Bankruptcy and divorce often coincide with one another. The divorcing couple will have to decide if they want to file bankruptcy together or apart. There are pros and cons to either decision. Generally a married couple can file bankruptcy together; however the courts do not care if they are living separately. However both people’s income and assets will be used to determine if either a chapter 7 or chapter 13 bankruptcy can be filed. In addition if the couple files together they will only need to pay one court filing fee and can be represented by the same attorney for one fee. If instead the couple divorces and then files, they each must file their own bankruptcy case with their own attorney. This increases the cost of actually filing for bankruptcy for each individual.   If however you decide to divorce before filing for bankruptcy, the bankruptcy may not be able to be filed for a long time. Divorce proceeding can take time to finish because of division of marital property, such as houses, businesses, or bank accounts. If the divorcing couple has dependent children the issue of child support must be dealt with before the divorce is finalized. Some states allow spousal support or alimony and that legal issue has to be arranged before the divorce is final. Each person will have to file their own bankruptcy case with the court and have separate attorneys to represent them during the bankruptcy proceedings.   Bankruptcy will not discharge certain types of debt. Spousal support, child support, or alimony payments will not be discharged during bankruptcy. Property settlements from the divorce may or may not be dischargeable depending which chapter the bankruptcy case is filed under. Besides of support obligations, other debts incurred by the debtor in the course of a divorce or settlement proceeding might be dischargeable in a chapter 13 bankruptcy case. Even though the divorce decree titles something as support it might not be support in the bankruptcy proceeding and even though the divorce decree does not specify an obligation as support it might be nonetheless non-dischargeable in either chapter. If a non-filing spouse has a claim against the filing ex-spouse, it might be necessary in a chapter 13 bankruptcy case to file a claim with the court if the support payment is being paid by the trustee.   If one person files bankruptcy and includes joint debt, the other ex-spouse is still liable for the debt. This is also true even if the divorce decree or settlement agreement states that the filing spouse is responsible for paying the debt. The responsibility for the filing spouse to the ex-spouse and the creditor might be eliminated in a chapter 13 bankruptcy case. The non-filing spouse would be left with paying the joint debt. However, the non-filing spouse might be able to modify the divorce decree or settlement agreement. For example if both individuals names were on credit cards, mortgage documents, lease agreements, or other types of debts; then creditors can legally demand payment. In some cases during divorce proceedings debts are listed and the person responsible for paying is clarified as part of the divorce decree. 

Should a Debtor Reaffirm a Vehicle When Filing a Chapter 7 Bankruptcy? A Chapter 7 bankruptcy makes a debtor no longer liable under their contracts.  That is why a debtor can surrender a house or vehicle through the bankruptcy with no penalty.  The deficiency will be discharged through the bankruptcy, and the debtor will no longer be responsible for that debt.  The deficiency is the difference between what a debtor owes on a secured debt, such as a vehicle, and what the secured debt is sold for by the creditor after surrendering the property. Reaffirmation essentially puts a debtor back into a contract with the car creditor.  Some creditors do not require a debtor to sign a reaffirmation agreement and will allow the debtor to continue to pay on the vehicle without such an agreement.  However, many car creditors do require debtors to sign a reaffirmation agreement if they intend to keep the car.  In that case, if debtors do not agree to sign the reaffirmation agreement, they can repossess the vehicle.  In that case, a debtor would need to decide whether they want to surrender the car or reaffirm the vehicle and continue to pay for it. Once a reaffirmation agreement has been signed, the debtor will once again be liable under the contract.  If the debtor does not make payments on the vehicle, the creditor can repossess the vehicle, and the debtor will be responsible for the deficiency on the car, and it will not be discharged through the bankruptcy.  When considering whether it is advantageous to reaffirm a vehicle, there are a few pros and cons a debtor can consider.  One benefit of signing a reaffirmation agreement is that some creditors will report those on-time payments to the credit bureaus;  however, not all creditors will do this.  Another benefit is that some car creditors will send statements to the debtor if a debtor reaffirms.  Otherwise, they may not do this.  A benefit of not signing a reaffirmation agreement is that if a debtor does not sign the reaffirmation, the debtor can walk away from the vehicle with no penalty if they cannot afford the payments and will not be responsible for the deficiency.  A debtor may not want to reaffirm when they owe much more on the vehicle than what it is worth or if the debtor questions whether they will be able to maintain the payment on the vehicle.  A debtor may want to reaffirm if there is a low loan balance and if the payments are manageable and can be easily maintained.  If you have any questions, please contact a St. Louis or St. Charles bankruptcy attorney.

