Question Less than 30 days from BK being over --- Notice of Dismissal for Lack of Feasibility

[Lesa13]

My BK (5 years in length) is over the day before Thanksgiving. I have made all my payments and it's been smooth sailing, sending them my tax returns etc. Today I got in the mail a Motion to Dismiss Due to Lack of Feasibility with a hearing date set in December.

From what I've been able to piece together, somehow the unsecured creditors are still owed money. That's not shocking news. When the plan was confirmed, it was clear they would not get all of their money. I filed in 2015 so I am under the "old rules" if that makes any difference.

The trustee did send a list of what I believe are the remaining creditors -- places like a payday loan company and Credit One for instance. Everyone has been getting paid and it looks like for the majority that are left, they are about 50% paid off. There are one or two that I'd say are about 1/4 paid off.

I'm assuming the whole point of this Motion to Dismiss is to somehow get these unsecured folks paid. But why is that? If you are unsecured, you get paid what you get paid, right?

There is no indication that they want to extend the plan, which would be fine with me and would make the most sense. I did read that if you are dismissed, your choice is refile under a Chapter 7 or a new Chapter 13. That seems like a huge waste of time and money. I've paid in faithfully for 5 years. I've done everything the court asked. The trustee approved the plan and confirmed it. Why now, less than a month before my completion, has this become an issue?

I am in the State of MO if that makes any difference. I'm waiting to hear from my attorney but this just really seems like it's someone's mistake, but not mine.

Thanks for any input! It isn't like all of us aren't under enough stress between the pandemic and the election, right??

[justbroke]

Unfortunately, your attorney and you are going to need to go through the order of confirmation and the numbers. Usually, so long as your plan payments, when added together, equal or exceed the plan base, you are okay. If your plan base was wrong from the start (as mine was), someone should have seen it and had it corrected; I corrected mine eventually.

The Trustee should only be going by the Plan Base and not by any other number and certainly not by an expected "percentage" or payout to unsecured creditors. This amount could change if tax refunds are included, but the Plan Base generally doesn't change.

Someone has to do all the math. Your attorney is going to need to object to the motion by filing an answer.

[Lesa13]

Could you explain a little more about your plan base being wrong? I spent several hours overnight looking into everything. The bottom line is the dollar figure guaranteed to the unsecured creditors in the confirmed Plan is not what has been paid in. I estimate between $5,000-$8,000 is owed to those unsecured creditors under the plan.

HOWEVER, how is it my attorney and the trustee were not able to do simple math? At the time the plan was confirmed, what I was paying in per month would in no way have covered both the secured and unsecured creditors. This seems like a huge mistake on someone's part, whether it's my attorney or the trustee. I am now less than 3 weeks away from supposed completion and I have a sick feeling it's going to be like "oh we made a mistake, guess what you need to cough up X amount of dollars or we'll dismiss." Luckily I can borrow from my 401(k) which I will do if I have to (not telling my attorney that). But if this had been mathematically worked out correctly from day one, it would have added something like $25 extra a payment and I would have been more than able to afford it. Now, five years later, coming up with a lump sum in the middle of this crazy pandemic so the Chapter 13 plan I faithfully followed for the past 5 years doesn't get pulled out from under me doesn't seem right.

Have not yet heard back from my attorney so I'm hopeful he has some tricks up his sleeve. If not, though, I have no problem drawing up an answer to the motion and going to court on my own.

But just wanting to know if this kind of simple math error occurs more than occasionally. Thanks.

[justbroke]

My plan base was calculated during the first confirmation, but I had a modification of the plan afterwards. For months, the plan base was more than it should have been (by $30K or more). The Trustee eventually agreed and fixed it.

How the math error can occur is beyond me. Typically the Trustee will run your case through Best Case or Bankrupter for themselves (these are common attorney programs for bankruptcy). But there would never be a "guarantee" to the unsecured creditors unless your "Chapter 7 liquidation test" confirmed that you had equity -- and/or cash -- which reuiqres you to pay a minimum to the unsecured creditors. If that's the case, then the math should have been easy.

[Lesa13]

Thank you so much. I'm racking my brain trying to figure out if I did something wrong but I am guessing it's someone else who screwed up. Just remains to be seen what happens.

[Franco]

Lesa13 let us know what happens, that sounds ridiculous to be honest. I'm half way through my CH13 and I too would be livid if something like that happened. Only thing I have to complete is the 2nd BK coarse before the end of my BK. This makes me wonder, can the unsecured debt that's in your "confirmed plan" be sold to another junk debt buyer and can that new junk debt buyer pursue you while in the active CH13 for more $$$?

In my plan, my vehicle & trustee are getting pretty much everything, the unsecured debts are getting very little so this makes me wonder.

[shipo]

This makes me wonder, can the unsecured debt that's in your "confirmed plan" be sold to another junk debt buyer and can that new junk debt buyer pursue you while in the active CH13 for more $$$?

Simple answer, "no". Not legally anyway.

[justbroke]

shipo is on the money. No creditor is allowed to "collect" on a pre-petition debt (period).

However, unsecured creditors have been known to sell their portfolio of "junk debt" to large debt buyers that we lovingly call "junk debt buyers" or JDBs. They buy these portfolios of bad debt for less than $0.10 on the dollar and sometimes much much less (literally only a few cents). Their hope is that one of the following two things happen; a.) the Chapter 13 pays more than 3-6% to them (because they literally only paid that amount for the debt), or, what they're really hoping for, b.) that your Chapter 13 fails. The former is the biggest reason to take that bet as around 50% of Chapter 13s fail. At that point, the JDB could collect all the accrued interest plus the original balance and maybe some fees.

