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April 2016 Dollar Adjustments

You can find the complete list here.   Notable changes for consumer lawyers:

  • Assisted Person is now someone with nonexempt property worth less than $192,450.
  • Chapter 13 Debtor debt limit: $394,725  secured and $1,184,200  unsecured.

These changes apply to cases that are filed on or after April 1, 2016.

New Chapter 13 MOMOD Pilot Program

This is from the master himself, Aki Koyama

Over the years, I’ve found that MOMODS are more successful and much more easier to process and comment on when I have an opportunity to discuss the terms of the MOMOD before it is filed. This way, your client’s MOMOD will reflect what the Trustee’s data base shows for delinquency, infeasibility etc. Also, we can discuss what kind of evidence the Trustee will require for a modification or suspension. Finally, there may be times when you want to propose an unusual modification and want some feedback from the Trustee before you even draft the MOMOD.

The ultimate goal of this pilot program is a more efficient system so that we can avoid unnecessary hearings, delay and frustration. I know it can be difficult to project what can be a moving target at times and to also determine what the Trustee will need to recommend approval of a MOMOD.

If you think that you will find this service useful and/or you have a particularly difficult modification proposal, please follow this procedure:

For Judge Klein, send me an email at akoyama@latrustee.com with the following in the subject line:

Debtor Name, Case Number and the phrase “MOMOD PREFILING REVIEW REQUEST” and the preferred date and time for the teleconference.

For Judge Bason, send Angela Gill an email at agill@latrustee.com with the same information in the subject line.

You don’t have to type anything into the body of the email and we will respond with a yes as to your date and time or with an alternate date and time.

In any case, please make certain that you take the initiative to call our office at the appointed time.

Comparison of Chapter 13 Plan Forms in the SD, CD and ND

Jon’s post here got me thinking about the attorney in the Southern District, who to me at least, seems to have committed malpractice by filing a bad Chapter 13 Plan.

The facts in the In re Schleger case, which you can read here, are dumb-bed down as follows: Chapter 13 Plan is filed where Debtors say they will pay 48% of unsecured claims. They know that they are about to void a 150k lien but they do not amend their plan to reduce the 48% or really do anything to deal with the claim. Five years passes and they want a discharge despite not paying anywhere close to 48% or amending their plan. That’s just a ridiculous position to take! But was it his fault or the system’s fault? This  case was an appeal from the Southern District which we will see has a confusing form.

If you look at a ND Cal. Chapter 13 plan, it has the following plan treatment for unsecured creditors:


Class 7: All other unsecured claims
.  These claims, including the unsecured portion of secured recourse claims not entitled to priority, total approximately $                .  The funds remaining after disbursements have been made to pay all administrative expense claims and other creditors provided for in this plan are to be distributed on a pro-rata basis to Class 7 claimants.

[select one of the following options:]

____     Percent Plan.  Class 7 claimants will receive no less than __% of their allowed claims through this plan.

____     Pot Plan.  Class 7 claimants are expected to receive __% of their allowed claims through this plan.

If you put a check next to Percent Plan, then you must either pay the percent or modify the plan. If you put a check next to Pot Plan, then you need to pay the Pot and not worry about the percent! Chapter 11 and 13 plans should make it clear they are pot plans whenever appropriate to do so!

Let’s look at the less clear SD Cal. Chapter 13 Plan:
Non-priority Unsecured Claims. After dividends to all other creditors pursuant to the plan, trustee may pay dividends pro-rata to claims allowed unsecured. Unsecured non-priority creditors will receive: ______________% or a pro-rata share of $_______________________, whichever is greater. (The dollar amount is the greater of (1) the nonexempt assets or (2) the applicable commitment period of 36 or 60 months multiplied by debtor’s projected disposable income).
If both the percentage and dollar amount are left blank, trustee is to pay 100% to unsecured creditors. If the percentage is left blank, trustee will pay the dollar amount to unsecured creditors. If the percentage is filled in at less than 100% and the dollar amount is left blank, trustee is authorized to increase the percentage if necessary to comply with the required applicable commitment calculation. 
I added some emphasis to this paragraph, It actually allows a pot plan or a percentage plan, the attorney has to fill int he appropriate boxes. In the BAP case, the attorney filled out the percentage portion — meaning the Debtors promised to pay the percentage. If the attorney had only filled out the second box, everything would have been okay.

Finally, looking at the CD Cal Chapter 13 Plan:
The Debtor estimates that non-priority unsecured claims total the sum of $_______________________.
My interpretation is that this is a default pot plan so the issue with respect to the percentage should not come up. Had this attorney been in the Central District of California, what amounts to, in my opinion, malpractice in the Southern District would not have been in the Central District.

The Northern District’s plan makes the most sense to me. It is abundantly clear that when a debtor puts the check mark next to “Pot Plan,” then the plan is a Pot Plan!

