Trustee Objection to Confirmation of Chapter 13 Plan

[Barbisi]

Hi everyone. Our 341 meeting is tomorrow. This is our first post.

Our annual gross income is approximately $93,000.

We are filing with approximately $134,000 in credit card debt (accumulated as a result of a fixer upper disastrous home purchase in 2014; never should have bought this home, details in an upcoming post), approximately $2000 secured debt - washer, dryer, mattress.

Today we received the trustee letter containing the objections. The objections will follow below. Is this type of objection normal? Is it possible to negotiate with the trustee on these issues? We have a bankruptcy attorney with 25 years experience. At the end of the letter, the trustee requests that the Court deny confirmation in the above captioned manner and dismiss or convert the proceed pursuant to 11 U.S.C. 1307. One concern is the request for dismissal or conversion. Would that be a conversion to Chapter 7?

We live in Colorado. Below is the contents of the letter:

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1. The Plan fails to provide for the minimum distribution to Class 4 claims as required by Form 122C. 11 U.S.C. 1325(b)(3). The Trustee objects to the following entries on Form 122C:

Form 122C-2 Line 20 should be $0 (unless documented)
Form 122C-2 Line 22 should be $0 (unless documented)

2. Projected disposable income from Schedules I & J reflects expenses which are not reasonable or necessary to be expended for the maintenance or support of the debtor or a dependent. These include $300 for medical (Debtor has $112 FSA) $157 pet expense, $170 for education expense and $100 for health club.

3. Trustee cannot determine if the Chapter 13 plan meets the best interest of creditors. 11 U.S.C. 1325(a)(4). Th Plan should provide for turnover of the non-exempt portion of Debtors' 2016 Federal and State tax refunds on or before April 30, 2017. The Plan should provide for turnover of the 2016 Federal and State tax returns on or before April 15, 2017.

4. The Plan may not be proposed in good faith. 11 U.S.C. 1325(a)(3). Debtors made substantial purchases shortly before the filing of the Petition.

5. Trustee cannot determine if the Plan is filed in good faith. Trustee requests closing settlement sheets for the house Debtors sold and purchased in 2016.

The Trustee reserves the right to amend his objection after the meeting of creditors and to report on the Debtors' payment history at the hearing on his Objection.

WHEREFORE, the Standing Chapter 13 Trustee requests that the Court deny confirmation in the above-captioned matter and dismiss or convert the proceeding pursuant to 11 U.S.C. 1307.

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Regarding paragraph 2, medical: $300 includes $1200 for a currently chipped front tooth that will require a crown (dentist has written a letter explaining the situation), $100/month for required medication to control issues with uterine fibroids, $100/month for grief counseling (for death of mother in April 2016; she lived with us for 16 years). Pet expenses are actual, for food - 4 cats. Regarding education expense of $170/month: we discussed this with the attorney, and he said, we can try, but he expected the Trustee to reject it. Education expenses are: training for voice over, script writing, on camera acting, audio and video editing, technical training for engineering work. The $100 health club, is for health maintenance, which we thought was permissible under the IRS guidelines.

Regarding paragraph 3, we filed a complicated tax return, which included the sale of the (purchased in 2014) money pit home, and the purchase of another home afterward. Per requirements by underwriting, we paid off $58,000 of credit card debt in order to qualify to purchase the 'new to us' home. This information is included in the closing documents which the Trustee has requested, and our attorney currently has a copy. For the 2014 home, we refinanced in January 2016 (ill advised by the mortgage broker). There were points associated with this refinance transaction. These points effected an increased income tax refund for 2016 tax filing. We used the refund proceeds to pay for the HR Block tax filing fee. We received the return in the form of a debit card, which we have used to pay for miscellaneous expenses - oil changes, etc. We are awaiting the state refund in the form of a paper check. We had understood from the lawyer that the tax refund was going to be rolled into our 5 year plan. However, the Trustee is demanding full payment April 30 2017. Currently the only way to raise those funds is to borrow against the 401(k).

