The Chapter 13 Trustee almost snarled from the counsel table at last week’s hearings.
Counsel’s “fix”, she told the court, put the debtor instantly in default.
Huh? The amended plan was supposed to correct the previous defect in the filed plan. What’s the problem? Counsel certainly was befuddled.
There were several such cases, and whatever dollars and cents problem in the plan the amendment was addressing, counsel in each case didn’t deal with the payments already made to the previous plan.
Most simply, assume that the plan provided payments of $200/month for 60 months. The trustee’s objection points out that the plan pot, at $200/month, is $3000 short of paying all the creditors provided for in the plan.
By the time the amended plan is filed, the debtor has made four payments to the plan. But counsel’s amended plan reads: $250/month for 60 months.
The math is correct: Sixty times $250 produces a plan pot of $15,000.
But the debtor’s first four payments were only $200, because that’s what the defective plan provided.
Bingo: instant default, unless the debtor ponies up an extra $200 ($50 a month times four payments already made). The payments already made did not match the terms of the amended plan.
To get the money right and avoid an instant default, the amended plan needed to read:
4 payments of $200 (validating what’s already happened)
56 payments of $253.57
I always round plan payments up to the nearest five dollars, since I’m never absolutely certain that claims will come in just as I expected, nor that the trustee’s percentage commission might not change during the life of the plan. Plus, I want a number my client won’t have trouble remembering (client memory is another story for another day).
So, the moral of this tale is: recognize that you can’t change the past when you amend a Chapter 13 plan to provide more money.
For those of you who followed the flap about my day in Chapter 13 confirmation hearings populated with professional bumblers, this piece emanates from a different court altogether. And these attorneys who didn’t get it right only had to go back and do it again. Egg on the face, but no lasting harm to the clients.
If you are within driving range of Mountain View, I’m presenting a bankruptcy basics class on Chapter 13 plans April 14. Details on Crafting Chapter 13 Plans.
Image courtesy of soldierant.