When considering filing for bankruptcy there are a number of things to consider.  One common question is how bankruptcy will affect finding new employment or government employment or security clearances.  The answer depends on a number of circumstances.  Some employers may be interested in whether you have filed for bankruptcy as a measure of financial responsibility.  With respect to applications you, many applications state that if there is any fraud or intentional misrepresentation on the application you can be terminated.  In this case it would be better to be honest about your bankruptcy and perhaps explain the situation than to face potential termination at a later date.  In some instances, government employers may actually encourage an individual with a lot of debt to file for bankruptcy to decrease their debt to income ratio.  This can be true especially where the individual debtor deals with money.  An individual with a considerable amount of debt may be more likely to be tempted to divert funds or sell secrets of a company or government for sums of money.  The bankruptcy code does state than an individual cannot be passed up for a security clearance or a promotion simply because he/she has filed for bankruptcy.  The military has addressed this issue explaining that such decisions are based on a number of considerations, but bankruptcy can play a role in the decision.  Not filing may make you more of a risk, as explained above; however, some may look at filing as a way out of paying for obligations.  In this case, you may be able to explain the circumstances surrounding your filing, whether it was largely medical issues or if there was on trigger.  At the end of the day, it can affect security clearances, but filing for bankruptcy is not an automatic bar to a security clearance or a promotion in a government or military position.  According to the military, your relationships with your chain of command and your reputation in your field are equally, if not more important in making such decisions. Private employers may be able to exercise much more discretion pursuant to the laws of your state.  If you are concerned about finding new employment, or how bankruptcy may affect your current career you should speak with a St. Louis Bankruptcy Attorney today!

Is a Debtor Required to Forfeit Property in a Bankruptcy? When someone is considering filing bankruptcy, there are a lot of questions and concerns they may have.  They may be worried about having to forfeit property and may think they will have to surrender their property, such as vehicles, houses, pension, household goods, etc. There are certain occasions where debtors may have to turn over to the Trustee some of their property.  However, this does not often happen and only happens if the property cannot be exempted and/or if there is a large amount of equity.  Property exemptions will vary state to state.  In Missouri, there is a $15,000 homestead exemption to protect equity a debtor has in their real property.  Equity is the difference between what a piece of property is worth and how much is owed against the property.  Therefore, if a person owns a house worth $150,000.00 and $135,000.00 is owed against the property, they have $15,000.00 equity in the property.  Since there is a $15,000.00 homestead exemption, that equity would be protected, and the Trustee would not be able to sell the property.  As long as the debtor is current on the house and continues making their payments, they will be able to keep the real property.  The exemption for a mobile home is $5,000.00. There are other exemptions to protect personal property in Missouri.  There is a $3,000.00 exemption for household goods, furnishings, and clothing.  It is $6,000.00 for a joint filing.  Those values can be determined by estimating garage sale prices for the personal property.  There is also a $1,500.00 wedding ring exemption per person filing and a $500.00 exemption for other jewelry per person filing.  There is a $3,000.00 tools of the trade exemption that covers work-related tools and supplies.  There is also an exemption for qualified retirement plans. The Missouri vehicle exemption is $3,000.00.  If a debtor has $3,000.00 or less equity in a vehicle, they will be able to keep their vehicle as long as they continue making their payments on the vehicle and are current on the vehicle.  Debtors can only exempt one vehicle per person filing.  There is a wildcard exemption of $600.00 per person, which can exempt anything not covered by any other specific exemption.  The wildcard can be used to cover any money a debtor has in the bank at the time of filing, cash on hand, additional equity in houses or cars, collectibles, etc.  There is also a head of household exemption which can be used in certain circumstances and would also cover any property not covered by other specific exemptions.  If you have any questions regarding this issue, please contact a St. Louis or St. Charles bankruptcy attorney.

