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2013 saw several major judicial shifts affecting bankruptcy law, and one decision by the Ninth Circuit Court of Appeals affects how Chapter 13 bankruptcy plans are proposed and confirmed in profound ways. In August of this year, the Ninth Circuit published the decision In re Flores, taking away significant flexibility from debtors in Chapter 13 when proposing the length of their Chapter 13 payment plans. The issue before the court was pretty technical and wonky, so bear with me because its effects on debtors and creditors are profound, and I believe, profoundly negative.
It all hinges on the requirements contained in the Bankruptcy Code for a Chapter 13 plan proposed by the debtor to be confirmed by the bankruptcy court. Section 1325(b)(4) defines the “applicable commitment period” for a Chapter 13 plan, which is either (a) three years if the debtor’s annual income is less than the median annual family income for the debtor’s state, or (b) “not less than” five years if the debtor’s income is greater than his or her state’s median, or (c) less than three or five, but only if the plan proposed would pay 100% of the debtor’s unsecured debts.
That’s all fine and good. The “commitment period,” for a Chapter 13 payment plan is either three or five years depending on whether the Chapter 13 debtor’s annual income is below or above the median income for a family of the same size for his or her state. That’s what the Bankruptcy Code says, and that wasn’t in dispute in the case.  The issue was whether this code section should be interpreted to strictly mean a “temporal” requirement for the actual length of the payment plan, or whether it wouldn’t make more sense for everyone—debtors and creditors alike—to interpret “applicable commitment period” as the measure for how much the debtor in a Chapter 13 must pay. In other words, if the above-median debtor must commit all her “projected disposable income” to pay to her unsecured creditors calculated over a five year, or sixty month period, then why couldn’t that debtor pay the same amount over a shorter time period? As long as the creditors are getting the same amount, who is harmed, exactly, by the debtor proposing to pay that amount in four years? Or four? Or two and a half, for that matter?
Prior to the In re Flores case, the Ninth Circuit had previously held in In re Kagenveama, that if the Chapter 13 debtor had no projected disposable income under the Means Test, then the bankruptcy code does not impose any minimum plan duration for a Chapter 13 bankruptcy. In discussing the differing approaches by the different appeals court circuits, the Ninth Circuit noted that some of the circuits have interpreted the applicable commitment period for a Chapter 13 to be merely a “monetary multiplier” meaning that essentially as long as an above-median debtor pays as much as he would pay over sixty months, then he should be allowed to pay that amount over a shorter period.  And, further, even if the above-median debtor has projected disposable income, it is the amount paid, not the temporal length of the Chapter 13 payment plan that should matter. This approach makes sense for both debtors and creditors alike.
After all, doesn’t it stand to reason that a creditor in Chapter 13 would prefer to be paid sooner rather than later provided that she is going to be paid the same total amount? As time stretches on in a Chapter 13 plan, the likelihood that some intervening factor like job loss increases that can result in the debtor’s failure to complete the plan.  That puts general unsecured creditors back in the position of having to try to collect on the debt outside of bankruptcy, and in many cases, if the reason for the plan failure is a decrease in income, then the likelihood that the debtor could simply move to convert the case to a Chapter 7 bankruptcy and discharge all the remaining unsecured debt is likewise increased.
The reasoning applied by the Ninth Circuit to impose a rigid temporal requirement for the length of a Chapter 13 rather than the more sensible approach of allowing the plan to be of any length provided that the above-median debtor with disposable income to pay the same amount over a shorter period violates the principle that “a bird in the hand is better than two in the bush.” It doesn’t advance the interests of creditors, and it is certainly bad for debtors.

If you are a cosigner on the debt, then you and the other debtor are technically joint and severally liable for that debt.  One common form of debt that’s jointly owned is that for a vehicle.  If somebody else filed a Chapter 13 bankruptcy on it vehicle that you cosign, you may be protected under+ Read MoreThe post How does a Chapter 13 Bankruptcy effect a cosigner? appeared first on David M. Siegel.

I enjoy meeting with my clients to discuss solutions to debt problems.  And over the years I have met some really pleasant and interesting people.  That being said, I hope that when your bankruptcy case is over, I will never see you again – at least for another bankruptcy filing.If you win the lottery and need legal help setting up a charitable foundation or a corporate structure to organize your investments, please call me.   If you know someone who needs to file an injury claim, I can help you there too.  But I really hope that this bankruptcy case will be your last.Here are several suggestions that will absolutely help you avoid the need to file another bankruptcy:

• set up online access to your credit accounts – you will be able to schedule payment reminders, fraud alerts and other control reminders.

• set up automatic payments from your checking account to cover minimum payments – most of the time your minimum payment will be $25 or $35.   When this is paid automatically, you avoid late charges and late payment downgrades to your credit score.

• pay off your entire balance each month – if you find yourself running a balance, this means that you are spending more than you are earning.  This should be a warning sign.   Stop spending until you get your balance down to zero.  Spending more than you earn will lead you back to…..bankruptcy!

• never, ever, ever, ever (apologies to Taylor Swift) co-sign a loan for someone else – nothing good ever arises from co-signing for someone else – your brother, your sister, your kid, your mom.  Just say “no.”

• write out a budget – if you can use a spreadsheet, do so.  When you see your income and expenses in black and white on paper, you will have a much clearer idea where your money goes

• set aside funds for emergencies – you are going to have to replace tires, your kid will break a tooth, you will need to make an emergency plane trip.   Start setting aside $50, $100, or whatever you can in a savings account.  Try to build up 3 or 4 months equivalent to your monthly take home pay.  Forget that this money exists for any purpose other than a true emergency.

• start planning for retirement.  Create an IRA account.  Contribute to your company’s 401(k) or pension.  Besides bankruptcy I represent people in Social Security disability claims and I will advise you not to rely on Social Security to pay for your retirement

There is an old saying that if you fail to plan, you are planning to fail and this is especially true when it comes to personal finances.  The difference between a comfortable and manageable life and a stressful,  unpleasant life can boil down to $200 or $300 per month.  My hope for all of us as we enter 2014 is to live below our means and to prepare for the unexpected.The post I Never Want to See You Again…. appeared first on theBKBlog.

There are plenty of ways to commit fraud when filing for bankruptcy.  Aside from all the ethical reasons to avoid fraud, prison time may be the greatest reason to avoid bankruptcy fraud.  Here is a recent article regarding the same:
Article on Bankruptcy Fraud

Adam Brown is a bankruptcy attorney for Dexter & Dexter, a debt relief agency helping people file for bankruptcy.