Chapter 13 in Virginia–A New Nightmare
The Bankruptcy Judge in Norfolk just made chapter 13 in Virginia even more dangerous. And last night one bankruptcy judge in Alexandria hinted that he agrees.
The issue came up the the case of In re Marlene Evans. Ms Evans made her bankruptcy payments to the Chapter 13 Trustee for five years. According to her plan, she had paid about $4500 toward $23,000 in debts, and the rest of it was supposed to be discharged–gone.
Not so fast, said the Chapter 13 Trustee, Clint Stackhouse. The Trustee said, you paid me, but you are behind with your mortgage payments. And sure enough, Ms Evans admitted she was about ten months behind on the mortgage.
That means, argued the Chapter 13 Trustee, you didn’t keep all your promises–you paid me, but not the mortgage. And you promised to do both.
The Judge, Stephen St John, agreed. Even though she had paid what she promised toward the $23,000–mostly credit cards, personal loans and payday loans–they are allowed to start chasing her again, when the bankruptcy was over. Why, because she fell behind with the mortgage payments.
This doesn’t seem fair.
It doesn’t seem fair. Ms Evans paid what the credit cards were promised–why does she have to pay them again? Since she admits she’s behind on the mortgage–well, everybody has always agreed that the mortgage company can come after her for that. And if she can’t work it out, she’ll lose her house. But why do the credit cards get to hide behind the mortgage company?
And it happens a lot in Chapter 13
People often finish Chapter 13 a few months behind on their mortgage. That’s because Chapter 13 budgets are very tight. In Northern Virginia, where the cost of living is real high, they are very, very tight. So after four years of the Chapter 13 trustee draining every available cent from your budget, towards the end, you may need a $2500 car repair. And skipping the last couple mortgage payments seems like the only way to do that. Figuring when the Chapter 13 payment is done, then there’s money to catch up the mortgage.
That strategy is now officially a disaster, at least in Tidewater, and maybe in all of Virginia.
The Judges in Alexandria
Last night was the annual dinner of the Bankruptcy Judges and the bankruptcy lawyers. The Judges got to talk for an hour, and Judge Robert Mayer brought this up. He didn’t say he agreed (Judges are supposed to tell you what they think–except when you are in court in front of them.) But he did say that “most courts around the country” that have decide this, have all decided the same way.
UPDATE: Ms Evans Loses Her Appeal
A US District Court Judge in Norfolk, today on January 13, 2017, agreed with the bankruptcy judge. (You can read it here. Evans v Stackhouse.) It’s now the law in Virginia. If you finish your Chapter 13, and pay the credit cards all your promised, but fell behind on your mortgage, your bankrutpcy is tossed out. The credit cards are allowed to start chasing you all over again.
What’s the lesson? Avoid Chapter 13
Here are some disadvantages of Chapter 13, compared to Chapter 7.
1. If your income increases after you start paying, the Chapter 13 trustee will want more.
2. If you inherit money while you are in Chapter 13, that money goes to the Chapter 13 trustee.
3. In many cases, the bankruptcy trustee takes your refund.
4. It’s worse on your credit than Chapter 7.
5. Less than half of Chapter 13 filings succeed.
6. And now, you can complete your payments and still not get a discharge, if you slip behind on your mortgage payments.
If there’s any way, you want to avoid Chapter 13.
Hank Hildebrand, Chapter 13 Trustee in the Middle District of Tennessee, and one of the nation’s most frequent speakers on Chapter 13 issues describes Chapter 13 as a “complex, expensive and unproductive system.”
One more darn thing.
Just had a ruling from the 11th Circuit. Suppose during the Chapter 13, you are injured in a car accident. If you go ahead and sue for your injury, without first telling the bankruptcy court, you forfeit your right to sue for that injury.
Chapter 13 is Anti-family
Client, two years into Chapter 13, asked me today if getting married will affect his Chapter 13 plan. Well, it might. If the spouse is working, too, the trustee can claim that the increased family income is a substantial, unforeseen change, and ask that the payments be increase.
The members of Congress of the Judiciary Committee, who care about family values, could support a change in the law that blocks the trustee from arguing that.