul, Jr.’s attorneys objected to mediation, but the Court overruled their objection ordered mediation. On November 2, 2018, JTM Motorsports, Inc. filed a motion for an order of approval for this matter to be mediated. On November 12, 2018, Paul Teutul, Jr. filed a limited opposition to the motion for mediation and proposed order providing that despite Paul Teutul Jr.’s repeated requests to inspect the 2009 Corvette to evaluate the parts used and worked performed JTM has not made the 2009 Corvette available. Paul Teutul Jr. is just requesting as part of the mediation he be able actually inspect the 2009 Corvette. A very reasonable and essential request so why is JTM not making the 2009 Corvette available? I will let you speculate. Also, why did JTM want mediation at all when the bankruptcy judge could have ruled on Paul Teutul Jr.’s objection to their claim? Again I will let you speculate. On December 3, 2018, the Court entered the order approving the mediator and procedures for the mediation. We shall see what happens.

October 18, 2018 Update

There has not been a lot of movement in Mr. Paul Teutul Sr.’s chapter 13 bankruptcy case. All the issues listed below still remain. The objection to JTM Motor Sports, Inc. has a scheduling order but nothing else has happened. Any objections to approval or confirmation of Mr. Teutul Sr’s chapter 13 plan of reorganization have been continued to a new confirmation hearing date of October 30, 2018. Mr. Teutul Sr. still needs to find a buyer and sell his primary residence to fund the chapter 13 plan of reorganization. The October 30, 2018, hearing may provide some additional information as to how long Mr. Teutul Sr. will have to sell the house. Some jurisdictions will only allow 12 months to complete a sale to fund a chapter 13 plan of reorganization.

July 8, 2018 Update

Mr. Paul Teutul Sr.’s bankruptcy case is progressing for the most part normally at this point and the issues that remain involve the following:

1. Sale of Mr. Paul Teutul Sr.’s real property to fund the chapter 13 plan;
2. Objection to JTM Motorsport, Inc.’s alleged secured claim; and
3. The unknown value of filed Claim No. 9 given the claim is subject to ongoing litigation; more to come on this given the litigation is ongoing…… see below.

JTM Motor Sports, Inc.

As discussed and detailed below JTM Motor Sports, Inc. filed a motion for relief from stay and filed a claim for payment in Mr. Paul Teutul Sr.’s case alleging a secured claim and the claim was secured by Mr. Paul Teutul Sr.’s 2009 Chevrolet Corvette ZR1. Mr. Paul Teutul Sr. opposed the motion for relief from stay and objected to the claim of JTM. The hearing on the objection to JTM’s alleged secured claim is July 30, 2018.

In bankruptcy cases with assets for creditors to share, whether a Chapter 7, Chapter 13 or Chapter 11/12, creditors are required to file proof of claims with evidence detailing how much they are owed and why they are entitled to receive payment or a distribution of the bankruptcy filers assets. That is what JTM Motor Sports, Inc. did. They filed a claim alleging an estimated secured claim totaling $51,000, Claim No. 8, filed on May 7, 2018. The problems is there is no documentation attached to the claim evidencing the amount owed or basis for perfection of the alleged secured claim. See Federal Rule of Bankruptcy Procedure 3001 and specifically 3001(d) if you really want to do some reading. A secured claim filed with absolutely no documentation for the basis of the secured claim is troubling. This is exactly why Mr. Paul Teutul Sr. is objecting to JTM’s alleged secured claim and requesting the Court expunge the claim entirely. Mr. Paul Teutul Sr. is also alleging he owes no money to JTM at all. See below for more details in a prior update about why JTM is alleging it has a secured claim in this case and why Mr. Paul Teutul, Sr. argues he owes them no money at all.

A larger overreaching issue and even more troubling aspect of what is going on here is what FRBP 3001(f) provides: Evidentiary Effect. A proof of claim executed and filed in accordance with these rules shall constitute prima facie evidence of the validity and amount of the claim. Why should any bankruptcy filer and their counsel have to spend valuable time and money objecting to a claim that clearly has failed to meet the rules? If a filed proof of claim alleging a secured claim has no documentation attached, a barebones claim, how could the claim be given evidentiary effect and be prima facie evidence of validity of a claim? The barebones claim is of no evidentiary effect period……..