You are required to list all of your creditors in your bankruptcy petition.  You will want to run a credit report, whether you do that yourself or have your attorney run the report for you.  Everything listed on your credit report should be listed on your petition if there is an amount owed.  However, your credit report is only a starting point.  Not all companies and organizations report to credit bureaus.  Some common examples of places that may not report to credit agencies are some doctors, small businesses, and friends or family members.  You want to make every effort possible to ensure that you have listed all creditors.  In listing your creditors on the petition they receive notice of the filing. However, if a creditor was missed, there are different options depending on how far your case has progressed.  If you are in a Chapter 7 and your case is still open you can add creditors to your petition.  If this comes late in the process it may hold your case open a bit longer to provide those creditors with notice.  There may be additional fees for adding creditors at this stage.  If you are in Chapter 13 a creditor may file a proof of claim, however, there is a deadline to file claims.  The deadline is set by the court.  If you case has already been dismissed you cannot add creditors to the petition.  However, as long as the debt was incurred prior to your petition date the debt is still discharged.  In this case you should contact your attorney.  Either you or your attorney can provide a copy of your discharge to the creditor.  It is certainly preferred that all creditors are provided notice through your filing.  In a Chapter 13, if there are creditors that were not initially disclosed to your attorney you monthly plan payment may have to be increased to account for the additional debt.  Notably, you cannot add creditors to your bankruptcy filing where the debt was incurred after the date of your petition in either a Chapter 7 or a Chapter 13 bankruptcy filing.  If you want to list debts incurred after your filing you would have to have your case dismissed and re-file your case.  If you have any questions, or would like to discuss your case, contact a St. Louis Bankruptcy Attorney today!

Many people fear that they will never again have good credit if they have to file for bankruptcy. While having a bankruptcy in your past has a very negative impact on your credit score, the overall results of discharging your other debts may actually increase your credit score despite the bankruptcy and position you toward good credit in the long-term. This article will address how bankruptcy may actually improve your credit score.  By the time most people have made the decision to file for bankruptcy, their credit scores are likely already very low. The fact is that people who are paying their bills on time and who have the money to pay them in full simply do not need to file bankruptcy. Depending on how many delinquent accounts a debtor has and how high the balance is on those accounts, their credit scores will reflect exactly how bad their position is financially. Thus, individuals considering bankruptcy already have low credit. Unless the debtor is expecting a financial windfall, bankruptcy may be the only way out of the debt cycle keeping their credit low.Bankruptcy and Credit ReportsFiling for bankruptcy appears on credit reports and has a dramatic impact on overall credit scores. Depending on the reporting institution, it can lower credit scores anywhere from 100-200 points. Chapter 7 bankruptcies stay on credit reports for ten years from the date of discharge. Chapter 13 bankruptcies are reported for seven years after the date of filing. One common credit scoring service, Fair Isaac, which publishes the FICO score, divides consumers into ten groups to compare them to consumers in similar financial situations. That means that if you file bankruptcy, your FICO score will partially base your score on how you are doing compared to other bankruptcy filers. You won't be compared to those who have never filed bankruptcy and have perfect credit. This scoring system works to your advantage, despite the bankruptcy lingering on your credit report.Credit After BankruptcyIf you have filed for Chapter 7 bankruptcy, once the bankruptcy court grants a discharge, all of the debts that were included in the bankruptcy will reflect that fact on your credit report. That means that your debt to income ratio will improve, improving your score in that regard. Your late payment history on those accounts will diminish over time. Perhaps most beneficially, you will no longer have to try to make payments on the discharged debts, meaning that you can pay your remaining bills on time and in full to start establishing a positive payment history on your remaining accounts. If you have filed for Chapter 13, the debts that are included in your bankruptcy plan will reflect that fact on your credit reports. After completion of your plan, any debts remaining will also be discharged similar to a Chapter 7 bankruptcy. Before discharge, Chapter 13 plans are based on budgeting appropriately. With a manageable plan payment, you will be able to start paying your remaining debts on time and in full prior to discharge, putting you in a very positive position even before your debts are completely discharged.If you are struggling with your bills, do not rule out filing bankruptcy solely because it will affect your credit. After all, the overall effect of filing bankruptcy may actually positively influence your credit long term. Bankruptcy is not appropriate or available for everyone, so it is important to speak with a qualified bankruptcy attorney to determine if bankruptcy is right for your situation.

