It seems that in almost every Chapter 13 case I file, the trustee will file a Motion to Dismiss. As discussed in the FAQ section of this blog (see the link above), your trustee will file a Motion to Dismiss if you fall behind with your payments or if your plan runs longer than 60 months (i.e., a “terms” problem).
Why are so many cases resulting in motions to dismiss and is there anything you and your lawyer can do about this problem?
First, my (unscientific) observations suggest that motions to dismiss are filed in a higher percentage of Chapter 13 cases that was true 10 or 15 years ago. I think that this is the case because under current law, debtor’s attorneys like me have much less leeway when it comes to creating budgets that will work over a five year period.
As you may know the means testing required by the Bankruptcy Code serves qualify a debtor for Chapter 7 or Chapter 13. If the means test budget shows more than $100 of “disposable income,” then Chapter 7 will not fly and Chapter 13 is required.
A lesser known role of the means test, however, is to dictate how much you, as a debtor, must pay back in that Chapter 13.
One of the calculations we run determines the “pool of funds” available for unsecured creditors. Given that the means test calculations often have little semblance to reality, I have seen a number of cases where the means test required my client to pay back $25,000, $50,000 or more. In other words, the means test might require a plan payment of, for example, $650 per month, but the “real life” budget of the debtor may only leave $250 per month as disposable income.
The end result of this quandary is a plan that stretches the debtor almost to the breaking point in terms of his monthly budget. Anyone can survive on a “rice and beans” diet for a month or two, but over a five year plan, such a bare bones budget will not work. Add to this the likelihood that my client will have unexpected expenses like a car or home repair and it is not difficult to understand why delinquencies happen.
I have noted one encouraging sign – some of the attorneys working in the Chapter 13 trustees’ offices have been a little more flexible in negotiating solutions to these problems. For example, in a recent case I was representing a Chapter 13 client whose case is due to pay out within the next year and for a variety of reasons, she had a delinquency that would have required us to double the payment during this next year.
The trustee in this case agreed to not oppose my motion to excuse delinquent plan payments. I filed my motion and scheduled to be heard on the same day as the trustee’s motion to dismiss and the end result was a Consent Order that excused (waived) several thousand dollars of overdue payments, brought the plan current and set my client on a course to pay out her case.
The point here is that attorneys in Chapter 13 case must continue to act creatively and should not be afraid to ask for special considerations that can benefit their clients. Chapter 13 as now configured can result in harsh results, but there seems to be a growing consensus among trustees and bankruptcy judges to take some steps to give debtors a fighting chance.