Filed Claims for Payment

So far the following claims filed in Mr. Paul Teutul Sr.’s Chapter 13 Bankruptcy:

Claim No. 1: Ally Bank; $15,283.50 secured by a 2011 Dodge Ram Pickup
Claim No. 2: Nationstar Mortgage LLC dba Mr. Cooper; $56,859.62 secured by real property
Claim No. 3: American Express c/o Becket and Lee LLP; $39,716.95 general unsecured claim
Claim No. 4: American Express c/o Becket and Lee LLP; $10,285.65 general unsecured claim
Claim No. 5: Midland Funding, LLC; $9,390.67 general unsecured claim
Claim No. 6: County of Orange c/o McCabe & Mark, LLP; $55,408.31 secured by real property
Claim No. 7: M&T Bank c/o Schiller Knapp Lefkowitz Hertzel LLP; $911,097.23 secured by real property
Claim No. 8: JTM Motorsports, Inc.; $51,000 secured claim allegedly secured by 2009 Corvette
Claim No. 9: Thomas Derbyshire c/o Bayard, P.A. Peter Ladig; NO AMOUNT LISTED GIVEN THIS CLAIM IS SUBJECT TO ONGOING LITIGATION ….. MORE TO COME REGARDING WHAT TAKES PLACE REGARDING THIS CLAIM
Claim No. 10: Cortland County; $8,363.59 secured by real property
Claim No. 11: New York Dept. of Taxation and Finance; $25,832.99 with $20,780.78 as priority claim and the remainder of $5,052.21 a general unsecured claim

June 13, 2018 Update

Things have generally died down in Mr. Paul Teutul, Sr.’s chapter 13 bankruptcy case. Mr. Teutul will sell his house, pay off all his debts and walk away with hopefully a boat load of money. Hopefully you are reading this and will know Mr. Paul Teutul, Jr. aka Paul Teutul, Sr. paid his debts in full.

The Current Drama

What is still going on is a fight picked by JTM Motor Sports, Inc. and Paul Teutul’s 2009 Chevrolet Corvette ZR1 in the possession of JTM Motor Sports, Inc. JTM is requesting the Bankruptcy Court give JTM the right to sell the Chevrolet Corvette ZR1 to satisfy JTM’s alleged garageman’s lien. Allegedly the deal was JTM would beef up the Corvette so Mr. Teutul Jr. could race it in an episode of “Street Outlaws” against “Farm Truck” and JTM would have their banners prominently displayed to get media attention. If you are not familiar with “Street Outlaws” Oklahoma City “Farm Truck” is a Chevrolet truck that has a camper shell and serious horsepower and set up to race, a sleeper truck or car. Both “Street Outlaws” and “American Chopper” are produced by Pilgrim Studios and are on the Discovery Channel. According to Paul Teutul the relationship with an associate of JTM, a Mr. Franco, that was helping to put the appearance together on “Street Outlaws” soured. To date Mr. Paul Teutul, Jr. has not appeared on “Street Outlaws” and raced “Farm Truck.” So now JTM is alleging they have a garageman’s lien in the vehicle for the parts and labor expended on the Corvette. They also asked for Mr. Teutul’s case to be dismissed which is ridiculous. From reading the declaration of Paul Teutul, Jr. and the attached emails it would seem JTM is going to have a tough time proving a garageman’s lien.

As of May 29, 2018

There have been many significant developments in Paul Teutul’s Sr. chapter 13 bankruptcy filing. There are a couple truly significant events that happened in May 2018. I was hoping American Chopper’s Paul Teutul, Sr. would save his home from foreclosure and work things out with M &T Bank, but his Third Amended Chapter 13 Plan no longer seeks loss mitigation to try and save his home. The Third Amended Chapter 13 Plan reduced the monthly plan payment to $750 a month for 60 months. That is a total pot of $45,000. The first chapter 13 plan filed proposed a pot of $146,928.60 to be paid at $2,448.81 for 60 months. This is a significant reduction.