Any advice from all of you to help us navigate this situation would be most appreciated!

Just Broke and Lady In Red - you two have provided many informative and detailed posts, so if you are able to respond based on your own experiences, it would be most appreciated.

Thank you from the bottom of our hearts,

Barbisi

[Barbisi]

We attended the 341 meeting with our lawyer. We are still not sure what the final payment will be as the objections still stand and our medical expense increases are accompanied by the appropriate physician documentation. The educational expenses ,additional pet food (for 3 kittens and one elderly (15 year old) cat and maybe the monthly gym health club are probably losing battles due to stringent accounting. The lawyer is very vague about monthly costs so we will see what the ultimate numbers end up being. Or as my late,beloved Mother (who lived with us for a little more than 16 years and provided much financial and emotional support to us) always advised, Look for the worst and hope for the best.

[moses911]

I don't understand the trustee objection in paragraph 4. What did u buy and how long before you filed?

[justbroke]

1. The Plan fails to provide for the minimum distribution to Class 4 claims as required by Form 122C. 11 U.S.C. 1325(b)(3). The Trustee objects to the following entries on Form 122C:

Form 122C-2 Line 20 should be $0 (unless documented)
Form 122C-2 Line 22 should be $0 (unless documented)

This is normal. Without substantial proof, they do not like ANYTHING on these lines.

2. Projected disposable income from Schedules I & J reflects expenses which are not reasonable or necessary to be expended for the maintenance or support of the debtor or a dependent. These include $300 for medical (Debtor has $112 FSA) $157 pet expense, $170 for education expense and $100 for health club.

The Trustee doesn't see where you're coming up with an additional $300 for medical especially since you already have an FSA contribution (despite that you want to get some cosmetic dentistry done). You may be able to do a step-ladder plan to deal with the dentistry. The Trustee loves to attack these expenses because they are "fluff" for the most part. It's smart for you to try. The Trustee will allow "some" of it. The pet expense is tough but you may be able to negotiate or change it to under $100 (e.g. $99). Your attorney should worth with you on reasonable counters to the Trustee's concerns.

3. Trustee cannot determine if the Chapter 13 plan meets the best interest of creditors. 11 U.S.C. 1325(a)(4). Th Plan should provide for turnover of the non-exempt portion of Debtors' 2016 Federal and State tax refunds on or before April 30, 2017. The Plan should provide for turnover of the 2016 Federal and State tax returns on or before April 15, 2017.

This is standard language. They may also wonder what you did with your 2016 refund if you filed before receiving it (or even "shortly" after receiving it). Since you are not in a 100% plan the Trustee wants your tax returns and any refunds to be added to the plan. This is easily overcome by confirmation because your plan will show the turnover or it will be included in the Order Confirming Plan.

4. The Plan may not be proposed in good faith. 11 U.S.C. 1325(a)(3). Debtors made substantial purchases shortly before the filing of the Petition.

They don't know. I don't know what you purchased right before filing.

5. Trustee cannot determine if the Plan is filed in good faith. Trustee requests closing settlement sheets for the house Debtors sold and purchased in 2016.

This is probably related to #4.

Your case is simply complex because you have significant financial transactions within the last year. It's the Trustee's job to figure out what the transaction included and what happened to any proceeds. The Trustee's office often sends out these Objection to Confirmations (or non-recommendations) after spending little time on your case and without none of the answers that you provided here. It's just a negotiation at this point.

[Barbisi]