JDBs are truly an interesting business model.

(justbroke's study guide: most Chapter 13 debtors will notice names like B-Real, LVNV Funding, Roundup Funding, Resurgent Capital, eCast Settlement Corp, Sherman Financial, NCO Capital, Portfolio Recovery Associates (PRA), and B-Line. These are the "major" JDBs in the debt industry and they buy a lot of Chapter 13 debt! They don't buy the debt to be nice by consolidating the debt into one or two of these companies. They buy the debt hoping that you'll fail.)

[Lesa13]

I have talked to my attorney very very briefly. He asked if I would be able to come up with a lump sum if need be. I said I guess I could take a loan from my 401(k) depending on how much it was. He said he wanted to "explore all options" before making a recommendation, but didn't have a reason as to why these numbers are so screwed up. Apparently there was a notice of lack of feasibility filed by the trustee on the same day he confirmed the plan at the beginning so not sure why this wasn't dealt with then.

At a rough guess, I'm saying all of the non-secured trustees (most of them) have already got paid about 50% of what they were owed. Some of these were payday loan type places that I'm not feeling too sorry for, but again, if they were told they were going to get X amount, that's what they should get. That was the whole point of the Chapter 13 - I wasn't trying to screw any of them and was happy to pay them back for a reasonable amount in a reasonable length of time.

This has been a horrible time for me - this situation is one of several that happened within about 3 days - my child got very ill (finally on the mend as of today, thankfully), I had $500 charged on my debit card by someone on Amazon and can't seem to get anyone to refund the money (Amazon or bank) even though they know it wasn't my account, I didn't order it and what was ordered (multiple crock pots) didn't ship to me or have anything to do with me. Then this BK thing out of the blue on top of all of that.

I am hopeful this can be worked out. I am tending to think this is my attorney's fault because I don't see a response to the initial notice of lack of feasibility filed in 2016, but I also don't understand the trustee going ahead and confirming the plan when he said the same day "hey, this isn't feasible." Why confirm it then?

The few things I've been able to research on my own is to have the trustee continue the hearing on the dismissal for as long as possible, keep accepting my monthly payment until it's paid, then actually "have" the hearing which will be moot at that point. I don't think that can happen due to the amount I think we are short.

Apparently it used to be common that when there was a lack of feasibility at the end of the plan, they just went ahead and kept accepting the payments like nothing happened and just wouldn't dismiss the case or release you until everything was paid according to the plan. That would be the best option but it seems to me that's unlikely due to the fact that there seems to be a really strict limit on time - no more than 60 months.

It's just such a shame. It didn't have to happen. Another $25 a paycheck would have paid all of this off with no issue at all from me.

Portfolio Recovery Associates is one of my debtors and they've gotten about 50% of their debt.

I definitely hope I don't have to physically go to court - I don't need to be around a bunch of people who may or may not be social distancing or may or may not wear masks. What a mess.

[justbroke]

It is definitely a shame that the attorney and the Trustee both missed the feasibility notice. But the outcome is similar to if your tax preparer and/or the IRS messed up on a calculation or forgot to tell you something; you are still liable for the taxes despite the error.

Portfolio Recovery Associates is one of my debtors and they've gotten about 50% of their debt.

They made at least 750% of their investment (if they bought it for the standard JDB rates of 3-6%).

Very sorry to read this and I hope that you don't rob your future to pay for your attorney and trustee mistake.

[flashoflight]

I'd just add take a covid no penalty withdrawal from the 401k if possible rather than take a 401k loan. You don't want mandatory payments afterwards that may come with penalties if defaulted. You can always recontribute voluntarily into the 401k to rebuild it. Also remember that if you have to take a 401k hit, it's way better than failing the 13.

[shipo]

You can always recontribute voluntarily into the 401k to rebuild it. Also remember that if you have to take a 401k hit, it's way better than failing the 13.

Is that true if you're already contributing the IRS max?

[sophieanne]

shipo - I don’t believe that would be taken into the equation. The cares act allows you to repay the loan , if you choose, within 3 years. Also you can split the tax liability over 3 years. you may pay part or all of the tax in years 1 and 2; however if you repay the loan by the end of year 3, you can can get a refund of the tax you already paid. I know more details will be coming before tax time. So a repayment wouldn’t count against your yearly allowed contribution.

[shipo]

Thanks sophieanne, yeah, I get the whole repayment of the loan concept, but I think premise of what flashoflight was proposing was, in lieu of a loan from a 401K, a person needing money can take a distribution, and then if their financial situation turns around, they can "recontribute" to bring the 401K back up to pre-distribution levels.

What I am wondering is, if you're already contributing the max (i.e. $19,500 or $26,000, depending upon your age), can you exceed those limits if you are paying back for an earlier distribution? Now, I think it is fair to say that is a highly unlikely condition as I don't see too many folks in a Chapter 13 both needing money and contributing the max, so all in all, this is probably an academic question with little basis in reality.

[sophieanne]

shipo Your ending point about being in chapter 13 makes sense. As I said above, we’ll have to wait for the IRS guidelines, but because repayment is an option due to the cares act...I think you would be able to exceed your contribution limit for the year..as your individual contribution amount will be treated separately from the cares act repayment amount. There will have to be a way to show that the amount over your yearly allowance is in fact a cares act withdrawal repayment. If repayment is made, there will also have to be a way to show you’re entitled to a refund of the tax you may have paid after year 1 and 2, if applicable. Lots of guidelines to be announced. This is my opinion.