Paul Teutul Sr.’s Third Amended Chapter 13 plan no longer requests loss mitigation regarding his home, but instead provides sell language as follows: “Debtor intends to sell Real Property having an address of 95 Judson Road, Montgomery, New York sold pursuant to 11 U.S.C. § 363(b). The Real Property is subject to a secured claim held by M&T Bank. Debtor has entered into an Exclusive Right to Sell Agreement with Ellis Sotheby’s International Realty to market the sale of Real Property. Once a Contract of Sale is entered into, the Debtor will amend this Plan accordingly. The net proceeds of the sale will be used to fund this Chapter 13 Plan and to pay all creditors in full. Debtor shall attach an affidavit containing all facts necessary for Court to approve the sale and should be prepared to address the requirements of 11 U.S.C. § 363 at the confirmation hearing. The Debtor shall submit an order approving sale upon confirmation of the Plan or the Court’s separate determination of the request, whichever is earlier.” This means the house we all saw on American Chopper is going to be sold and hopefully Paul Teutul, Sr. will walk away with some money from the sale after paying back property tax and M & T Bank missed mortgage payments. The Third Amended Chapter 13 Plan also provides all creditors will be paid in full. So those of you out there that are haters Paul Teutul Sr. is paying his creditors in full via the sale of his real property. This is not uncommon and what the Bankruptcy Code requires under Orange County Chopper Paul Teutul Sr.’s circumstances. It happens quite a bit actually, but all people seem to focus on is the person filed bankruptcy and do not take the time or educate themselves about what actually took place in the bankruptcy. I have no doubt Paul Teutul Sr. will continue to make good money and live a good life. He will also be 100% debt free upon completion of his Chapter 13 Plan.

Some History

If you do not know the huge building built as OCC’s headquarters was lost years ago and OCC leases a portion for the chopper business and restaurant OCC operates at the building. So you should have known then that things were not great. Unfortunately things did not improve for Paul Teutul, Sr. Not a whole lot has happened in the Chapter 13 bankruptcy filing. The original meeting of creditors was scheduled for March 28, 2018, was continued to April 11, 2018, at 12:30 p.m. Even in Chapter 13 cases few creditors show up to ask the debtor, Paul Teutul, Sr., questions. The meeting of creditors is a very limited forum and there is not a lot of time for creditors to ask questions after the trustee and/or their attorney asks their questions. If a creditor would like more time and request documents they may file an application for an order pursuant to FRBP 2004. I am sure there will be a couple creditors that show up because Paul Teutul, Sr. is the debtor and no other reason than that. I am a bankruptcy attorney and worked for a Chapter 13 Trustee. I would be the one questioning Paul Teutul, Sr. at this meeting of creditors. That was part of the job. Generally even under Paul Teutul, Sr.’s circumstances the meeting of creditors should not be too eventful.

Hearing Regarding Objection To Request For Loss Mitigation

A hearing that truly could be eventful and is the keystone for the entire Chapter 13 case is the hearing regarding Paul Teutul Sr.’s request for loss mitigation regarding his house pursuant to the terms of the Amended Chapter 13 Plan Paul Teutul, Sr. Please note for later Paul Teutul Sr.’s Chapter 13 petition starting this bankruptcy case was filed on February, 27, 2018. Paul Teutul, Sr. has checked the box for loss mitigation regarding his primary residence. Once creditors are served with the Chapter 13 Plan that may object to how the plan is treating them as a creditor.