      This seems to have been my season for issues driven by testamentary, or pseudo testamentary transfers. I’ve encountered the post petition trust beneficiary; the client with an unanticipated prepetition interest in a probate estate; and the residual beneficiary of a spend thrift trust irrevocable before filing. But I saw a new one that I need to add to my list of things to discuss with clients. My clients were the beneficiaries of a couple of small insurance policies owned by one debtor’s parent.  The policies were intended to provide for funeral expenses of the parent. When the parent passed away within 180 days of the bankruptcy filing, those insurance policies dumped their bounty into the lap of the bankruptcy trustee. So thanks to § 541(a)(5), money flowing from the efforts of a non debtor and intended for one purpose either pays my clients’ creditors or displaces the exemption protecting some asset of the debtors. Twenty questions I currently ask new clients if they have an interest in the estate of someone who has already died and if there is any likelihood that someone may pass away in the next six months.  If possible we try to determine whether the testamentary instrument is a will or a trust. If it’s a will, we consider whether the testator might be open to making any provision for my clients in a spend thrift trust as an alternative. But I need now to look for life insurance issues where the purpose was not to benefit the beneficiaries but to enable payment of the deceased’s last expenses. Complexities never cease. Image courtesy of jarrodstone.

In a ruling that could shed some light (but not very much) on the authority of bankruptcy judges, the Fifth Circuit has ruled that a magistrate's ruling in an insurance coverage dispute did not run afoul of the Supreme Court ruling in Stern v. Marshall, ___ U.S. ___, 131 S.Ct. 2594 (2011). Technical Automation Services Corp. v. Liberty Surplus Insurance Corporation, No. 10-20640 (5th Cir. 3/5/12), which you can find here.The IssueTechnical Automation Services Corp. involved whether an insurance company had a duty to defend an insured in an underlying lawsuit. The parties consented to trial before a U.S. Magistrate. The magistrate granted summary judgment in favor of the insured. On appeal, the Fifth Circuit requested briefing on the application of Stern v. Marshall to a magistrate. See "Fifth Circuit to Consider Impact of Stern v. Marshall on U.S. Magistrates" here. In response to the question "whether Article III of the Constitution permits a federal magistrate judge, with the consent of the parties, to enter final judgment on a party's state law counterclaim," (opinion, p. 7), the Court answered "yes."The DecisionBy way of prelude, the Court noted that a prior panel of the Fifth Circuit had ruled in favor of the ability of a magistrate to proceed with consent. Puryear v. Ede's Ltd., 731 F.2d 1153, 1154 (5th Cir. 1984). Thus, the court was bound to follow the prior precedent "absent an intervening change in the law, such as by a statutory amendment, or the Supreme Court or by our en banc court." Opinion, p. 9. This framed the question of whether Stern v. Marshall overruled prior decisions about the power of magistrates.While noting the many similarities between bankruptcy judges and magistrates, the Court chose to base its ruling on the Supreme Court's insistence that Stern was a narrow decision. Accordingly, the Court reaffirmed that Congress may not withdraw “from judicial cognizance any matter which, from its nature, is the subject of a suit at the common law, or in equity, or admiralty.” (citation omitted). The Supreme Court emphasized that even the slightest “chipping” away of Article III can lead to “illegitimate and unconstitutional practices,” and accordingly held that the jurisdiction of the bankruptcy courts did not extend to most counterclaims based on common law. (citation omitted).This holding can be