Expert: Terry Leeders - 5/19/2008

Question
QUESTION: Divorced April 2007 after 23 years. I receive permanant alimony. I pay child support. Ex has possession of house & responsible for mortgages and upkeep, ordered to sell house. Joint 1st & 2nd mortgages.
Ex filed for Chapter 7 Dec 2007. US Trustee motioned to dismiss & Final Hearing set for July 2008. Ex sent notice of conversion to Chapter 13 May 2008.
Ex fell behind in mortgage payments. Because I bank at the institution that holds the 2nd mortgage all my assets were frozen May 5, 2008 and I had to pay deliquent mortgage payments to access my assets. Ex 3 months behind on 1st mortgage.
Here are the questions I have and perhaps you might provide answers to some questions that I am to naïve to ask:

QUESTION #1

Is the effective date of the Chapter 13 proceeding the date of the Chapter 7 filing (December 17, 2007), or the date of the Notice (May 14, 2008)?



QUESTION #2

At a Rule to Show Cause hearing, Jeff, my ex, was order to pay me $3,500 back alimony by May 19, 2008. The period of non-payment of alimony was January 15 – March 15, 2008. Is Jeff still obligated to pay this by May 19th or will the payment be included as a debt under Chapter 13 and be spaced out over 3 to 5 years?



QUESTION #3

I understand that Chapter 13 stops or prevents a foreclosure, and I suspect that is one of the reasons that Jeff desired a conversion. If the Family Court decides to give me possession of the marital home and the responsibility to pay the mortgages, would the chapter 13 conversion disallow this?



QUESTION #4

From researching Chapter 13 on the internet, I learned that failure to comply with the payment plan approved by the Bankruptcy Court would force the Chapter 13 in to a Chapter 7 bankruptcy. I believe that one of the reasons that Jeff desires a conversion is because the U.S. Trustee motioned to dismiss his Chapter 7 for totality of the case and because a Chapter 13 Bankruptcy cannot be sought if a Chapter 7 Bankruptcy was dismissed, his conversion is pre-emptive. In this case, does the motion to dismiss preclude a conversion from Chapter 13 to Chapter 7 for failure to comply with the payment plan of the Chapter 13?



QUESTION #5

If the answer to QUESTION #4 is no, would the US Trustee have to determine to motion to dismiss Chapter 7 Bankruptcy on the merits of the case that exist at the time of failure to comply with the payment plan?



ANSWER: 1. The date of the intial filing is the effective date of the bankruptcy.
2. Child support arrears are paid as a top priority in the chapter 13, so you will, unfortunately have to wait for the trustee to disburse the funds.  They must be paid at 100% of the allowed claim.  This does not affect the current support payments that may be due, and if they are in default, you can modify the automatic stay to then bring state court action thru your divorce attorney to collect on the current support, if that falls behind.
3.  The chapter 13 plan will control as to how the mortgage will be paid.  It may cure the loan over a 5 year period.  If you are awarded the asset, you may want to refinance it as soon as possible to take control of the mortgage directly.  Then, the funds he pays in the chapter 13 will go to the other creditors per the plan.
4.  Incorrect. Failure to make plan payments will result in a trustee motion to dismiss the case.  I've only seen a few cases, at least in IL, where the trustee would force the case back to chapter 7.  Now, the debtor can bring a motion to convert back, but that would be up to the court, since they normally don't allow a debtor to jump back and forth between chapters more than once in a case without the judge allowing it on motion.
5.  See answer to #4.

---------- FOLLOW-UP ----------

QUESTION: The non-payment of alimony and the court order to pay deliquent alimony occured after the filing of chapter 7 bankruptcy (December 17, 2007) but before the notice of conversion to Chapter 13 (May 14, 2008). Am I correct in believing that it would not be included in the Chapter 13 plan?

Answer
You should have received notice. if the debtor fell behind after the case was filed, you should bring a motion to modify the automatic stay, so that you can pursue your state collection rights thru divorce court.  If a debt is incurred post-filing, then it shouldn't be in the case.