On March 15, 2018, bankruptcy attorney Lisa Milas, on behalf of M&T Bank, the servicer of the loan and the owner Manufactures & Traders Trust Company, filed an objection to Paul Teutul’s Sr.’s request for loss mitigation. Loss mitigation is a fancy way of saying modification of the terms of the loan that can no longer be followed or have not been followed, deed in lieu of foreclosure with agreed upon terms or consensual sale. Paul Teutul, Sr. originally was loaned $1,500,000 from M&T Mortgage Corporation, another name used for the secured lender that I assume is Manufactures & Traders Trust Company since M&T Bank is the servicer, on September 27, 2005, secured by Paul Teutul Sr.’s primary residence. The mortgage was first modified October 10, 2013, and modified again on January 14, 2016. M&T Bank is objecting to Paul Teutul, Sr.’s request for loss mitigation given M&T Bank recently reviewed the loan and denied Paul Teutul, Sr.’s request for modification. There is a denial letter attached to the objection to Paul Teutul, Sr.’s request for loss mitigation as an exhibit and the rejection letter is dated December 18, 2017. This bankruptcy case was filed on February 27, 2018. M&T Bank’s objection says the loan was reviewed in January though. M&T Bank denied Paul Teutul, Sr.’s request for loss mitigation or modification given the monthly loan payment would increase significantly and the modification would not result in the requisite surplus income even if the interest rate was reduced and the term extended.

So yes, that is how most modifications work. The total owed with missed mortgage payments added in is spread out over an extended term with a reduced interest rate to make the monthly loan payment affordable again. Apparently after two prior modifications M&T Bank does not believe Paul Teutul, Sr. will be able to make the modified payment given his current income and expenses. M&T Bank is owed $905,448.00 and the property securing the debt is allegedly worth $1,800,000.00. So after applying the NYCPLR Section 5206 exemption of $137,950.00, Paul Teutul, Sr. has $756,602.00 without deduction the cost of sale or potential capital gains tax.

So unfortunately the Bankruptcy Court denied loss mitigation and the Third Amended Chapter 13 Plan seeks to sell Mr. Teutul Sr.’s real property to pay off all creditors in full.

Income and Debts

I am going to hold off on sharing any sharp bankruptcy attorney opinions other that what is provided in the filed schedules of Paul Teutul, Sr. Income of about $13,000 from Orange County Choppers, $5,500 from family support and about $2,600 from Social Security without deduction taxes and various other deductions before net income. One of the deductions that jumped out at me was the $1,034.45 a month for paying back retirement account loans. I am working on another article that discusses why to never take a loan from a retirement account. I hate to see retirement account loans and then a bankruptcy petition is filed anyway. Retirement account loans are the gateway drug to bankruptcy. Another monthly expense that jumped out at me was the monthly property tax of $4,166.00 and monthly insurance of $566.00. I am not familiar with property tax in New York but this seems extremely high. Paul Teutul, Sr. lists the value of the property as $1,800,000.00. One of the largest debts listed is for property taxes of $51,230.98. The Amended Chapter 13 Plan also provides that about $80,000.00 in mortgage payments were not paid prior to Paul Teutul, Sr. filing for bankruptcy. As it stands Pau Teutul, Sr. is seeking loss mitigation regarding the mortgage with M&T Bank and paying into the Chapter 13 Plan from monthly income $2,448.00 for 60 months for a total of $146,880.00 total pot. [Update: Since this was originally written Mr. Teutul, Sr. has significantly amended his schedules of assets to include value and many more assets.]

How Can A Chapter 13 Case Be Involuntarily Dismissed?

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When an individual files a chapter 13 bankruptcy case to reorganize their debts involuntary dismissal of the case was most likely not the outcome desired. The entire reason for filing bankruptcy is to obtain relief from creditors. The case being involuntarily dismissed does not help. Involuntary dismissal does happen though. There are actually many ways a Chapter 13 Reorganization can be dismissed involuntarily or without the consent of the person filing the case. This article will focus on the most common reasons a Chapter 13 bankruptcy reorganization is dismissed by the filing of a motion to dismiss by the standing Chapter 13 Trustee assigned to administer the bankruptcy estate. Each jurisdiction has a standing Chapter 13 trustee assigned to administer all of the chapter 13 cases filed in that region. In the Bankruptcy Court for the Northern District of California we have three different standing Chapter 13 Trustees.

