September 2014

Chapter 13 bankruptcy has an important limitation.  If the debtor’s debts are too large, Chapter 13 is unavailable:

Only an individual with regular income that owes, on the date of the filing of the petition, noncontingent, liquidated, unsecured debts of less than $383,175 and noncontingent, liquidated, secured debts of less than $1,149,525, or an individual with regular income and such individual’s spouse, except a stockbroker or a commodity broker, that owe, on the date of the filing of the petition, noncontingent, liquidated, unsecured debts that aggregate less than $383,175  and noncontingent, liquidated, secured debts of less than $1,149,525 may be a debtor under chapter 13 of this title.

11 U.S.C. § 109(e).

By the way, the numbers at the Cornell Law School site to which this links haven’t been updated for some time.  I corrected them in the quote above.  The modified quote is correct as of September 2014.

If either debt ceiling — either the secured, or unsecured — is exceeded, the debtor is ineligible for Chapter 13 protection, and must consider Chapter 11 bankruptcy.  This leads to the following question that was posed by a fellow bankruptcy attorney:

Question:

Suppose a debtor has a mortgage — for simplicity let’s say a first mortgage — that is undersecured, i.e., the value of the house is less than the current balance on the mortgage.  Does the unsecured portion of the mortgage count toward the $383,175 unsecured debt ceiling?

My answer was:  It depends on whether or not the house is the debtor’s principal residence.  But it’s a bit more complicated than you might imagine.  Let’s start with the simpler “nonprincipal residence” scenario.
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What’s in your wallet?  It’s a loan shark!  That’s how many people feel when they consider their ever-increasing debt burden.  Unfortunately, many of those same people continue to feed the shark by patronizing loan sharks.

John Oliver recently skewered loan sharks on his Sunday show.  Jon Healy of the L.A. Times published an article on

A fellow bankruptcy attorney recently posed an interesting question regarding a threatened foreclosure sale before the automatic stay is lifted in a Chapter 13 bankruptcy.  Here is the exchange I had with her:

Question:

            Background Facts:

I just got an email from a Chapter 13 client who has a confirmation hearing on 8/21.  She told me that auction.com just came by her house and posted a sign that her house is up for auction on 8/14.  There has been no relief from the automatic stay issued in this case, nor has a motion for relief from the automatic stay been filed.  When we filed the case in March, we stopped a foreclosure action and the client was going to try to save her home so we put the arrears and some IRS tax debt in the plan.  Her original confirmation hearing was on 6/21 but the Chapter 13 Trustee’s office continued it to 8/21.  In the interim she lost one of her jobs and decided that she would just surrender the home and pay the priority tax debt in the plan.  We amended the plan indicating that she would be surrendering the home, but no arrangements have been made yet on the terms of the surrender.

            The Question:

Doesn’t the bank still need relief from the automatic stay to auction the house?

My Answer:

I.          The Terms Of The Confirmed Plan Will Bind The Debtor

The Bankruptcy Code provides:  “[T]he court shall confirm a plan if — . . .  [for an] allowed secured claim provided for by the plan — . . . the debtor surrenders the property securing such claim to such holder . . .”  11 U.S.C. § 1325(a)(5)(c).  Thus, your client is entitled to propose a plan in which she surrenders her home to the creditor holding the first mortgage.  Once the Court confirms the plan, its provisions will “bind the debtor . . .”  11 U.S.C. § 1327(a), meaning that she will have to surrender the home.
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A fellow bankruptcy attorney recently posed an interesting question regarding the dischargeability of an obligation to pay workers compensation insurance premiums.  Here is the exchange I had with him:

Question:

Is money owed to the “State Fund” for unpaid workers compensation insurance premiums by a debtor as a responsible officer of a defunct corporation