Bankruptcy Dismissed-Chapter 13 Plan Goes Wrong:
This is a true story. Some general context: when a Chapter 13 bankruptcy is dismissed for whatever reason (usually because the client can’t make his payments), things get nasty with the courts in a hurry. The trustee (The bankruptcy judge) objects to the plan being kept alive, files a motion to dismiss the case, and the case ends up bankruptcy dismissed and stress level escalate. That’s bad for a whole bunch of reasons.
I had a couple become my client after two failed Chapter 13 cases by another attorney After review of their previous case, it became apparent that the previous attorney greatly understated the client’s expenses AND their income.This attorney had used a fictional amount for the client’s mortgage (an imaginary “modified” mortgage obligation) and had completely disregarded their second mortgage, maybe thinking he could do a “lien strip.” There really is no telling why this all happened, but it was bad.
These mistakes resulted in a Chapter 13 plan payment that the clients could not afford. Every month they got farther and farther behind, hopelessly trying to keep up with an impossible budget. They never really knew why this Chapter 13 was so hard for them. After all, the numbers should have added up, right? They just knew every month they fell more and more behind. These unrealistic plan(s) resulted in the ultimate demise of their Chapter 13 cases. Their very stressful situation, which could have been resolved correctly without the financial contortions they were asked to endure, instead took years.
Until they came to us…
When their case was reviewed it was discovered just how poorly they had been served so far in their ill-fated Chapter 13 proceedings.One failed case wasn’t bad enough. Their then-counsel managed to get the first case dismissed, only to re-file a second Chapter 13 that was just as badly constructed as the first one. The clients, relying on their instinct to trust the professional, followed his instructions. As a result, they suffered sleepless nights and needless anxiety. Re-analyzing their numbers from scratch, we were confident we could justify a Chapter 7, and we filed it. The case was ultimately successful but, “here is the rest of the story” .
Without notice from the bank and unbeknownst to the clients or to us,the clients’ home was sold at a foreclosure auction two (2) days prior to the filing of their Chapter 7. Because of the two failed Chapter 13 cases, they would not have had the protection of the “automatic stay” when our Chapter 7 was filed, so technically the bank hadn’t done anything wrong.
Disappointment would be a serious understatement of the clients’ reaction to the news. Stress levels were high because this significantly changed their financial picture. This suddenly made conversion to a Chapter 13 an unpleasant probability. I knew at that point we were in for a fight. In fact, the United States Trustee pushed hard for a conversion on the basis that the clients were no longer obligated to make the mortgage payment. I argued that the client was still obligated to make the mortgage payment up until title was transferred to the new owner, thus the mortgage payment should still be considered. Getting the mortgage considered meant that this nice couple’s Chapter 7 filing could be salvaged so they could be over all this stress.
We dug in for protracted battle with the U.S. Trustee on the legal arguments but, fortunately, an alternative strategy with more certain odds of success presented itself. I like certainty a lot better than I do novelty in my practice, so I switched gears. I got the clients the discharge which had so long eluded them.
What is the moral of the story
Maybe I should start with, “If you’re told you belong in a Chapter 13, get a second opinion.” I’ve lost count of the clients who have sat across the desk from me and said,”Paul, we’ve already been to three attorneys. They all told us we have to be in a Chapter 13. But we wanted to hear what you have to say.” Nine out of ten of those clients has been qualified for a Chapter 7,and actually obtained a better result than in a Chapter 13. Ask whether your attorney guarantees his / her work. I know lawyers are paranoid about guaranteeing anything. It’s also fair to say that if you really must be in a Chapter 13, it’s admittedly much harder for any lawyer to pin down what the final deal is that you’ll make with the trustee. Some haggling often goes on, and one has to allow room for that. But some things CAN be guaranteed.
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