Limit on Chapter 13 Trustee’s Fees

An attorney on the CDCBAA forums asked the following question, I was asked to post my answer for all to see:

Question.
The CD chapter 13 plan estimates Chapter 13 Trustee’s Fee at 11% “unless advised otherwise.” However, Section 326(b) appears to limit the chapter 13 trustee’s fee to no greater than 5% of all payment under the plan. I’ve always figured the 11% was just to keep the bases covered with a built in cushion.

I recently filed a MoMod to a 100% plan where the trustee’s fees were estimated at 3.33% (they had been 3.31% so far in the case) and the trustee issued comments requesting an increase to 10% of the final payment, or 8.6% of all payments made under the plan. There were no extraordinary services provided by the trustee (not to see her trustee work was not stellar), so can anyone tell me if there are times when the trustee fee can exceed 5%? What am I missing?

Answer.
Section 326(b) governs payment of Chapter 13 Trustees. It says that if there is a standing trustee, that trustee is compensated per 28 USC 586(b) and cannot be otherwise compensated by the Estate. Now, if there is no standing trustee, then the chapter 13 trustee is subject to reasonableness standards of section 330 but limited to 5% of all payments under the plan.

586(e) is where the 10% fee comes from and only applies to standing Trustees.

9th Circuit BAP Opinion Allows For Stripping Wholly Unsecured Junior Liens in a Chapter 20

On June 9, 2015, the 9th Circuit Bankruptcy Appellate Panel held that a Debtor not eligible for a Chapter 13 discharge may strip off a wholly unsecured lien through a Chapter 13 Plan. You can find the case here.

This is common practice in the Central District and I am happy the BAP went the right way. I was a little worried after reading their Wages where the Court held that the anti-modification provision under §1123(b)(5) applies to any loan secured only by real property that the debtor uses as a principal residence. When the law is ambiguous, why rule in favor of the bank! You can find that case here.

Questions the author has yet to consider:

So what happens in a Chapter 11? 1111(b)(1) says nonrecourse debts become recourse debts but it starts out with “A claim secured by a lien on property of the estate…”

Secured Creditors Who Do Not File Continuation Statements Will Lose Their Secured Status, Despite a Bankruptcy

UCC-1 financing statements are effective for five years.  Before the five years has run, the creditor must renew the financing statement by filing what’s called a continuation statement.  This is essentially a UCC-1 with a check next to the box labeled “continuation statement.”  The only caveat is any continuation statement must be filed no sooner than six months before the five year period has expired.  Assuming a continuation statement is filed, the five year period is expanded by five years from when the original would have expired.  This can be done indefinitely.

What if the Debtor filed bankruptcy?

The automatic stay will apply as this is an act to perfect a lien. See § 362(a)(4).

Old school practitioners will turn to the Uniform Commercial Code (“UCC”) § 9-403(2) which states, in pertinent part:

“… If a security interest perfected by filing exists at the time insolvency proceedings are commenced by or against the debtor, the security interest remains perfected until termination of the insolvency proceedings and thereafter for a period of sixty days or until expiration of the five year period, whichever occurs later.”

Mystery solved.  A continuation statement is unnecessary as the creditor’s interest will be perfected until the bankruptcy is over and for at least 60 days thereafter.

The problem is the UCC was revised and the insolvency language was removed. See e.g. California Commercial Code (“CCC”) § 9515:

“(c) The effectiveness of a filed financing statement lapses on the expiration of the period of its effectiveness unless before the lapse a continuation statement is filed …. Upon lapse, a financing statement ceases to be effective…. If the security interest … becomes unperfected upon lapse, it is deemed never to have been perfected as against a purchaser of the collateral for value.”

One may be tempted to conclude that creditors must seek relief from the stay to file a continuation statement.  However, this is unnecessary as Congress has added an exception to the automatic stay in § 362(b)(3):

“(3) [the automatic stay does not apply to] any act to perfect, or to maintain or continue the perfection of, an interest in property …”

In summary, a continuation statement is mandatory for a creditor to preserve its lien.  The filing of a continuation statement is not prohibited or stayed by the filing of a bankruptcy petition; consequently, it must be filed.

Author’s final words:

There are important issues that remain. For example, what about language under 9515(3) which states: “If the security interest … becomes unperfected upon lapse, it is deemed never to have been perfected as against a purchaser of the collateral for value.” Is a Trustee a purchaser for value or just a lien creditor? So what happens when the lien lapses? Most courts find that a lost lien is just that, gone so the creditor becomes unsecured. There are some courts that fix a creditor’s rights as of the petition date. What happens to a lien which is “fixed” but then lapses? The trend seems to be a lapsed lien makes the creditor an unsecured creditor…