Thank you both for replying!
Just Broke,as to the cosmetic dentistry, the problem is that the tooth is so fragile that according to the doctor I shouldn't bite into an apple or eat ribs with it.He says the tooth has micro fractures all the way up to the root and needs a crown now, but that the insurance expects us to pay for temporary fillings that will only last 3-5 months on average before they chip again, weakening the tooth even more. The last filling was done in October of 2016 and it chipped again in late February. He managed to file it down so for now the chip is hardly noticeable. But he warned me to be careful eating ribs, corn on the cob,fruit,etc. He said it is typical of insurance companies to deny coverage even when it is medically necessary. He wrote a letter to that effect which the lawyer now has in his possession.
I also need a certain medicine to combat growing fibroids which if left untreated might necessitate a hysterectomy. I need an ultrasound in May to check on their size .
Additionally, I was just diagnosed with posterior tibial tendinitis by a respected foot doctor and put in a costly walking boot($250) which we already paid for out of pocket since we are in a HSA and this doctor demands full payment at the time of service. I will need chiropractic care and possible physical therapy to regain full use of the foot and to prevent this happening again. He is also providing a letter as to his recommendations.( Actually all the doctors involved are writing letters in support of why we need everything we are claiming, from the gym to the tooth, birth control pills,chiropractic care to physical therapy. -we are very lucky in that regard.)
As to the purchases before filing , my husband bought two very nice suits on sale ,along with shirts and ties for job interviews which haven't transpired yet due to this filing. I purchased a discounted membership at a nearby gym ,which I can't currently use because of the foot injury, as well as 3 young kittens from a cat shelter who ended up needing quite a bit of medical attention to ensure their health (Medicines for contagious diseases and shots.) My beautiful 201/2 year old Maine Coon, Kabuki passed away in October leaving us only with Mama's semi-feral elderly cat, Gazelle. We lost Pikkar (aged 181/2) in October 2015, followed by my Mama in April 2016 and lastly, Kabuki in October 2016. Oh, I forgot I am also claiming grief counseling as I haven't been able to process my mother's death since the sale of one house, the purchase of another followed by chapter 13 all in under one year. (We fully expect a letter from the counselor too.)
The original plan was for my husband to find another higher paying job after all the house updates were done to the tune of $100,000, and sell the wretched house which we all three hated the following Spring (2017) but Mama died unexpectedly, forcing us to sell quickly and pay off as much existing debt as possible in order to qualify for a replacement home, which while a much better fit has increased our mortgage payment by more than $500 per month, leaving us no choice but to file for bankruptcy since we can not afford a DMP . (We consulted with one such company in December 2016 which informed us we needed to increase our income by more than $1000 monthly to make payments.)
I apologize for the lengthy post guys, but there is much to explain!

[justbroke]

Barbisi, I'm not so worried about the medical things, including the dental needs. You'll just have to explain those costs. The Trustee simply doesn't let a debtor put indefensible numbers on the schedules.

I think you'll be fine for the most part. It just requires explanation because the once you put an amount on certain lines on the Means Test (or Schedule I/J), the Trustee wants documentation to defend the amount.

[switch625]

Regarding the health club, an HSA/FSA may allow reimbursement of the membership fee if it is needed for medical treatment. I got a form to get my FSA to pay for my gym because of high cholesterol. I'm looking at a modified plan this spring. I'll find out if the trustee will allow the expense if I'm not at a 100% plan (I assume I will be at 100%).

I raise this not because I'm suggesting that you use your FSA to pay for gym membership (it looks like you have more urgent medical expenses to pay out of an FSA) but as a way to provide documentation to prove to the trustee that the gym fee is medically necessary. Perhaps there is a medical condition that is treated by exercise and you can't tolerate meds. Maybe the trustee allows the expense as a result. Even after the confirmation is done and you decide that you don't or can't use the gym and cancel the membership, the amount you paid is living expense wiggle room as you move through your plan

[Barbisi]

Well Switch625 , I recently gained about 15 pounds (since Mama's death) putting my BMI at 31. ( remarkably I still wear a size 10-12 because my weight has always been evenly distributed so I need to lose everywhere LOL! Actually the chiropractor said in her letter I need a gym to lose weight so I will have less lower body injuries and be more stable with the stairs in my home. (no falling down the stairs!) Thank you for replying.
Thanks, Just Broke. Every year we have exceeded our basic coverage . My husband has a HSA estimate based on last year which will be more than $300 per month (mainly for me). Between frequent injuries, fibroid issues ,etc. our medical costs always are high.

