By Paul S. Goldstein
In the vast majority of Chapter 13 cases, the debtor seeks to stay the foreclosure sale so as to save the house (the home) from sale by the secured creditor (usually the bank).The Chapter 13 debtor will normally have two classes of creditors: Secured (mortgage on the house) and unsecured (typically, the credit card debt and loans). In Chapter 13, the debtor proposes the following:1. As to my secured creditor(s), “I will pay all that I owe, plus interest and trustee's commissions, over a period of not more than five years.”2. As to my unsecured creditor(s), “I will pay them a given percent of the amount owed (anywhere from as little as 5 percent or 10 percent to perhaps as much as 50 percent), plus trustee's commissions, over the same five years.”3. The debtor submits a plan showing the court that the debtor has an income sufficient to meet and pay all of his or her living expenses and those of the spouse and children, if any, and then have additional funds available to make monthly payments to the trustee so distribution can then be made to the secured and unsecured creditors.The concept of the plan sounds easy, but in fact, its implementation is not. For example, let us assume the debtor claims he spends $250 a month for food for himself, his wife and child. This very low figure was needed to help the debtor generate sufficient surplus income to meet that monthly payment to the trustee. One can be reasonably certain the trustee would object to the plan because $250 a month for food is not feasible.What happens if the plan is not feasible? The trustee can and will make a motion to dismiss the petition in the Chapter 13 bankruptcy and if and when the motion is granted, the stay of the foreclosure is lifted and the creditor can then go forward with the foreclosure.In reviewing the plan, the trustee will look at two critical figures: Monthly take-home income and monthly expenses. Obviously, the monthly income has to be sufficiently in excess of the monthly expenses so that the trustee will receive enough money each month to be able to make distributions to the secured and unsecured creditors. Needless to say, many debtors fudge their expenses, so that from a bookkeeping point of view, they will have sufficient funds available for the monthly payments to the trustee. If at the end of a certain number of unknown months the debtor is financially unable to make the monthly payment, the trustee will then move to dismiss the bankruptcy petition.What does the filing of the Chapter 13 petition in bankruptcy achieve? First and foremost, it stays the foreclosure. It gives the debtor a little time during which the debtor may attempt to obtain refinancing of the mortgage so that the foreclosure sale is discontinued or it may give the debtor a little time to try to sell the house which would always be at a better price than the one received at a foreclosure sale. Finally, if the debtor wants to keep the house, Chapter 13 is the vehicle which will assist the debtor towards that end.As for the filing in Chapter 13, several observations should be made. A fair number of petitions are dismissed because the plan is not feasible. As to the debtors whose plans are acceptable, the vast majority do not complete the terms of the plan with the result that the stays in the foreclosures are lifted and the sales go forward. As to the debtors whose plans are successfully carried to completion and all payments to the trustee are made, that group is extremely small – some attorneys might even characterize it as minuscule.(Paul S. Goldstein is chairman of the Bankruptcy Committee of the Queens County Bar Association. This is part of a series of articles arranged by the QCBA as a public service to assist our readers.)
