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28

Jan 2016

Chapter 13 in Virginia–A New Nightmare

Posted by / in Chapter 13, Chapter 13 Bankruptcy, Weekly Posts /

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.

 

Chapter 13 bankrutpcy in Virginia--Tidewater at this court house

The Bankruptcy Judge in Norfolk is in this Federal Courthouse

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.  

 

hank hildebrand chapter 13 trustee

Tennessee Chapter 13 trustee Hank Hildebrand says Chapter is a “complex, expensive, unproductive system.”

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.

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04

Jul 2014

Overtime Charges and the Legal Fee for Chapter 13

Posted by / in Chapter 13 Bankruptcy, Virginia Bankruptcy / No comments yet

What’s the Legal Fee for Chapter 13 in Virginia?

People ask all the time, what’s the legal fee for Chapter 13?

That should be easy, but it’s tough.  Here’s my attempt at a straight answer.

The fee I charge you in chapter 13 is set in two ways.  By agreement between you and me, and by order of  Bankruptcy Judge.  (The Judges here have a general policy they established on August 1, 2014.)

The Judges here, in the Eastern District of Virginia, say I can charge you up to $5000 without asking the Judge for permission.  (That’s $5000 plus the $310 filing fee.)   More that that, I may need permission.  Or I may need special permission.

No, you don’t need $5310 up front!

Much as I’d like to get it all up front, I have some flexibility.  Unless you are really, really poor, I’m going to ask for at least $1810 up front.  That’s the $310 filing fee; and $1500 toward my $5000.

That leaves $3500.  That $3500 gets added to the payment you have to make to the bankruptcy trustee: $97 a month in a three year Chapter 13; $58 in a five year Chapter 13.  (Most Chapter 13’s around here are for five years.)  You can see I’m not in love with that.  Once your Chapter 13 case is filled, I’m not allowed to charge you directly.

So, is the fee always $5000?  No, sometimes it can be less and sometime it can be more.

In a really simple case, I will reduce my fee below the $5000.  If I think your case is going to be extra hard, it will be hourly, instead, with no cap.

Flat Fee cases and Hourly cases

If you and I decide we have an hourly case, then for whatever I charge, I have to ask permission.

If we agree on a flat fee case, I can only charge more if I ask for special permission.  

The things that would cause me to ask for permission or special permission, you can think of as overtime.

Legal fee for Chapter 13 in Virginia

What’s the legal fee for Chapter 13 in Virginia?

What Causes Chapter 13 Legal Fees to go into Overtime?

Projected Disposable Income

Unless you are paying all your debts in full, your Chapter 13 plan is supposed to pay all you can afford.  The legal term for all you can afford is your “projected disposable income.”

There’s a formula in the law on how to calculate your projected disposable income.  And Congress said they were using that formula so everything would be really clear.   Well, application of the formula is not always really clear.

If you have custody of three kids, except for weekends and the summer, are you a family of four?  Or three?  Or two and a half?

If you got your first ever bonus last month, do we have to pay that amount to the court every year: even if you never get a bonus again?

The possibilities are endless.

Unless we agree to pay whatever the Trustee says he wants, we can sometimes get into overtime in the first few months of your case.  If I expect your case will get into overtime the front end about projected disposable income, I’ll start your case as an hourly case.  I’ll need permission from the judge for what I charge you, but I won’t need “special permission.”

Modification–Probably a Flat Fee Case with Special Permission

The 2005 bankruptcy law says you can be required to send your tax forms every year to the Chapter 13 trustee.  It does NOT say what he is supposed to do with them.

Our Chapter 13 trustee knows what he thinks he’s supposed to do.  He’s supposed to see if you’ve gotten a “substantial” raise–and if you have, he’s supposed to take (some of? most of?  all of?) it from you.  Even though that’s not written in the law anywhere, the Judges here seem to agree.

So the Chapter 13 Trustee proposes a modification.  Since it’s nowhere in the law that the trustee is supposed to take more money from you, it’s even more nowhere how much he’s supposed to take.   So you and I battle the Trustee in front of the Judge in a contest with no rules.

If we start our case as a flat fee case, and then the trustee asks for a modification, I’m going to charge more.  My charge will be at my hourly rates.  And I’m going to ask that the “more” I charge will be paid by the trustee from the money you were already paying your debts.    This is covered by the “special permission” rule.

Lost Income–I’ll ask for special permission (and you’ll probably have to pay)

If there’s an interruption in your income, you and I are allowed to propose a modification.

And the trustee will agree–as long as we proposes to skip a few months–and then make it ALL up.  If you can’t make it all up, then he’ll fight us.  Another battle with no rules.

I’ll ask for special permission.  If we win, the judge will probably say YOU need to pay my overtime hours when the chapter 13 case is over.