translated to the many similarities of the statutory powers of federal magistrate judges. Whereas Article III judges “hold their offices during good behavior, without diminution of salary,” bankruptcy judges and federal magistrate judges are Article I judges who lack tenure and salary protection. (citation omitted). Moreover, the text of 18 U.S.C. § 157(b) (the statute addressed in Stern) and the text of the Magistrates Act, 28 U.S.C. § 636(c), allow Article I judges to enter final judgments, allow for judges’ final judgment to be binding without further action from an Article III judge, entitle the decisions to deference on appeal, and permit the courts to exercise “substantive jurisdiction reaching any area of the corpus juris.” (citation omitted).Although the similarities between bankruptcy judges and magistrate judges suggest that the Court’s analysis in Stern could be extended to this case, the plain fact is that our precedent in Puryear is there, and the authority upon which it was based has not been overruled. Moreover, we are unwilling to say that Stern does that job sub silentio, especially when the Supreme Court repeatedly emphasized that Stern had very limited application. Id. at 2620. (emphasizing the limited scope of the decision, saying that the issue addressed was a “narrow one” that related only to “certain counterclaims in bankruptcy”) (internal quotation omitted) see also id. (“Article III of the Constitution provides that the judicial power of the United States may be vested only in courts whose judges enjoy the protection set forth in that Article. We conclude today that Congress, in one isolated respect, exceeded that limitation in the Bankruptcy Act of 1984.”) (emphasis added). Article III jurisprudence is complex, requiring the court to do an examination of every delegation of judicial authority. (citation omitted). Notwithstanding that this constitutional question may be seen in a different light post Stern, we will follow our precedent and continue to hold, until such time as the Supreme Court or our court en banc overrules our precedent, that federal magistrate judges have the constitutional authority to enter final judgments on state-law counterclaims. (emphasis added).Opinion, pp. 11-12.What It MeansOn the most basic level, Technical Automation Services says very little about the authority of bankruptcy judges. It simply holds that Stern does not upset prior Fifth Circuit precedent governing the authority of magistrate judges. However, it provides advocates of bankruptcy court authority with two valuable arguments:1. The Fifth Circuit is willing to take Chief Justice Roberts at his word when he says that Stern is a narrow decision. While many were concerned that Stern could be another Marathon Pipeline and could signal a return to the old summary/plenary distinction under the Bankruptcy Act, the Fifth Circuit is willing to take it slow. If the other circuits slow play the decision and the Supreme Court strategically declines to grant cert, it could be decades before the issue reaches the Supreme Court again. 2. Since a central feature of magistrate jurisdiction is consent, Technical Automation provides a powerful rebuttal to parties who want to consent to bankruptcy court decision making and then cry "Stern" when they don't like the result.If nothing else, Technical Automation is significant because it didn't change anything significant.Post-Script: Although I edited it from the quote above for purposes of brevity, the opinion contains a wonderful quote from Chief Justice Rehnquist's concurrence in Northern Pipeline where he referred to Article III cases as "but landmarks on a judicial 'darkling plain' where ignorant armies have clashed by night." Northern Pipeline Construction Company v. Marathon Pipe Line Company, 458 U.S. 50, 91 (1982)(Rehnquist, J. concurring). I know that I will be looking for ways to include this language in future Stern briefs.

