Understand the complexities and nuances of the Bankruptcy Code to better advise clients and prepare for court.
By Diane Davis
Aug. 12 — A couple in their seventies who no longer work and have significant health problems can, in good faith, file a “fee-only” Chapter 13 plan that pays their attorney's fees and expenses along with a small dividend to their unsecured creditors over 36 months, a bankruptcy court in Kansas held ( In re Moore, 2016 BL 256036, Bankr. D. Kan., No. 15-12254, 8/5/16 ).
Judge Robert E. Nugent of the U.S. Bankruptcy Court for the District of Kansas confirmed Doyl and Trudy's Chapter 13 plan over trustee Laurie B. Williams's objection, concluding that their plan isn't “an abuse of the provisions, purpose or spirit of Chapter 13.”
Only the First, Fifth, and Eleventh Circuits have addressed fee-only Chapter 13 cases and have concluded that there is no per se rule in the Bankruptcy Code prohibiting this practice, the court said.
The Tenth Circuit hasn't directly addressed the issue, but there have been several similar cases in this district in which the court has confirmed the debtor's Chapter 13 plan, the court said.
When the debtors filed their Chapter 13 case, they had about $2,100 in the bank, and were living off of their Social Security income of $3,461 per month, which is fully exempt and expressly excluded from the disposable income calculation under the Bankruptcy Code. The debtors also support Mrs. Moore's adult daughter who was injured in a car accident and lives with them.
The debtors have 13 year-old cars, owe $93,000 on their mortgage, which is exempt, and have more than $50,000 in credit card debt. They are “judgment proof,” the court said.
Their expenses total $2,728 a month, but the court found the debtors had underestimated their expenses.
The debtors would have filed a Chapter 7, but their attorney wanted $2,000 plus a filing fee deposit, payable in advance. Due to their impending obligations, the debtors wanted to hold onto their meager savings and file a Chapter 13 instead, paying their attorney $3,000, plus a cost deposit, over the life of the Chapter 13 plan. Under their proposed plan, the debtor would make monthly payments of $125 to pay their attorney's $3,350 fee plus the filing fee of $310, and leave $360 for Chapter 13 fees, and $480 for unsecured creditors.
In Chapter 7 bankruptcy, a debtor's nonexempt assets are liquidated by a trustee, and the proceeds are distributed to creditors. In Chapter 13, however, individuals receiving regular income can obtain debt relief while retaining their property, but to do so, the debtor must propose a plan that uses future income to repay all or a portion of his debts over a three to five year period.
The trustee argued that the debtors didn't file the Chapter 13 petition in good faith because they are qualified for Chapter 7 relief.
The court looked at the totality of the circumstances, and the most relevant factors under Flygare v. Boulden, 709 F.2d 1344 (1983): whether there are special circumstances, whether this plan will place an administrative burden on the trustee, and whether the debtors have the requisite “motivation and sincerity.”
The debtor's plan passes all three tests, the court concluded. The debtors have offered to pay more than they are obliged to over the applicable commitment period, the court said.
Rick E. Hodge, Jr., Rick Hodge, Attorney At Law, L.C., Wichita, Kan., represented debtors Doyl Eugene Moore and Trudy Lynne Moore; Chapter 13 Trustee Laurie B. Williams.
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