Fights with Your Mortgage Company–the Judge is gonna say that’s your fault

Five years is a long time, and when an emergency comes up, it’s easy (not smart, but easy) to miss a payment or two on your mortgage.  When that happens, your mortgage company will file a “motion for relief from the automatic stay.”  In other words, they want permission from the Judge to foreclose you.

Obviously, that’s scary

While they are asking for permission to foreclose, what they really want is an agreement to catch up.  That sounds easy, but here’s the problem.  We can’t work out an agreement to catch up until we agree how much you are behind.

That agreement can be hard to come by.  First, they want to tack on their lawyer fees.  That can be a lot.  Second they almost always say you are much further behind than you think you are.  And when we ask for proof, we get a computer print out that’s impossible to make any sense of.

In 2013, we ran up nearly seven thousand dollars in overtime in that kind of fight.  The bank said Darren was six months behind; Darren said it was one month–and caught it up.  FINALLY everybody agreed is had been two months.  Counting their lawyer plus us, the legal fees were more than the four months of payments we were fighting over.

That can happen.

I’ll ask for special permission; and the judge will probably tell you that you have to add my hours to what your payment is.

Your Tax Forms

I told you the 2005 law says your Chapter 13 trustee can ask for your tax forms every year.  Our trustee asks for them.  And you gotta send them in.

I shouldn’t have to remind people more than once, but sometimes we do.  On July 21, this year, the Judge is going to throw out of Chapter 13 everybody who hasn’t yet send in their tax forms.  Unless you have a really good excuse.  “I asked for an extension” is NOT an excuse.  “I was hit by a beer truck and was three months in intensive care”–that’s an excuse.

I still have four people who have not sent in their tax forms–and none of them have the “beer truck” excuse that will save them.    We are now calling and emailing every other day to make that clear.  That’s overtime.

If we are on a flat fee, the judge probalby will NOT give me special permission to charge for that.  He’ll say its my fault that you didn’t know to send in your taxes.  If you are on a hourly fee, then you will end up paying for all the time we spend reminding you to send in your taxes.

How is Overtime Calculated?

To apply for overtime, I have to submit a request to the Bankruptcy Judge.   The Judge approves the time we spent, and the rate we charge.

What's the legal fee for Chapter 13?

The Judges here approve $400 an hour legal fees for bankruptcy lawyers with more than 20 years experience. I’m a bankruptcy lawyer with more than 20 years experience.

I bill $400 an hour for my time.  That’s what the Judges here approve for bankruptcy lawyers with more than twenty years bankruptcy experience.  I’m a bankruptcy lawyer with more than twenty years experience.

For my younger lawyers who work for me, $275.

Lori Rupp, my Chapter 13 specialist paralegal, $200.

Other bankruptcy paralegals, $175.

(My paralegal rates are a little higher that what other lawyers ask for.  The Judges approve them, I think, because our total hours run low.  We’re efficient.)

Who Pays and How?

If we agree on a $5000 flat fee, whatever I don’t get up front is built into the original payment plan we submit to the court.

When we get into a fight with the mortgage company, that usually gets tacked on to what you have to pay.  Even if you were only two months behind and they said it was six, the cost of figuring that out end up being paid by you. (Don’t get behind!)  I’ll need special permission, but you’ll end up paying it.

If there’s a modification raising your payment–we try to get paid out of that increase.  Suppose the trustee wants to increase your payment by $1000 a month.  (OMG!)  And we can get it down to $200.  If my overtime fee is $2000, we try to get that paid out of the extra two hundred, rather than added on top.

Conclusion

Most Chapter 13 plans around here last five years–and five years is a long time.  Things come up.  Some of those things will require additional legal work–overtime–and a lot of that overtime for Chapter 13 will end up getting paid by you.

Sorry.  That’s how that works.

PS  Here are my two fee agreements.  At the inception of your case, we’ll agree on one or the other.

Chapter 13 Flat Fee Agreement

Chapter 13 Hourly Agreement

Here are the disclosures I have to file with the bankruptcy court.

2016(b) – HOURLY

2016(b) – FLAT FEE 

 

 

 

 

PS The Fourth Circuit–the big judges between us in Virginia and the Supreme Court–say there are twelve factors to consider in setting legal fees.

The Johnson factors are as follows: (1) time and labor required, (2) novelty and difficulty of
the issues, (3) skill required to perform the legal services properly, (4) preclusion of other
employment, (5) customary fee, (6) whether the fee is fixed of contingent, (7) time limitations
imposed by the client or the circumstances, (8) amount involved and results obtained, (9)
experience, reputation and ability of the attorneys, (10) undesirability of the case, (11) nature and
length of the professional relationship with the client, and (12) awards in similar cases. Johnson,
488 F.2d at 717–19.

 

 

 

 

 

 

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21

Jun 2014

Chapter 13: Your vehicle operating budget is too small.