[Barbisi]

More updates about the ongoing ankle condition : I received my first chiropractic treatment on the injured tibia ( $50 ) which included ART, ultrasound and Kenizo tape. The doctor suggested a possible MRI not yet done this time, but with an HSA may cost more than a $1000. So the costs to heal this ankle and allow me to regain my former activity level and ensure stabiilty and stair safety at home may well exceed $2000+.

It is very disheartening to enter a Chapter 13 with clear medical issues which simply can not wait 5 + years to resolve themselves ( i. e.ankle not stable enough to navigate stairs,thus precipitating a crippling fall (a scary but likely scenario without rehab and treatment (I have twisted my ankle before on stairs! ) and fibroids which require BC pills to stabilize and not require a hysterectomy.) I have read some horror stories on here about people denying themselves medical treatment because they didn't want to make the trustee "angry". These include a lady with an abscessed tooth forgoing treatment until her church stepped in and paid for her root canal! ( I had a painful abscess in November 2016 that I was thankfully able to promptly treat with antibiotics and a root canal because we didn't yet realize we were destined for chapter 13 and had access to credit when I needed it most! We paid for the crown( $600) this year with our dental insurance which ,except for my front "cosmetic" cracked tooth, is proving to be better than the enforced HSA at covering emergencies. Another gentleman tried to do without needed rehab and therapy sessions for a shoulder surgery! (my future therapy will cost $70 (up from only $40 at the same provider less than two years ago when I needed care on my left deltoid/ bicep/rotator cuff area.)

Paying back unsecured debt to billion dollar banks should not jeopardize the debtor's current and future health just to enact a punitive maximum monthly payment decreed by an all mighty court and all knowing trustee. I would much prefer being in a CCCS-style plan which while 100% allows an emergency cc, no court monitoring, less impact on your credit score and most importantly the freedom to move, change jobs,pursue a performing arts career,etc. (all of these we did when we were enrolled in CCCS from 1999-2004 and built up great credit scores and moved from Dallas Tx. to New Hampshire even during and after my husband was unemployed for 16 months!) I have faced many obstacles in my life but I find this chapter 13 to be the most frustrating and longest -lasting (5 years! ) I have yet to encounter. After all, I've never been in real financial prison before! My husband spent an entire week collecting data pertaining to our medical, educational classes (for acting,voicing-over,script wrighting ,animation,audio engineering,etc) and now is in " breakdown" mode ! I only hope we can survive 5 more like years!

[Barbisi]

I did not mean to malign chapter 13 filers who are desperately trying to save an underwater house (some with second mortgages) or vehicles they need to keep in order to retain a job who are grateful to be in chapter 13. Everyone's situation is different and ours is the result of a year and a half fixer upper nightmare fiasco in which we paid for $100,000 worth of necessary home updates and improvements in order to make a most shabby and extremely outdated 1963 basic tract home both livable (for my elderly, beloved, and late Mama) and marketable to buyers besides low ball offer investors.If we were always meant for chapter 13 ,then we should have enjoyed ourselves with vacations, fun trips, and lavish spa excursions instead of endless and ever more increasing remodeling costs while my mother declined slowly before our eyes finally expiring almost exactly 2 months after the mouse infested cabinets had been torn out and replaced with a very cost effective new kitchen. Everyone else (the 2014 sellers, the 2016 buyers, the realtors, the contractors, the mortgage broker, the appraisers, the inspectors) got their money and walked away satisfied. Only we got rooked. We bought a sub par house , spent $100,000 on credit cards(!) to bring it up to code and modern standards and lost $20,000 on the flip, meaning we didn't owe any capital gains tax but we got a refund (which of course is owed as dmi to the trustee) because of the early 2016 ill-advised refi.

[justbroke]

A Chapter 13 can deal with unforeseen financial issues if you actually have DMI. For issues like this, you can always have your plan payments abated or even have your plan modified to reduce the payments to cover major issues from medical to home/auto repairs. A Chapter 13 doesn't prevent you from moving (I did twice), changing jobs, changing careers, going to (or back to) college, etc.

