Creditors and Bankruptcy/1325 b 1 & 2
QUESTION: Could you explain when 1 is used? We filed Chapter 13 and I prposed to my attorney that we pay 100% of our debts. We did surrender our home and if everyone files the proof of claim our payment including trustees fee would be 4975 a month for 57 months, we are above income earners. According to the forms , our disposable income is 5637 a month. I contend that if we Re paying 100% of our unsecured debt we do not need to use all of our disposable income. My attorney said that would not fly with our judge or trustee. With all the Judges orders and opinions I have read it seems it should. If I had only been able to pay 98% of my unsecured debt they would have required me to pay for 60 months. By paying 5700 a month it does get me out of the plan in 48 months but since there are things we may have to pay, our cars are 7-10 years old, and higher medical cost, we could use the extra each month as I fear we may be gong back to the court asking for a reduction in payments or a lower payment for a few months if these things come up. Anyway, I am having a hard time wrapping my head around how a federal law that seems to be straight forward is applied so differently across the country. We filed in Georgia.
There was also talk of having to pay interest on out unsecured debt if we were able to extend the time. I believe it would be okay if the interest was for the.balance left after the 48th month as that is the time that those creditors would be having to wait. I was told that is not how it works and if we wanted to pursue this it would cost 25000 dollars and then it would put us over the a payment we proposed. I hope she was exaggerating,
Thanks for your time.
ANSWER: Dear James:
This is a very good question. I commend you for digging into the books and doing legal research.
The short answer is that a high income individual is required to pay all excess income, (what the law calls "disposable income") for 60 months. If your excess income is $5637, then that will be the amount of your payment. If that payment allows you to pay 100% of your debts in less than 60 months, then that is the way this is going to be.
Of course, I don't know what legal authorities you have looked at. However, there was a major change in the lat effective in October 2005. To understand the law cases, you must look to see if the reported bankruptcy case was filed before, or after, that date. In my opinion, the result would have been different under the old law, and would have been decided in your favor.
I think your problem is a budgetary problem, and the solution to get the payment you want to have will be obtained by massaging your budget. Perhaps your budget does not have an adequate figure for car repairs. Perhaps there are other line items on your budget that can justifiably be increased. Perhaps you can also reduce the amount of disposable income. As an example, perhaps you have not allowed enough money for estimated income tax for the coming year.
It won't take much adjusting to come up with the monthly amount you are trying to reach. Every income deduction and every living expense should be reviewed and recalculated where it is justified.
I hope this works out for you.
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QUESTION: Not really a follow up question, but all caes I researched were post new law. There are cases from 2001 to 2014 from Illinois ,Kentucky and New Hampshire. I am sure there are some that do not support my position but that was the point of the question, why is it that the law is adjudicated so differently throughout the country.
Anyway thanks for your time. By the way if we realize our expenses were mis-calculated can they be amended at anytime is the process as we have already been confirmed.
The New Hampshire case was in re Richall # 11-12767 Chapter 13.
The parties do not dispute the material facts involved in this case. The Debtors filed for chapter 13 bankruptcy on July 19, 2011. They submitted their Plan on December 30, 2011. The Debtors’ Schedules I and J show a monthly net income of $886.42. Additionally, Form B22C provides that the Debtors are “above median” debtors. Accordingly, their disposable income is determined under § 1325(b)(2) and (3). That calculation provides that the Debtors’ monthly disposable income is $1,756.21. In the Plan, the Debtors propose to make monthly plan payments of $835.00 over a term of five months and $855.00 over a term of fifty-five months for a total plan commitment period of sixty months. The Debtors’ proposed plan payments provide for full payment of their unsecured claims; however, the plan payments are substantially lower than the Debtors’ monthly disposable income. If the Debtors proposed a plan that committed their entire monthly disposable income of $1,756.21, that plan would provide for full payment of their unsecured claims over a period of approximately thirty-months or one-half of the term in The plan.
Section 1325(b)(1) provides that:
[i]f the trustee or the holder of an allowed unsecured claim objects to 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 claims 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.
11 U.S.C. § 1325(b)(1). The Trustee objects to confirmation of the Plan and moves to dismiss the case because he believes the Plan should provide for payment of all of the Debtors’ monthly disposable income, or $1,756.21 per month, until the expected allowed claims are paid in full, which will be sooner than stretching payments over sixty months as proposed in the Debtors’ Plan. The Trustee also argues that the Debtors lack good faith under § 1325(a)(3) because they are failing to use their best efforts and failing to protect creditors against the time value of deferring payment of their claims. The Debtors disagree and contend that the Trustee’s view would require debtors to satisfy both § 1325(b)(1)(A) and (B) thereby rendering § 1325(b)(1)(A) superfluous.
After the enactment of BAPCPA, the Bankruptcy Code differentiated the minimum and maximum term for a chapter 13 plan, based on the amount of a debtor’s disposable income, by adding subsections (d)(1) and (d)(2) to § 1322. Thus, in BAPCPA, Congress changed the manner in which the mandatory term of a chapter 13 plan is determined to ensure that debtors who could afford to do so (i.e. debtors with above median disposable income) paid more to their creditors.
In the case of above median debtors, § 1322(d)(1) now proscribes that “the plan may not provide for payment over a period that is longer than 5 years.” 11 U.S.C. § 1322(d)(1). In effect, BAPCPA eliminated any minimum term of a plan for above median debtors. All above median debtors are now subject to a uniform term of five years for a chapter 13 plan with only one exception: the term of the plan, or the commitment period, may be less than five years if creditors are paid in full. 11 U.S.C. § 1325(b)(1)(A) and (b)(4).
Section 1325(b) was substantially changed by BAPCPA to create a bright line test to determine whether a debtor is committing sufficient income to the plan. In re Jones, 374 B.R. 469, 469 (Bankr. D.N.H. 2007). “Section 1325(b)(2) was amended to alter the method of determining a debtor’s income and § 1325(b)(3) was added to require above median debtors to calculate their reasonably necessary expenses using the means test formula in § 707(b)(2)(A) and (B).” Id. Section 1325(b)(1) requires compliance with subsection (A) or (B), but not both. Jones, 374 B.R. at 469. Accordingly, above median debtors now have an election to either pay all of their disposable income for five years, or until creditors are paid in full, § 1325(b)(1)(B), or to pay less than their disposable income over five years, if such lower payments will pay unsecured creditors in full. 11 U.S.C. § 1325(b)(1)(A). The Debtors’ Plan provides for payment of all unsecured claims in full during a five year term through payments of approximately one- half of their disposable income. Thus, the Debtors’ Plan complies with § 1325(b)(1)(A). While the Debtors could pay off their unsecured creditors in a shorter period of time if they contributed all of their monthly disposable income to plan payments, they are not required to do so under the plain unambiguous language of the Bankruptcy Code.
I know that is lengthy but that is the most of all the decisions Nd opinions I read and all were post new law..
If the trustee or a creditor objects to the plan, then the proposal to pay less than your monthly disposable income goes out the window, even when your plan will still pay 100%. I guess that the trustee objected to the lower payment in your case, or perhaps your lawyer knew from experience that the trustee would have objected.
As you have seen, there is a huge diversity across the country in approach and practice. Nothing is for certain, unless the US Supreme Court has ruled on a particular issue. And, the Supremes rarely rule on consumer bk issues.
I get the impression that you plan is not yet confirmed? If so, consider my approach about possible amendments to your schedules of income and expenses.