Posted by / in Chapter 13, Chapter 13 Bankruptcy, Virginia Bankruptcy / No comments yet

If you are in Chapter 13, the vehicle operating budget you are allowed will be too small.

That’s (almost) a mathematical certainty.   Here’s why.

The census bureau shows–no surprise–that people who are working spend on average double on transportation gasoline and maintenance than people who aren’t.    (For more, see this from the American Association of State Highway and Transportation Officials.)

If you are in chapter 13, you’re working.  Unless you telecommute, you’ve got to get to work and get there everyday.

Your Chapter 13 vehicle operating budget in Northern Virginia is $277 a month, for one car, $544 for two or more.   That amount is figured based on all cars–NOT just on all cars owned by people who have to get to work.  (That budget is in the the bankruptcy means test.  That’s a formula that says how much money you have to pay back on your debts, and what you are allowed to keep to live on.)

For most people the chapter 13 vehicle operating budget is not enough to pay for car repairs.

For most people in Chapter 13, when you get that $700 car repair bill, the money won’t be there.

There are more cars than jobs in America.

There are 250 million passenger vehicles.

There are only about 150 million Americans working or looking for work. )

So there are a hundred million cars in America that are NOT being used to get people to work.

If we recalculated that $277 by whether people work, we’d have $340 monthly for cars that take people to work;  $170 for cars that don’t.

If your car takes you to work, your Chapter 13 transportation budget will be $65 a month short every month.

If your car takes you to work, your Chapter 13 transportation budget will be $65 a month short, every month.  That’s $780 short each year.

To put it differently, if you use a tank and a half of gasoline a week, driving to work (plus whatever else you have to do), you have enough money left for insurance, but NO money for car repairs.

People with short commutes aren’t using a tank and a half.  But for many people in the outer suburbs, that’s low.

Virginia Bankruptcy Lawyer Robert Weed

It cost me $1500 to get my Honda Civic through the safety inspection last month. My service rep said it was time to buy a new car.

A budget with no money for car repairs is ok, if you a driving a new car under warranty.  No money for car repairs is awful, if you’ve got a hundred thousand miles on your car.  And you have to get through a sixty month chapter 13 plan.

Car repairs don’t come on a regular schedule (well, you should change your oil every three months.)  At some point you need new brakes, new tires, a new transmission.  And you will need them now!

Maybe you’ve saved some money, but since the bankruptcy court is taking ALL your “projected disposable income,” saving is tough.

At that point, you’re choices are: skip the rent, stop eating for two months, walk to work.  None of those work every well.

Recently, I proposed a chapter 13 plan, with a higher transportation allowance,  each year of the five years, as the cars got older.  I pointed that the Supreme Court said we should project virtually certain changes in a chapter 13, when calculating how much you had to pay the chapter 13 trustee, and how much you could keep.

I argued that is was “virtually certain” that over five years the cars would get older.  Nope, said Bankruptcy Judge Robert Mayer–the cars will be older but who knows if they need repairs.   (Huh?  I thought everybody knew that.)

If you have to go into Chapter 13, and you have a long commute, how can you avoid certain failure of your chapter 13 plan?  What can you do when your car needs major repairs?

Here are some ideas.

1.  Have four thousand dollars for car repairs already set aside when you go into Chapter 13

2.  Get the boss give you a company car.

3.  Make sure you are driving a new car, with a strong warranty, before you file.

4.  Move closer to work.

5.  Ask the bankruptcy court for permission to buy a brand new car–and then see if someone will finance you while you are still in bankruptcy.  (Alexandria Chapter 13 Trustee Thomas Gorman recently told the Fourth Circuit Court of Appeals that buying a new car in chapter 13 is easy and painless. Brief 5-23-2014   To me, it looks a little harder.)

Here’s my last idea–keep track of all your transportation expenses–gasoline, car repair, insurance, tolls, parking–every year and ask your lawyer to submit them to get a reduction in your Chapter 13 payment.  Each year, here in Alexandria VA, Chapter 13 Trustee Thomas Gorman demands to see your tax returns to see if he can squeeze you for more money.  Maybe you and your lawyer should look at your transportation costs, and annually ask to pay less.

PS  Here’s a good article by Heather McGivern, a Michigan Bankruptcy Lawyer, that talked about this problem in 2011.  She says there are many people who drive to see their bankruptcy lawyer in car that probably won’t last much longer.  And there are many people about to file bankruptcy who need to go out and buy a newer car.  And that some people say your lawyer cannot tell you that.

PPS   I’ve got a hundred thousand miles on my Honda Civic, and it cost me $1500 last month to get it through the safety inspection.  My service rep at the Honda dealer told me it needs new shocks and struts but I should “buy a new car rather than spend any more money on this one.”

 

 

 

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