What it does do, is forces you to budget and stick to a budget. A Chapter 13 will never be able to deal with financial issues that are unaffordable because the debtor just doesn't have the resources to deal with the financial issue(s). It happens and sadly explains why over 60% of Chapter 13s fail -- due to nonpayment.

I will continue to tell Chapter 13 debtors that if they have any financial issue, loss/decrease of income, loss of job, major medical need, major repair need, to immediately contact their attorney. Too many people just wait until it's too late. A Chapter 13 can deal with these things and has mechanisms already in place and in the bankruptcy code to deal with it (11 USC 1329 -- Plan Modification). It will not, however, fix a debtor's inability to budget or that the property which the debtor is trying to keep/maintain when it's simply infeasible.

Since a Chapter 13 is entirely voluntary, there is always a way out. As one of my favorite judge's often quips, "it's a pay to play system." Simply meaning that if you want the protection of the U.S. Bankruptcy Court, you must "pay" (Chapter 13 plan payments) in order to "play" (be in the Chapter 13). The bankruptcy code is extremley powerful and unforgiving to creditors. Where else can you force a creditor to refinance a car (cram down and just simply filing a Chapter 13)? Where else can you stop creditors cold in their tracks (no, CCCS can't really do that, they negotiate and not all creditors play along or required to by law)? Where else can you guarantee that in 3-5 years, you only pay what you can afford (DMI) and the creditors write off everything and can never contact you again regarding the debt? Where else can you force the IRS into a replacement plan, without interest, and without paying any penalties or interest on those penalties? Where else can you make a vehicle lender "eats steel" (take back car with no recourse)?

Chapter 13 is simply a very powerful tool that has "some" costs to the user. Sure it is not a cakewalk and life does happen along the way. But there are provisions and tools in the code to help with that. But if you're using Chapter 13 to force a lien strip or force a lender to get arrears paid back over time, then it's the only tool.

You may not ever see Chapter 13 as the powerful tool, just as businesses use Chapter 11, and that is okay. It's just a tool. There are many tools and strategies. This is the only one that, if you "pay" to "play", will 100% discharge your dischargeable debt.

I hope you guys are feeling better.

[Barbisi]

Thank you for replying yet again, Just Broke with words of wisdom! My husband is currently battling back against the greatly increased payment the trustee is currently demanding with even more documents, a new one from the chiropractor stating this "new" injury is chronic and may need an MRI to fully diagnose the problem, maybe another from the physical therapist whenever that starts ( I don't how to prevent this from happening again plus I must find ways to strengthen it ). I have never been one to let my health "go" and have always struggled with these 20+ bi-lateral ankle sprains, strains etc.which I once calculated have robbed me of around 4 years of mobility (due to constant icing ,elevating etc. ) and are directly responsible for my 40 lb weight gain. It is just I never had to document and try to prove to any one why I was spending what ever I needed to spend to restore what ever body part( ankle, right elbow (cortisone shot in 2002,) uterus, surgical ganglion removal from my left wrist, left deltoid cortisone injection , etc.) to a healthy functional state . I have had physical therapy so many times in the last 7 years we have lived in Colorado, I think I have lost count! I expect further injuries ahead as I always have for the last 28 years since I first fell in the deep pot hole. All we can do is fight back as long as possible!
In order to be in a 100% payback situation our payment would be over $2200 a month . The trustee thinks we have $1000 + DMI which we obviously don't with our HSA and all these upcoming and ongoing medical challenges. My husband has long neglected his own health to provide care for me and we lost $750 in supplemental income in late April 2016, so he is probably due for something major too!
I agree too many people are afraid to contest an unreasonable plan and don't interact with their attorney enough and struggle to pay back an unfeasible amount. Perhaps because I don't feel that I deserve to be bankrupt, that I committed some crime that warrants punishment, I am not willing to do with out reasonable medical care to pay billionaire banks back! If I had the entire a
mount I would gladly pay it back in full, as we always did for 20 years!
A stringent budget requires intelligent planning ,not just strict deprivation! Even if I never saw another film in a movie theatre, or ate out, did 0 home or car repairs, never took any classes in my field, starved my kittens and elderly cat (something I refuse to do!) cut back severely every month on food (well,that would solve my weight issue and I might develop anorexia, an eating disorder!) I might not have enough cash to pay for an MRI or physical therapy treatments in a HSA! (We are only covered at 20% after $3000 each! ) I don't have enough time to save up for a year to get my ankle properly cared for -that is something content and happy Chapter 13 campers need to realize! It isn't all about budgeting when something catastrophic happens! I shudder to think what
someone with terminal cancer would do in a chapter 13 !
And yes, as you say, it is a pay to play system and we feel we shouldn't have to pay much more than we have in our first two payments! As for moving , we have a large amount of things which pretty much fill up a 2,800sf 2 story home . We hope to live here through this bankruptcy, then do minor and necessary repairs and updates to ensure a smooth sale in around 7 years provided I can navigate the stairs that long without falling. (I hope my husband can find a better and higher paying job at at a different company and maybe someday we can take a trip abroad and I can utilize one of my 3 languages which are largely going to waste in Colorado. And maybe someday I'll be able to earn some money in my field! ) So a lot is riding on being able to survive what is shaping up to be an especially hard 5 years.
And lastly, thank you just broke for hoping we are feeling better! We shall see.

