Kentucky Bankruptcy Law

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Chapter 13 Plan: Take care with income and expenses

A couple of days ago I wrote about ways income and expenses influence your Chapter 13 plan payments. Today I want to encourage people preparing for bankruptcy to invest time into a careful look at your income and expenses. Because your plan payment in a Chapter 13 must be at least the amount of your disposable income, then accuracy matters in figuring out what that is. Once you have put the amounts in your Schedules (Schedule I is income an Schedule J for expenses), you are locked into them unless you can verify changes with documentation.

It is incredibly common, though, that people really do not know what they spend on expenses. Sometimes, people do not have an accurate idea of income either. This is less of an issue if all your income show up on pay advices (pay stubs) from wages. It is a bigger challenge for independent contractors and business owners. Almost no one, though, accurately tracks all personal expenses.

Despite the challenge presented by the lack of tracking, it is crucial to be as accurate as possible with expenses. If you underestimate your expenses, your plan payment may end up being too high to maintain resulting ultimately in dismissal of your case. Over-estimating your expenses may keep you from being able to show a plan payment of a certain amount (an amount required to pay arrears on a house, priority tax debt, or other mandatory items) to be feasible.

So, it is worth spending a few hours going back over bank statements or other documents that can help show average monthly expenses. If you have time before filing, it would be helpful to do a detailed tracking of expenses for a month. This can be very revealing and may also help you figure where things can be cut.

This accuracy, though, in determining income and expenses can mean the difference between a successful Chapter 13 bankruptcy and one that is dismissed or converted to a Chapter 7.

May 10, 2013 Posted by | Bankruptcy, Chapter 13, Chapter 7, Conversion, Disposable Income, Documentation, Means test, Plan payments, Planning | , , , , , , , , , , , , , | 1 Comment

The Why and How of Converting a Chapter 13 to a Chapter 7 Bankruptcy

I have written previously about the flexibility that a Chapter 13 bankruptcy affords the debtors. One reason for this flexibility is that 11 U.S.C. Sect. 1307(a) provides a debtor with the right to convert their Chapter 13 to a Chapter 7 at any time so long as they do so in good faith (11 U.S.C. Sect. 348(b)) and they qualify to be a Chapter 7 debtor (see 11 U.S.C. Sect. 1307(g)). In other words, you cannot file a Chapter 13 because you do not qualify for a Chapter 7 due to the means test and then turn around and convert into a Chapter 7. However, if you start into a Chapter 13 and you just cannot keep up, converting may be just the thing to do.

The top reasons to convert from a Chapter 13 to a Chapter 7 include being unable to keep up with plan payments or being unable to make the regular house payments outside of the plan. This can come about because of a change in circumstances like a job loss, divorce, increase in family size without additional income, or just because the plan was too ambitious to start with. But, the ability to convert does not depend on the reason why.

Although the date of filing remains fixed at the original filing date, the debtor can include new debts incurred after filing the Chapter 13 but prior to the conversion in the Chapter 7 pursuant to 11 U.S.C. Sect. 348(d) which is an added bonus to conversion. The schedules of property, debt, exemptions and executor contracts filed in the Chapter 13 carry over into the Chapter 7, but a new meeting of creditors will be held and the time for the trustee filing objections and for creditors to file claims starts afresh.

Different courts and jurisdictions have slight variances in what is required to convert. In the Eastern District of Kentucky, the debtor just files a Notice of Voluntary Conversion, a schedule of unpaid debts (new post-petition debts), and an updated disclosure of attorney fees related to the conversion. Notice is mailed out through the courts system just as in a brand new bankruptcy case. While it is not initially required, it may be a time saver to go ahead and file a new means test showing the results at the time of the conversion since some trustees request this. The court clerks add the unpaid creditors to the mailing matrix and notices are mailed out by the court. There is a conversion fee of $25.00 paid to the court. And, voila, you are now in Chapter 7.

May 11, 2011 Posted by | Chapter 13, Chapter 7, Conversion | , , , , , , | 13 Comments