Chapter 13 - Two objections by trustee

[beekay2025]

Hi, all,

I am a sophomore in college posting here on the behalf of my mother, who is not tech-savvy at all. I still live with her. She filed for Chapter 13 on September 22, 2019 (She contracted an attorney who seems pretty solid; I've met with him myself several times), and she had her meeting of creditors two weeks ago today (October 28, 2019). Her confirmation hearing is scheduled for December 3, 2019.

I am just finding out through a letter dated November 1, 2019 that the trustee filed two objections to her proposed Chapter 13 plan.
- Objection One: "...based on the schedules and plan as filed, the unsecured creditors would receive a greater distribution if the estate of debtor were liquidated under a Chapter Seven bankruptcy. The debtor(s) must continue to provide for the unsecured claims as required by the bankruptcy code or the trustee objects to confirmation."
- Objection Two: "Based on the information provided, the plan is not feasible...The debtor(s) must continue to provide for the unsecured claims as required by the bankruptcy code or the trustee objects to confirmation."

I am under the impression that the second objection (feasibility) is often overruled by judges. For what it's worth, she was able to make her first payment (which was due on October 22)before the due date without problems.

I'm more worried about the first objection. I am not sure what, exactly, it is saying, but from looking things up on Google, it sounds like my mother's plan might have failed the "best interest of creditors test", meaning that her unsecured creditors would be receiving more money under a Chapter 7 plan than her current Chapter 13 plan. I have heard that this is grounds for automatic rejection of the Chapter 13 plan by the court. She has assets that we all really want her to keep, (including the house where we currently live) so a Chapter 13 is her only option. A possible reason for this is that she claimed that her house is worth significantly more than what she owes on it, but the only unsecured debt that her attorney discovered in her filing for bankruptcy was $36 owed to an unknown creditor. We also live in Florida, and from my knowledge, she should be able to exempt as much homestead property as she wants from the value assessed in the liquidation/best interest of creditors test. She does have three (run-down, cheap) paid-off cars in her name whose combined value does exceed the $1,000 Florida motor vehicle exemption.

I am hoping that the trustee and her attorney can come to an agreement within the next two weeks so she is confirmed without issue. I am aware that this might mean an increase of her monthly payments. I have seen that trustee objections seem to be fairly common and are usually resolved before the hearing, but this is all really strange to us.

Thank you for reading.

[justbroke]

This is known as the "best interest of creditor's test" or the "Chapter 7 liquidation test." We'll just call it the liquidation test for now. In a Chapter 13, you must pay the unsecured creditors at least as much as they would have received had there been a Chapter 7 liquidation. This is to prevent people from using (abusing?) a Chapter 13 to underpay what a creditor would have received had it been a Chapter 7. It's simply level-setting the chapters of bankruptcy.

I don't know the details of the case, but perhaps the Trustee believes that the homestead exemption doesn't apply to the real property. Does your mother even live in the property in question?

For what it's worth, infeasible plans are not "often overruled by judges." The code requires a "confirmable" plan and an infeasible plan is not such a plan. Proposing to pay less than 100% to unsecured creditors when the liquidation test suggests that the debtor should, will not be confirmed by the court. The second objection is tied specifically to the first objection. It is literally saying that because of objection #1, the unsecured creditors are not being provided for (at 100%). Therefore, the plan is not confirmable.

This is just strange to me anyhow. If your mother only has only $36 in unsecured debt... why is she filing?

Bottom line is this. If there is only a single $36 unsecured creditor, her plan must pay that 100%. For some reason I don't think this is about a single $36 creditor. There is something else missing. I mean, there is no reason to file if you can liquidate (even a car) and pay off a $36 creditor.

[beekay2025]

justbroke,



I'm sorry for not mentioning this before -- she filed the bankruptcy because she fell very far behind on her house payments (about 23k), and the house was in foreclosure. She also had two liens on the house. One was because she borrowed money against the house and never paid it back, and the other is a lien for dues that she did not pay to her HOA. She also had awful credit (high 400s-low 500s) due to these and other mistakes, including a car that she financed and could not pay for, which was ultimately repossessed last year. She had at least 30k in secured debt, if I recall correctly. In response to your questions, yes, she lives on the property, and I am very curious about the extent of her unsecured debt, myself. She claims to have little to no unsecured debt, outside of the aforementioned $36.

When I read "the plan is not feasible," I assumed that they meant on financial grounds (as in, she did not have the resources to fund the plan payments, making the plan infeasible). Your explanation makes a lot more sense. I've seen that plans that fail the Chapter Seven Liquidation Test are not confirm-able by the court until a revised plan is submitted where the unsecured creditors receive what they would had Chapter Seven been filed (if I am understanding correctly).

Anyhow, she got in touch with her attorney, who told her she has nothing to worry about and that they'll take care of everything, but I'll take that with a grain of salt. He also told her to just keep submitting her monthly payments as-is, and she submitted her second one about a week ago (Ch. 13 monthly payments in her area of Florida include the mortgage on the house + arrears altogether).

I appreciate your help. This whole thing is a very foreign experience to us.

[beekay2025]

Update: She was confirmed today at her first confirmation hearing. We're very pleasantly surprised that she wasn't continued/rescheduled.

[Carmella]

Good for her!

[justbroke]

I'm glad to read this. She just needs to continue to make ontime payments and she'll be just fine.