1. Failure to Pay or Failure to Timely Pay the Monthly Chapter 13 Plan Payment

This is the single most common reason a Chapter 13 case is dismissed. The reason is not because creditors will stop getting paid through the Chapter 13 plan when the debtor stops making the plan payments. Some bankruptcy attorneys will say the reason a motion to dismiss the case is filed is because the confirmed chapter 13 plan is violated when a debtor stops making the plan payments. While this is true, the real world reason is the Chapter 13 trustee gets a percentage of the monthly Chapter 13 plan payment to administer the Chapter 13 bankruptcy estate. Chapter 13 trustees cannot continue to administer cases they are not getting paid for. A Chapter 13 trustee could in theory go bankrupt themselves if they operate like that. Really there are many issues surrounding failure to make the monthly Chapter 13 plan payment any of the foregoing reasons are valid. At any point in the three to five year Chapter 13 plans if the monthly chapter 13 plan payments are not paid to the Chapter 13 trustee can file a motion to seek dismissal of the case. Some trustees are more aggressive than others and different offices handle nonpayment quite differently. Some Chapter 13 trustees will send a letter informing the chapter 13 debtor the amount not paid and when it must be paid by or a motion to dismiss the case will be filed. Others go straight to filing a motion to dismiss the case and set it for hearing. There is no mercy at all. Either pay or the case will be dismissed.

2. Failure to Confirm a Chapter 13 Plan of Reorganization

The requirements to confirm or approve a Chapter 13 Plan of reorganization are set forth in 11 U.S.C. Section 1325(a) and there are many requirements. Almost all jurisdictions use some version of a model chapter 13 plan that helps meet the requirements for confirmation or approval of the plan of reorganization by the court. Unfortunately model plans also hurt debtors in limiting their options to reorganize their debts. It cuts both ways. The goal is to try and make the reorganization more streamlined and less work for the court. Objections to confirmation of the chapter 13 plan are routinely filed by the chapter 13 trustee or secured creditors. Rarely do creditors holding general unsecured claims do anything in chapter 13 cases. Why? It is not worth their time or money to do anything but file a proof of claim and be done with it. For secured creditors or creditors with priority unsecured debts the law is different. Depending upon the circumstances secured creditors and creditors with priority unsecured debts will mostly be paid through the Chapter 13 plan of reorganization and the debt owed to them could be reorganized or changed for the benefit of the bankruptcy filer. Chapter 13 trustees also have to file objections to confirmation given they are the gatekeeper making sure the requirements for confirmation, as they determine, are met. In almost all circumstances if the Chapter 13 trustee recommends a Chapter 13 plan be confirmed the court will confirm the plan. It is when the objections to confirmation are not resolved or withdrawn a debtor and their bankruptcy attorney can run into problems and the case could be dismissed for undue delay in confirming or resolving the objections to confirmation. At some point a hearing will have to be held regarding confirmation of the Chapter 13 plan and the judged assigned to the case can weigh in on what should happen. If there is an issue that requires additional evidence to make a determination an evidentiary hearing or mini-trial will have to be conducted. If the court denies confirmation the debtor will usually be given additional time to amend the plan or the case will be converted to Chapter 7 or involuntarily dismissed.

3. Bad Faith of the Bankruptcy Filer is Case for Involuntary Dismissal

11 U.S.C. Section 1307(c) allows for the dismissal of a Chapter 13 case for cause on a finding of bad faith based upon the totality of the circumstances. Leavitt v. Soto (In re Leavitt), 171 F.3d 1219, 1222-23 (9th Cir. 1999). There are four factors to take into consideration: (1) whether the debtor misrepresented facts in his; petition or plan, unfairly manipulated the Code, or otherwise filed his petition or plan in an inequitable manner; (2) the debtor’s history of filings and dismissals; (3) whether the debtor intended to defeat state court litigation; and (4) whether egregious behavior is present. There is a lot of gray in these factors when determining whether a Chapter 13 case was filed in bad faith.

4. Sua Sponte Dismissal of a Chapter 13 Case

This is extremely rare but possible. Sua Sponte means the court on its own accord chooses to dismiss the Chapter 13 case given the court made the determination the case is not proper. Section 105(a) explicitly provides the bankruptcy court with this authority. In relevant part, § 105(a) states: “No provision of this title providing for the raising of an issue by a party in interest shall be construed to preclude the court from, sua sponte, taking any action or making any determination necessary or appropriate to enforce or implement court orders or rules, or to prevent an abuse of process.” See also Tennant v. Rojas (In re Tennant), 318 B.R. 860, 869 (9th Cir. BAP 2004) (holding that bankruptcy court may sua sponte dismiss a chapter 13 case under §§ 1307 and 105(a)).

