Lisa Lambert, Assistant U.S. Trustee. October 21, 2013 DFW Area Chapter 13 Seminar 2

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2 Lisa Lambert, Assistant U.S. Trustee October 21, 2013 DFW Area Chapter 13 Seminar 2

3 Kent Anderson, Kent Anderson Law Office October 21, 2013 DFW Area Chapter 13 Seminar 3

4 Stephen Wilcox, Wilcox Law Alice Whitten, Ascension Capital Group October 21, 2013 DFW Area Chapter 13 Seminar 4

5 What s a Car Creditor To Do? Alice Whitten, AIS Data Services, LP Stephen Wilcox & Clare Russell, Wilcox Law, PLLC

6 The DSO Problem

7 NO PRO- RATA

8 The Effect of Conversion or Dismissal

9 (f)(1) Except as provided in paragraph (2), when a case under chapter 13 of this title is converted to a case under another chapter under this title (A) property of the estate in the converted case shall consist of property of the estate, as of the date of filing of the petition, that remains in the possession of or is under the control of the debtor on the date of conversion; and (B) valuations of property and of allowed secured claims in the chapter 13 case shall apply in the converted case only in a case converted to a case under chapter 11 or 12, but not in a case converted to a case under chapter 7, with allowed secured claims in cases under chapters 11 and 12 reduced to the extent that they have been paid in accordance with the chapter 13 plan.; and (C) with respect to cases converted from chapter 13 (i) the claim of any creditor holding security as of the date of the petition shall continue tobe secured by that security unless the full amount of such claim determined under applicable nonbankruptcy law has been paid in full as of the date of conversion, notwithstanding any valuation or determination of the amount of an allowed secured claim made for the purposes of the case under chapter 13; and (ii) unless a prebankruptcy default has been fully cured under the plan at the time of conversion, in any proceeding under this title or otherwise, the default shall have the effect given under applicable nonbankruptcy law.

10 Years in Ch 13 Claim Amount Claim Paid Contract Interest Plan Interest Monthly Payment under plan 1 $20, $20, % 4.75% $ x 12 = $4, $20, $20, % 4.75% $ x 24 = $8, $20, $20, % 4.75% $ x 36 = $13, Years in Ch 13 Claim Amount Cram Down Contract Interest Plan Interest Monthly Payment under plan 1 $20, $15, % 4.75% $ x 12 = $3, $20, $15, % 4.75% $ x 24 = $6, $20, $15, % 4.75% $ x 36 = $10, Monthly Payment under contract $ X 12 = $5, $ x 24 = $11, $ X 36 = $16, Monthly Payment under contract $ X 12 = $5, $ x 24 = $11, $ X 36 = $16, Difference not including late fees $1, $2, $3, Difference not including late fees $2, $4, $6,840.00

11 Competing Plans and Non-Filling Co-Buyers

12 THREE CASES TO CONSIDER In re Rodriguez, 156 B.R. 659 (Bankr.E.D.Ca. 1993) Debtor cannot use 506 to value collateral if there is a co-buyer. In re Faulkner, 2013 Westlaw (Bankr.C.D.Ill 2013) Secured creditor does not have to release its lien after discharge if there is a co-buyer. In re Register, 2001 Westlaw (Bankr.S.D.Ga. 2001) Surrender requires actually returning the collateral to the lienholder.

13 Insurance Payoffs

14 ANOTHER INTERESTING RECENT CASE In re Kelley, 2012 Westlaw (Bankr.E.D.Ky 2012) Court ordered excess insurance proceeds held in trust by Debtor s attorney until discharge

15 The Lockbox

16 October 21, 2013 DFW Area Chapter 13 Seminar 16

17 Alice Whitten, Ascension Capital Group Pam Bassel, Chapter 13 Trustee October 21, 2013 DFW Area Chapter 13 Seminar 17

18 MID CASE MORTGAGE AUDIT PROCEDURES

19 NOW THAT WE HAVE YOUR ATTENTION...

20 L.B.R THE NOTICE WHO DOES IT APPLY TO AND WHY DO I CARE?

21 THE MID-CASE NOTICE APPLIES TO CLAIMS THAT ARE

22 SECURED BY THE PRINCIPAL RESIDENCE OF THE DEBTOR AND

23 PROVIDED FOR UNDER 1322(B)(5) OF THE CODE IN THE DEBTOR S PLAN TRANSLATION - YOU ARE PAYING THE ARREARS THROUGH THE PLAN AND THE ONGOING PAYMENTS DIRECT* * Thank goodness you translated. I don t speak bankruptcy.

