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24

Aug 2019

New Law Helps Disabled Veterans in Chapter 13 Plans

Posted by / in Chapter 13, Weekly Posts /

New Law Helps Disabled Veterans in Chapter 13 Plans

Disabled veterans facing bankruptcy, got a big boost yesterday when the HAVEN Act became law.

Disabled veterans get a break under Chapter 13 of the bankruptcy law

Disabled veterans get a break under Chapter 13 of the bankruptcy law

From now on, disabled veterans can’t be forced to use their veterans disability payment to fund debt repayment plans.  Here in Northern Virginia, there are many disabled veterans, who are also working. Those veteran families had been considered high income and forced into very high payment plans under bankruptcy Chapter 13. 

Now the bankruptcy court is not allowed to consider the disability pay, in calculating what these veterans can “afford” to pay their creditors.

Senator Tammy Baldwin was the chief sponsor of this bill in the US Senate.   

(I was one of the members of NACBA who lobbied for this bill on Capitol Hill earlier this year.)

I participated in a class on this new law, September 5, 2019, and kept some notes.

Here’s some detail that shows exactly what benefits are covered. 5 HAVEN Act TPM Addendum 6 Haven_Act_Faqs From USTP   And where to go to find out what benefits exactly are being HAVEN Ebenefits Mypay.

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05

Aug 2018

How a cheap car payment can help you on the bankruptcy means test.

Posted by / in Before Bankruptcy, Chapter 13 /

How a cheap car payment can help you on the bankruptcy means test.

The 2005 Bankruptcy law, known BAPCPA or sometimes BARF, was designed to make bankruptcy much more painful for families making over the average income in each state.  For Virginia, in the summer of 2018, that’s $103,549 for a family of 4. Or $111,949 for a family of five. 

Bankruptcy means test applies to families of 5 over $111,949

Bankruptcy means test applies to families of 5 over $111,949

The bankruptcy means test determines whether families making over that average income can be approved for Chapter 7 anyway.  And if not eligible, how much they have to pay for five years in Chapter 13.

The bankruptcy means test formula is arbitrary.  It was designed to be arbitrary. Congress, and the credit card companies, thought that bankruptcy judges were too easy.

Most families around here, making too much to get approved for Chapter 7, end up failing at Chapter 13. Without careful Chapter 13 planning, the bankruptcy means test will put you into a Chapter 13 plan that you are not able to afford for five years.

Here’s one example where careful Chapter 13 planning can make all the difference. 

John and Tanya is live Woodbridge in a house they own with two children.  John is stationed at Joint Base Andrews; Tanya is home with the kids, one child needing special attention.

Trying to handle the debts, they have gotten by as a one car family, and John’s car now has 110,000 file on it.  

If John and Tanya go into Chapter 13 now, they get a budget allowance of $497 for the car payment (regardless of what the payment really is) and $221 for gasoline, car repair and car insurance.  It will be impossible for John to hold his car operating expenses, gas, repairs, insurance, below $221 for five years on a car that already has 110,000 miles.

John and Tonya  talk to me before their credit is totally shot. So I can point out to them that they are much more likley to survive Chapter 13 for five years, if they go out and get a low payment second car now.

Tanya buys a brand new Nissan Versa, sale price $13,500, at 4.5% for five years. Her payment is $227.00 monthly.  That $227 payment counts as $497 on the means test.  That frees up for the family budget $270 a month. (That’s $497 means test ownership allowance, minus the $227 actual payment.) That $270.00 can go to pay things like sports for the kids, which the bankruptcy means test budget does not allow.

And they get a second $221 monthly for operating expenses.  John drives the new Nissan Versa to work, and Tanya takes the older car for errands around town. They can hold their gasoline, repair and insurance below the new total operating allowance of $442.

(I should note here that it would be illegal for me to tell John and Tonya to go out and finance a car.  But it was legal for me to tell them that it’s legal for them to do it.)

People say that bankruptcy should be a last resort. But you don’t want it to be a last minute, last resort.  Careful Chapter 13 planning is very important for getting the best result.

 

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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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NORTHERN VIRGINIA BANKRUPTCY LAW OFFICES