By IAN MOUNT For the past 23 years, Chuck Benjamin has been working as a turnaround consultant, primarily for troubled private companies with annual revenues of $25 million to $250 million. During that time, his company — Benjamin Capital Advisors of Rye Brook, N.Y., and Boca Raton, Fla. — has handled some 70 cases. “My endgame is to save companies,” said Mr. Benjamin, 71, “hopefully for their owners.” That has become much more difficult in recent years, he says, as changes in bankruptcy law have given unsecured creditors more power and made bankruptcy more expensive. These legal changes and increased costs have in turn pushed troubled companies to liquidate their assets instead of reorganizing, Mr. Benjamin said, which ends up eliminating the original owners — and many jobs — in the process. The following is a condensed version of a recent conversation.  Q. You say the bankruptcy process is broken. How so?  A. When bankruptcy evolved, it was to protect debtors, the owners. The whole concept was forgiving debts or restructuring so the business would survive in the hands of the owners. But the rules have changed over the years. Today, if they have to go into Chapter 11, the odds of the owners keeping the business are much lower. So there’s no incentive for the owners to enter Chapter 11 and reorganize. Why save a company for somebody else?  Q. What changed?  A. First, the Supreme Court’s 1999 LaSalle decision basically meant that any company that entered bankruptcy was on the market and could be bought either whole or piecemeal. And then in 2005, Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act, and that changed the face of Chapter 11 for privately held businesses. No. 1, B.A.P.C.P.A. changed the landlord’s position. It limits the time to just seven months for debtors to decide whether to accept or reject the lease in bankruptcy. It used to be you could get extended almost forever the time you could accept or reject a lease. Now they have seven months. That’s not a long time to decide which locations to close while you’re in trouble and you’re trying to work through all kinds of other issues. The second change is exclusivity, that is, the debtor’s exclusive right to file a plan of reorganization. It used to be you had all kinds of extensions. Sometimes bankruptcies used to take two, three, four, five years. I had one that was in Chapter 11 for seven years. But it survived. Now you have 18 months where the owner has the exclusive right to file plans for reorganization. Unsecured creditors know that after 18 months they can file a plan excluding the debtor. After you’re in Chapter 11 for eight or 10 months, creditors say, “I’m just going to hang on. I’ll file my own plan and take over the company. Or after 18 months we’ll just liquidate it.”  Q. It’s hard to see anything positive about a bankruptcy that takes seven years.  A. Sometimes staying in bankruptcy a longer time was better, because it gave a debtor time to catch its breath.  Q. Who wins from this change?  A. The LaSalle decision and B.A.P.C.P.A. have given unsecured creditors a huge advantage, and the result is the cost of bankruptcy has gotten so high — because of professional and other costs — that the ability to continue the company under current ownership has reached almost zero. I understand the plight of unsecured creditors, but everyone who sells on unsecured account understands the risk. Every businessman understands this when he sells and makes a credit decision.  Q. Really? Small-business owners offer credit like this routinely. You don’t think they expect to get paid? A. You know that old saying, “Let the buyer beware”? I think it’s every businessman’s responsibility to know to whom he sells and offers credit. If I sell to you and you begin to pay very slowly — which often happens before a bankruptcy — I should stop selling to you on credit. But if I continue to sell to you to make a buck, it’s not your fault, it’s mine.  Q. So what happens instead of reorganization these days?  A. Companies are liquidated. Back in 1983, the Lionel case allowed companies the freedom to sell off assets as opposed to filing a plan of reorganization. It expanded what could be sold in a “363 sale.” The 363 component was originally designed to allow companies to sell off spoilable product, like fruit. If you were in the grocery business and you filed bankruptcy, it allowed you to sell off assets. The Lionel case expanded that so you could sell major assets, virtually including the whole company. That’s a quick way to avoid a plan of reorganization.  Q. How does a 363 sale work?  