Bankruptcy Relief And Something For Nothing

This rant is for clients, and for bankruptcy lawyers who have to “adjust” the expectations of clients.

The trigger was an attorney who asked if he could file a Chapter 13, strip a lien, and then convert the case to Chapter 7, preserving the lien strip.  No, I said, why do you ask?  The client was  resistant to committing to a multi-year plan that might require increased payments if his income increased.

Oh, my thinking went, the guy wants to get rid of thousands of dollars worth of otherwise unavoidable liens on his house, and he’s unwilling to deal with the prospect of having to pay a little more for the privilege.    He wants something for (almost) nothing?  Argghhhh!

I appreciate that clients want certainty in their post petition lives.  Don’t we all?  Yet I don’t find that assurance of utter predictability  in my well-worn book of  The Rules of Life.

The Chapter 13 trustees where I practice generally bring motions to modify plans only where the debtor has experienced a substantial increase in income.  The most frequent fact pattern is a debtor who at the commencement of the case was working outside his usual field, someone who seemed objectively underemployed.  When they returned to their standard employment, the trustee sought a slice of that improvement for creditors.  It’s happened in my practice fewer than 5 times in several decades of Chapter 13 practice.

With the motion to modify comes a chance to revisit the debtor’s expenses.   The few times I’ve had to defend such motions, I have gotten no push back on reasonable increases in the cost of living.  Should there be a difference of opinion between the trustee and debtor’s counsel, you’ve got a judge to referee.  So, a more prosperous debtor is not defenseless.

As counselors at law, we need to appreciate the horror stories that circulate on the internet about Chapter 13 plans and what it means to “submit future income to the supervision of the court”.  In the past two months I’ve had clients who thought their paycheck would be payable to the trustee, who would decide how much they got to live on.  I had another who had been told by her accountant that she could buy housing, food and gas and nothing more while she was in Chapter 13.  So perhaps some paranoia is understandable.

But I’m losing my tolerance for the debtor who wants all the benefits of bankruptcy without any inconvenience.  When I encounter reluctance to commit to Chapter 13, when it objectively makes absolute sense to me, I calculate the percentage of the total debt that the debtor will pay, over five years, for Pete’s sake.  That percentage almost always beats any sort of settlement offered by collectors or debt settlement outfits.

I remind them that they can always dismiss or convert a Chapter 13 if the price is greater than the benefit they get;  when they push beyond that, I’m inclined to show them the door.  Why ask for my professional advice if you aren’t prepared to take it.

Here endeth the rant.

Image courtesy of  Flickr.