[justbroke]

If you feel that the Trustee is unrealistic then you have your attorney take it to the Judge. There are people, not many but some, that are able to become confirmed over the objection of the Trustee. In fact, there the legal scholar archives are full of cases where the debtor overcame one or more objections of the Trustee and was confirmed.

Your main issue is that the way that the plans work, and the Trustee looks forward, is that they don't look forward to deviations from the plan. The upcoming medical costs are a deviation. There are at least two ways to deal with these. One, create a step-up plan to deal with immediate need (I have done this type of plan and was readily confirmed). The second is to modify the plan with an abatement or other plan modification at the time this deviation occurs. The second method is what is normally done for unexpected costs. The first typically done when the need is shortly after filing and you can anticipate this by using the step-up plan.

You may also need to put more into your HSA. There is nothing wrong with putting the maximum in your HSA. I put $6,500 a year in the HSA to cover costs and I spent about that (on unanticipated events). You can put what is necessary in your HSA in order to save for medical so long as you can document that it is necessary. I contribute $500/month to my HSA and that was not questioned. In fact, saying that you need to save for annual medical costs does not go over well with the Trustee because there is just no "allowance" for that in the code. However, putting money in an HSA is allowed by the code and is specifically why I put over $6K a year in mine in order to pay all of my out-of-pocket expenses.

[Barbisi]

I will have to talk to my husband about these ideas! I am only trained in artistic,musical and linguistic fields not financial ones -LOL!
I do know that we are not contributing to the HSA. It sounds like where we to contribute $300 a month to the HSA than the trustee couldn't take that money away in the form of a higher payment? Or would the payment stay the same regardless of the HSA contribution?
Just broke, thank you!

[Barbisi]

It does sound like we will have to try to contribute the maximum amount to offset all these charges ($100 for 2 chiropractic treatments since Monday), possible physical therapy starting soon ($70 per visit ) MRI (?), another foot surgeon office visit ($140), etc. And that's not including 3 pack Yasmin ($270), uterine ultrasound, Chipped front tooth, additional chiropractic visits ($50-60 per visit), another cavity ($200-300?) and an examination and new glasses for us both. ($1000?) We didn't contribute last year and got by fine ,but with all the negative changes to our finances (death and loss of household income) an unexpected Chapter 13, surging medical expenses, we may have no choice.

The lawyer who is too brief and to the point for my liking (that is why I have scoured these posts looking for answers and advice ) simply told my husband not to change anything yet.
Just broke if my husband is able to contribute to his HSA, will we need to amend the filing or refile ,since from what I understand , HSA money is pre-tax,thus altering the composition of the DMI available?