A. The 363 sale requires nothing more than saying, “I’m going to sell you my equipment,” and I publish that, and for 30 or 40 days people have a right to object to it and the judge can decide, O.K., sell it, or if there’s a higher or better bid, it goes to the highest or best bidder. That happened in the Brunschwig & Fils bankruptcy where I was the chief restructuring officer. I sold the company’s assets for $10 million, very successful, but the original owners lost control and 116 employees lost their jobs. In the old days we would have been able to reorganize the company.  Q. How do these changes affect a troubled company’s ability to get financing during reorganization?  A. All of these changes say to the world that the chance of a company surviving bankruptcy is much lower. And if it’s much lower, the banks aren’t going to give debtor-in-possession financing — and rightfully so. The D.I.P. financer gets a priority lien. Last in, first out. But the company has to survive to have the money to pay that super-priority lien.  Q. Does this change how troubled companies act?  A. Debtors are delaying seeking help longer and longer and longer. They’re very frustrated. They’re walking in molasses. They figure if they wait another week the economy is going to turn.  Q. What should business owners do instead of filing for Chapter 11?  A. People need to seek help quicker, change their business plan quicker, and avoid Chapter 11. It’s just an absolute last resort. It’s virtually nonsurvivable. One of the things we do as consultants is take two weak companies that are facing annihilation and we merge them and we get one survivable company — without a bankruptcy. We also try to make out-of-court settlements with creditors, as opposed to Chapter 11 proceedings. In Chapter 11, the debtor pays for attorneys, accountants and consultants of the creditors’ committee. They even pay for the investment bankers. The owner is paying the other side to oppose him. It’s tilted to the unsecured creditor side.  Q. But doesn’t this law fix some biases toward debtors that allowed them to drag out the process, hurting their creditors as they did so?  A. The law probably does fix some problems, but you have to look at the nuances. There are some cases with the tighter rules where the creditors get a little more but the company fails. The other option is the bankruptcy lingers and the creditors get a little less but the company survives, and that way the creditors continue to have a customer.  Q. You’re a small-business owner yourself. How is your business doing?  A. Business right now is kind of quiet. I think this is the calm before the storm. Copyright 2012 The New York Times Company.  All rights reserved.

    The Chapter 13 Trustee almost snarled from the counsel table at last week’s hearings. Counsel’s “fix”, she told the court, put the debtor instantly in default. Huh?  The amended plan was supposed to correct the previous defect in the filed plan.  What’s the problem?  Counsel certainly was befuddled. There were several such cases, and whatever dollars and cents problem in the plan the amendment was addressing, counsel in each case didn’t deal with the payments already made to the previous plan. The problem Most simply, assume that the plan  provided payments of $200/month for 60 months.  The trustee’s objection points out that the plan pot, at $200/month, is $3000 short of paying all the creditors provided for in the plan. By the time the amended plan is filed, the debtor has made four payments to the plan.  But counsel’s amended plan reads:  $250/month for 60 months. The math is correct:  Sixty times $250  produces a plan pot of $15,000. But the debtor’s first four payments were only $200, because that’s what the defective plan provided. Bingo:  instant default, unless the debtor ponies up an extra $200 ($50 a month times four payments already made).  The payments already made did not match the terms of the amended plan. The fix To get the money right and avoid an instant default, the amended plan needed to read: 4 payments of $200  (validating what’s already happened) 56 payments of  $253.57 I always round plan payments up to the nearest five dollars, since I’m never absolutely certain that claims will come in just as I expected, nor that the trustee’s percentage commission might not change during the life of the plan.  Plus, I want a number my client won’t have trouble remembering (client memory is another story for another day). So, the moral of this tale is:  recognize that you can’t change the past when you amend a Chapter 13 plan to provide more money. For those of you who followed the flap about my day in Chapter 13 confirmation hearings populated with professional bumblers, this piece emanates from a different court altogether.  And these attorneys who didn’t get it right only had to go back and do it again.  Egg on the face, but no lasting harm to the clients. If you are within driving range of Mountain View, I’m presenting a bankruptcy basics class on Chapter 13 plans April 14.  Details on Crafting Chapter 13 Plans. Image courtesy of soldierant.