24 WHEN WILL I GET THE MID- CASE NOTICE? I DON T WANT TO MISS IT!

25 MONTH AND MONTH OF THE PLAN TWICE THE FUN!!!!!!!!!

26 WHO SENDS IT? THE TRUSTEES!

27 Well, yeah, the debtor can send it if the Trustee does not, but DON T. Just bring it to the Trustee s attention. MEAN DEBTOR S LAWYER INNOCENT TRUSTEE

28 WHO GETS SERVED? The Debtor

29 The Debtor s Attorney

30 The Mortgage Holder

31 The Mortgage Holder s Attorney

32 WHAT DOES THE NOTICE CONTAIN? It lists the remaining principal balance on: The pre-petition arrears being paid through the Trustee The post-petition arrears being paid through the Trustee And the Notice includes a statement that it is presumed that the post-petition direct payments are current.*

33 YES, MORTGAGE HOLDER, A RESPONSE IS REQUIRED!

34 HOW LONG HAVE I GOT TO RESPOND?

35 60 DAYS

36 THE RESPONSE MUST [ ] ITEMIZE ANY CURE AMOUNTS AS OF THE RESPONSE DATE [ ] ITEMIZE ANY POST-PETITION ARREARS AS OF THE RESPONSE DATE. [ ] ITEMIZE THE CASES IN WHICH THE TRUSTEE HAS HAD TO OBJECT TO YOUR UNTIMELY MORTGAGE CLAIM. [ ] ALL OF THE ABOVE. [ ] NONE OF THE ABOVE. [ ]

37 AND, IF THE PARTIES CANNOT WORK IT OUT, OUR PHENOMENAL, TALENTED, INTELLIGENT, ESTEEMED, HARD WORKING, AWESOME, AMAZING, YOUTHFUL, AND GOOD LOOKING JUDGES WILL DECIDE* *THE RULE ACTUALLY SAYS THE COURT WILL DETERMINE WHETHER THE DEBTOR IS CURRENT ON ALL REQUIRED POST-PETITION AMOUNTS.

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39 WHAT HAPPENS IF I DON T TIMELY RESPOND? STUBBORN MORTGAGE HOLDER

40 WELL, THEN, YOU ARE AN OBJECT ATTACHED TO ANOTHER OBJECT BY AN INCLINED PLANE WRAPPED HELICALLY AROUND AN AXIS* *WITH MANY THANKS TO DR. LEONARD HOFSTADTER

41 UNLESS...

42 THE MORTGAGE HOLDER CAN SHOW THAT THE FAILURE TO RESPOND WAS SUBSTANTIALLY JUSTIFIED* OR HARMLESS** * I HAVE A DARN GOOD REASON - MY COMPUTER ATE MY RESPONSE. **AWE, COME ON, JUDGE. NOBODY GOT HURT!

43 ATTENDING A BEACH PARTY IS PROBABLY NOT A SUBSTANTIAL JUSTIFICATION* (*UNLESS ONE OF THESE FOLKS IS THE JUDGE)

44 PROBABLY NOT HARMLESS

45 UNLESS... WHAT IS THE EFFECT OF THE ORDER? *THAT IS TO SAY, THE MORTGAGE HOLDER IS PRECLUDED FROM ASSERTING A DIFFERENT CURE AMOUNT OR POST-PETITION ARREARAGE AMOUNT IN THE CASE, AN ADVERSARY, OR, AFTER DISCHARGE, ANY OTHER PROCEEDING

46 THE MORTGAGE HOLDER CAN SHOW THAT: THE FAILURE TO RESPOND WAS SUBSTANTIALLY JUSTIFIED OR HARMLESS You: Say, didn t we just go through that? Us: Yes, but it bears repeating.