How Can 1,000 Percent Interest Be Legal?

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Interest rates are capturing my attention more and more these days. One human being pays less than 3 percent interest to borrow money while another human being agrees to pay 1,000 percent interest. Loan sharking is perfectly legal again. Just look at payday loans, cash advances and the title loan lending industries. They are horribly expensive to borrow money from and I can tell you for a fact they will violate the Fair Debt Collections Practices Act when trying to collect for nonpayment. Our government is asleep at the wheel on this issue. Why are we allowing people to be charged unconscionably high interest rates to borrow money that were intended to be illegal? Society as a whole deemed charging such high interest rates bad for society and passed usury laws to limit how much interest can be charged. The theory is that those in financial stress need to be protected from themselves to a certain extent. They may not be thinking clearly given the stress they are under which makes them ripe to be taken advantage of. Unfortunately there are exceptions to exceptions in most states that allow this horrible interest rates.

What A 132 Percent Interest Loan Looks Like Other Than Just Horrible

The 132 percent interest loan was the result of a title loan. The borrower turns over to the lender their pink slip to their vehicle and the borrower is given a loan with the vehicle as collateral. This is a non-purchase money security interest loan for those keeping score out there that know what a PMSI loan is. If not, please Google “purchase money security interest” to find out why PMSI is a good thing for you and your finances, especially if you own real property (house or land) in California. Given the loan is secured by collateral you would think the loan is not a high risk loan and the interest rate would be reasonable. The 132 percent interest says otherwise though. So this 132 percent interest loan was for the principal balance of $18,000 and a term of three years or 36 months. The collateral was a vehicle worth good money still, a Toyota Sequoia. In addition to the 132 percent interest there was a prepaid finance charge to be paid upfront of $1,800. So this person actually only borrowed $16,200 since they had to pay $1,800 upfront. The kicker is they are paying interest on the full $18,000. Horrible.

The monthly loan payment is $2,046.19. What? That is a mortgage payment not a vehicle loan payment. Each year the borrower will pay $24,554.28 to the lender for the original borrowed $16,200. The total amount due on the loan if each payment were made during the three years is $73,662.84. I have no idea why the borrower needed $16,200 so bad they were willing to pay it back 4 times over and I did not ask. All I know is this loan should be illegal.

California Law And Title Loans

California is considered a loophole state. This borrower would end up paying back the original $16,200 borrowed 4 times over. This is criminal and illegal right? Wrong. There are limits or caps on interest for title loans in California for loans of $2,500 or less. So what do title loan lenders do in California? They only do title loans in amounts above $2,500 so that the California Usury Laws do not apply. Nice. So when the title loan company employee wants you to add $500 to your title loan to bring the amount borrowed over $2,500 it is to allow the title loan company to charge you a higher interest rate. They are not looking out for your best interest.

The 132 Percent Loan Is Not Much Different Than Carrying A Balance On A Credit Card

Almost every one of our clients expresses some sort of guilt at some point in the process of filing for bankruptcy protection. Most of the time there is absolutely no reason to feel guilty. There is actually no loss of money by those discharged in the bankruptcy case. How you can that be you ask? If someone is discharging $30,000 in debts then someone or a company out there lost money. Nope. Wrong. Not a true. Most of our clients have been making payments for years and years before there is a problem or seek bankruptcy protection to legally discharge their debts. All that interest accrues and gets paid. So the principal borrowed gets paid back and what is left to pay is the ongoing interest fees from carrying a balance on the card each month. For example let us say you purchased a TV at Costco, a 60’ Samsung for $2,500 on your Discover Card with an interest rate of 20%. To pay off the debt in 12 months you would have to make a minimum payment of $232 a month for 12 months, total payments of $2,784. The credit card company only gets $284 in profits. A more likely scenario is repayment will take three years or more. If the balance of $2,500 with 20% in paid off in 48 months or four years the monthly payment will be around $77 a month, total payments of $3,696. There is about $1,196 in interest profit to be made and the principal amount borrowed? It was paid off on month 32. So if this person retains a bankruptcy attorney and files for bankruptcy protection after 32 months or more of making payments Discover Card will only have lost gross profits from an interest rate that used to be illegal.

The Good News Is There Is Another Loophole To Help Title Loan Borrowers

This is kind of good news. That bad news is the loophole is in filing a Chapter 13 bankruptcy case. When reorganizing debts in Chapter 13 bankruptcy lawyers can have their clients only payback the fair market value of the vehicle collateral. Not what is owed according to the loan terms. So in the example above if the borrowers Toyota Sequoia is only worth $12,000 in the real world that is what the borrower will pay at around 4.75% interest. So not only can we reduce the principal amount owed, but we can reduce the percentage rate too. Filing Chapter 13 would allow the borrower in our example to pay back the loan and get the pink slip back at $210 a month for 60 months, the length of the Chapter 13 Plan. What a massive savings and the lender actually loses nothing. The lender just loses the gross profits resulting from what should be an illegal interest rate to begin with.

Will I Get My Chapter 13 Plan Payments Back If My Case Is Dismissed Before Being Confirmed or Approved?

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There are many reasons why a Chapter 13 bankruptcy case would be dismissed. But what happens after the case is dismissed before the Chapter 13 plan is confirmed or approved? One of the most common questions is what happens to the Chapter 13 Plan payments I made to the Chapter 13 trustee’s office? What about my car payment or other people I owe money to after the case is dismissed?

Chapter 13 Trustee Payments

This is probably the most common question because everyone wants to get the money back they paid into the Chapter 13 plan when the case is dismissed. The money you get back depends upon how many months ago the case was filed and the language of the plan and what is going on in your case. If you have provided for pre-confirmation adequate protection payments to a creditor like a car loan company then those payments plus the Chapter 13 trustee percentage will be subtracted from the amount you get back. Some Chapter 13 plans include a provision that your bankruptcy lawyer will receive some of their attorney fees in the event the case is dismissed. So you may have to subtract all or a portion of your bankruptcy attorney fees from the amount you will get back. This same respect of course was not given to attorneys for debtors. In Chapter 13 cases, rarely at the fault of the attorney for the debtor, the Chapter 13 Plan is not confirmed and the case is dismissed.

Also, as of October 1, 2012, a Chapter 13 trustee is allowed to take a percentage of the Chapter 13 plan payments they return to you for their administrative costs. This is how the Chapter 13 trustee’s office gets paid. They get a percentage of the Chapter 13 plan payments they receive and then pay out to creditors (creditors have to file a valid claim pursuant to FRBP 3001). They used to only be allowed to take their percentage on pre-confirmation adequate protection payment and disbursements of funds after the chapter 13 plan was confirmed or approved. The United States Trustee, a part of the Department of Justice, in August 2012 decided it was okay for the trustee’s to also take their percentage from the amount refunded to people who file for bankruptcy in the event the case is dismissed.

What About The Attorney For The Debtor? How Do They Make Out Upon Pre-Confirmation Dismissal?

Does the attorney for the debtor get paid for all of their time upon dismissal of the Chapter 13 case pre-confirmation? Nope. The debtor’s attorney gets what they received as a retainer prior to the Chapter 13 case being filed. Then if you try and actually get paid for your time you run the risk of getting sued or a one-star review of Yelp for just seeking payment for the actual and necessary time and expenses expended for the benefit of the client.