47 SO, DOES THIS MEAN NOBODY HAS TO COMPLY WITH NATIONAL BANKRUPTCY RULE ? SHORT ANSWER: ARE YOU KIDDING? SLIGHTLY LONGER ANSWER, AND MUCH MORE RELEVANT: NO, YOU HAVE TO COMPLY. LONG ANSWER: LBR (g) (HINT, THE ANSWER IS STILL NO )

48 SO, DOES THIS NEW RULE WORK?

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50 Alane Beckett, Beckett & Lee, LLP October 21, 2013 DFW Area Chapter 13 Seminar 50

51 PRESENTED TO THE DALLAS FORT WORTH AREA CHAPTER 13 BANKRUPTCY CONFERENCE NOVEMBER 21, 2013 ALANE A. BECKET BECKET & LEE LLP MALVERN, PA

52 1976: discharge of student loans in bankruptcy prohibited for first 5 years of repayment unless debtor could establish undue hardship. 1990: discharge exception extended to 7 years. 1998: Code amended to provide that federally guaranteed student loans could not be discharged at all absent showing of undue hardship. 2005: discharge exception extended to all education loans. 52

53 11 U.S.C. 523(a)(8): a discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) does not discharge an individual debtor from any debt: (8) unless excepting such debt from discharge under this paragraph would impose an undue hardship on the debtor and the debtor s dependents, for (A) (i) an educational benefit overpayment or loan made, insured, or guaranteed by a governmental unit, or made under any program funded in whole or in part by a governmental unit or nonprofit institution; or (ii) an obligation to repay funds received as an educational benefit, scholarship, or stipend; or (B) any other educational loan that is a qualified education loan, as defined in section 221(d)(1) of the Internal Revenue Code of 1986, incurred by a debtor who is an individual 53

54 Lender: must establish the existence of the debt and that it is in one of the non-dischargeable categories Educational nature: based upon substance of the transaction, i.e., the stated purpose of the loan, not how proceeds were actually used Debtor: must prove undue hardship 54

55 (1) that the debtor cannot maintain, based on current income and expenses, a minimal standard of living for herself and her dependents if forced to repay the loans; (2) that additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period of the student loans; and (3) that the debtor has made good faith efforts to repay the loans. 55

56 Shelter Basic utilities Food and personal products Vehicles and associated costs Health insurance Recreation 56

57 Temporary hardship or a certainty of hopelessness? Career choices and future success. 57

58 Efforts measured by efforts to: obtain employment minimize expenses maximize income History of repayment? Use of alternate repayment options 58

59 Student Loan Repayment as a Special Circumstance to rebut the presumption of abuse or as a deduction Separate classification of student loans Payment as long term debt via 1322(b)(5) vs Separate classification via 1322(b)(5) and (10) In re Leser, 939 F.2d 669 (8 th Cir 1991) The discrimination has a reasonable basis The debtor can carry out a plan without the discrimination The discrimination is proposed in good faith The degree of discrimination is directly related to the basis or rationale for the discrimination 59

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63 1. Quality of education, school closings 2. Partial discharge 3. Proof of medical conditions 4. Timing of litigation in Chapter 13 cases 5. Effect of claim disallowance 6. Alternate means to discharge 63

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65 October 21, 2013 DFW Area Chapter 13 Seminar 65

66 Hon. Barbara Houser, Dallas Hon. Harlin Cooter Hale, Dallas Hon. Russell Nelms, Fort Worth Hon. Stacey Jernigan, Dallas October 21, 2013 DFW Area Chapter 13 Seminar 66

67 Gerrit Pronske, Pronske & Patel PC Hon. Harlin Cooter Hale, Dallas October 21, 2013 DFW Area Chapter 13 Seminar 67

68 October 21, 2013 DFW Area Chapter 13 Seminar 68

69 Mark Castillo, Curtis I Castillo, PC Behrooz Vida, Vida Law Firm October 21, 2013 DFW Area Chapter 13 Seminar 69

70 Tim Truman, Fort Worth Tom Powers, Dallas Pam Bassel, Fort Worth October 21, 2013 DFW Area Chapter 13 Seminar 70

71 Please complete evaluations and leave them at the registration table. October 21, 2013 DFW Area Chapter 13 Seminar 71