How much is that? It depends. What happens though is the longer the Chapter 13 case is pending the more time and money the bankruptcy attorney has to expend to keep the case going and get the relief the client is seeking. This causes a horrible conflict of interest created by the compensation rules as they stand right now in the Northern District of California and other districts and Chapter 13 cases. Each and every client is indebted to me post-petition very quickly. Most of my time is front loaded and that is the correct way to properly represent debtors. If you do not go down every road to see if the bridge is out good luck after the case is filed figuring it out in a timely and efficient manner. Bankruptcy is an area of the law that you better have your ducks in a row before filing. So I will spend at least 2-3 hours before the petition is even started to be drafted to make sure we can be successful in reorganizing our client’s debts in Chapter 13. The meeting of the creditors comes around about 30 days after the petition for bankruptcy is filed. I now have around $200 – $300 in real paid expenses and anywhere from 10 – 15 hours into the case upon conclusion of the 341 meeting of creditors. At $350 an hour that is from $3,500 – $5,250 in attorneys fees and expenses expended for the benefit of the client. This is in a case that does not have any issues to address or argue about. If actually have to advocate on behalf of my client because a creditor or trustee’s office is not following the law or interpreting it differently look out. I am now into the case for anywhere from $5,250 to $15,000 [to get this money I have to file a application for approval of my fees and costs with a hearing; that is an additional $2,000 I have to spend just to get the time and expenses I have already spent approved] for fulfilling my obligation to my client regardless of the likelihood of being paid for my time. This is about as benign a way for me to describe these circumstances to you given I am in the boat. I also am poor so I have no real voice or choice in this. I think my largest problem with this I know that in the real world circumstances like this COULD never happen. On the street this COULD never happen. On street you instant personal liability for your choices. I am not condoning violence or vigilante justice. All I am saying is the world has a way of checking you in the natural course of things, some may call it “instant karma,” if you run afoul of another human being. But that is not how most things work today. The cannons or natural law that governed human interaction for thousands of years has been thrown out the window for a system that creates inequities between humans for financial gain. Corporations and a government that can do things and make decisions and have ABSOLUTELY no risk of going to jail for it or losing everything they have worked for their entire life. I put everything on the line each and every day I do business as an attorney. I am always personally responsible by operation of law. I live and work in the community I practice law in. Anyone can walk into my office and tell me what is up from down if they feel it is necessary. That is not how the government or corporations (directors and officers of corporation) have to face with their decisions. Hell, corporations just crunch the numbers and determine if dealing with the death and destruction they are going to cause makes more money than paying the insurance claim or setting up a fund to compensate the victims. Time and time again it seems the human cost can be dealt with and the corporation can still turn a profit so the stock market continues to go up and up. The government at this point is not much different in their decision making it seems. I digress . . . . . . .

At this point maybe the Chapter 13 Plan is confirmed and or possibly not. I can say the only reason our firm does not get a Chapter 13 Plan confirmed is because our client unfortunately cannot or chooses to not do what they are instructed to do to be successful in reorganizing their debts. It is never any fault or lack of effort on our part. We just left holding the bag time and time again. I give free consultations and lose anywhere from $5,000 – $30,000 every year over this issue. If that fair? At some point the powers at be decided the Chapter 13 Trustee’s office should not have to work for free if a case is dismissed pre-confirmation. Somehow that same respect is not given to bankruptcy attorneys. Instead the enforcement of the rules of bankruptcy attorney compensation create a conflict of interest with our clients almost instantly that no one seems to care to change. How sad. So I choose to work for free to uphold my obligation to my clients and the law as their bankruptcy attorney despite the issues discussed above.

Car Loan Payments

This issue was briefly mentioned above regarding pre-confirmation adequate protection payments. Some Chapter 13 trustees will require, or you might be able to cramdown (pay less than what you owe on the loan at the time your case is filed), that your car loan payments be paid inside the Chapter 13 plan. This means instead of making your car payment directly to the car loan company the payment will be made as part of the monthly chapter 13 plan payment to the trustee’s office. If the chapter 13 plan calls for paying pre-confirmation adequate protection payments then the car loan company will receive a car loan payment each month and there will not be a huge amount to catch up on once the case is dismissed. You will have to deduct the payments made to your car loan company if the case is dismissed. What if there are no pre-confirmation adequate protection payments being made? Under this circumstance your car loan company will not have received any payments on the car loan for however many months you were in the bankruptcy case and the chapter 13 plan was not confirmed or approved by the bankruptcy court. If you were in the case for 10 months before it was dismissed and the monthly car loan payment prior to filing bankruptcy was $250, then you will be behind $2,500 in car payments once the case is dismissed.