Paying interest to unsecured creditors when paying less than DMI in 100% plan

[womanonfire]

Doing research on one of the Trustee's objections in his MTD to dismiss our case that my plan was filed in bad faith under 11 U.S.C 1325(a)(3) and 1 U.S.C 1325(6)(1)(B). So it looks as if based on the results, that I will likely have to pay interest to unsecured creditors if I don't contribute all of my DMI into my 100% plan.

Unless their are other cases since this one, this is terrible news: https://casetext.com/case/in-re-matthews-5252017

What really sucks is that we had to cancel our insurance through the ACA marketplace because we could not afford it with our current plan payment. So now, we have no health insurance and we are in our 50s, no IRA or anything. I was looking forward to being able to put some money in savings thinking we are doing the right thing by paying back everyone 100% and feeling great about that, but this just really upsets me.

On top of this, we have another mouth to feed as my bipolar son is back home and jobless. My husband has not been able to get in as many hours due to the cold weather.

If anyone knows of any recent cases maybe in the 11th circuit that could be of help, please let me know.

[despritfreya]

Is the case you cite to written by your judge? If not, how does your judge handle the issue? Has your judge even decided this issue? Will your judge defer to the ruling of another judge in Georgia?

In my district payment of interest in a 100% Plan where a debtor is not devoting all of his/her ability to pay is a non-issue (so far). Having said that, if a debtor wants to delay payment to creditors when the debtor can afford to pay them sooner, I see no reason that the creditors should not be compensated for the delay. If your judge agrees with the cited decision and, if you don't want to pay interest, the simple solution is to pay your monthly disposable income as calculated by the means test and get out sooner.

What is your "monthly disposable income" as stated in the means test calculation vs. the bottom line number on Schedule J? I ask because, "DMI" is not necessarily an amount that a debtor can afford. The amount left over on Schedule J is typically more realistic. Unfortunately, some judges only look at the DMI amount and, as a result, many cases fail.

Des.

[justbroke]

At least here in the middle district of Florida, we pay similarly to what that Georgia court ruled. We pay the Till rate if we are in a 100% plan and paying less than the disposable monthly income (DMI). The till rate is 3.25% plus a risk rate of 1%, 2%, or 3%. Most judges will let a Chapter 13 debtor go with Till plus 2%. The current rate for such a proposed plan would be 5.25% interest (as of today).

Like Des writes, you have to weigh what you'd rather do. Pay less than DMI but pay interest, or pay your entire DMI (and deal with tax refund surrender) but be done earlier.

(I actually always thought that you always paid interest in a 100% plan, regardless of whether you're paying DMI. I guess paying DMI "could" be a nice tradeoff, but I'd rather build/rebuild my rainy day fund with paying less than DMI alongside interest, than pay every single extra penny into the plan to be done earlier. It's just me. It's a personal decision.)

[despritfreya]

At least here in the middle district of Florida, we pay similarly to what that Georgia court ruled. We pay the Till rate if we are in a 100% plan and paying less than the disposable monthly income (DMI)(I actually always thought that you always paid interest in a 100% plan, regardless of whether you're paying DMI. . .)

In my district, if there is a fully solvent Chapter 11 estate, general creditors get interest at the federal rate from the petition date to the date of Plan Confirmation. Once the Plan is Confirmed, interest accrues at, what I will call, market rate, typically around 5%. Have not had unsecured creditors object to this and typically, if they vote, they vote in favor of the Plan. I am sure, however, that if litigated, Till rate would apply. The reasoning for this is that in a solvent Chapter 7 the trustee pays interest on allowed claims at the legal rate (federal judgment rate - very low right now). See 11 USC 726(a)(6) and 11USC 1129(b)(2)(B). Chapter 13 Trustees, to date, have not jumped on this bandwagon - but, like your district, they certainly could.

Des.

[womanonfire]

Is the case you cite to written by your judge? If not, how does your judge handle the issue? Has your judge even decided this issue? Will your judge defer to the ruling of another judge in Georgia?

I do not know this, all I know is that Georgia hates debtors, per my attorney.

What is your "monthly disposable income" as stated in the means test calculation vs. the bottom line number on Schedule J? I ask because, "DMI" is not necessarily an amount that a debtor can afford. The amount left over on Schedule J is typically more realistic. Unfortunately, some judges only look at the DMI amount and, as a result, many cases fail.

Des.

4,593.23 means test

2,392.31 Bottom line

Current plan payment is $1925. Claims amounts were entered incorrectly among other things. The issue now is that my husband is not getting in the 40 hours with his new job and my son is likely no longer going to be able to work which means that I will be fully supporting him until he can get approved for disability which can take a long time. This has changed since filing.

If we have to get more insurance outside of the marketplace without credits, this is going to be much more expensive than what was originally listed. I guess this is my main concern. At our age, I'm 54 and my husband is 59, we can't be without health insurance.

[womanonfire]

At least here in the middle district of Florida, we pay similarly to what that Georgia court ruled. We pay the Till rate if we are in a 100% plan and paying less than the disposable monthly income (DMI). The till rate is 3.25% plus a risk rate of 1%, 2%, or 3%. Most judges will let a Chapter 13 debtor go with Till plus 2%. The current rate for such a proposed plan would be 5.25% interest (as of today).

Like Des writes, you have to weigh what you'd rather do. Pay less than DMI but pay interest, or pay your entire DMI (and deal with tax refund surrender) but be done earlier.

(I actually always thought that you always paid interest in a 100% plan, regardless of whether you're paying DMI. I guess paying DMI "could" be a nice tradeoff, but I'd rather build/rebuild my rainy day fund with paying less than DMI alongside interest, than pay every single extra penny into the plan to be done earlier. It's just me. It's a personal decision.)

I'd rather pay less than the DMI and be able to save for emergencies and not pay interest and get the benefit of a fresh start which is the entire point of bankruptcy. This interest scheme is truly a scheme to help the rich get richer while the poor get poorer.

How is this interest rate tacked on?

[justbroke]

I'd rather pay less than the DMI and be able to save for emergencies and not pay interest and get the benefit of a fresh start which is the entire point of bankruptcy. This interest scheme is truly a scheme to help the rich get richer while the poor get poorer.

I don't know of any bank that gets richer, in general, from bankruptcy cases. In the limited cases where a Chapter 13 Reorganization is simply a refinancing of the debt, the debtor leverages protection from their creditors in exchange for meeting some or none of the contractual obligations. That is... most debtors pay their creditor nothing at all. Very very few pay interest.

How is this interest rate tacked on?

If your monthly payment would have been $1,000, then 60 months would be $60,000 of total payments. Since interest is annualized (an APR of sorts), that means $60,000 amortized over 5 years (60 months) with a rate of 5.25%. That comes out to $1,139.16/month.

So rather than $1,000/month, the payment would be $1,139.16/month.

Edited to add: this doesn't include the Trustee's 10% commission.

[womanonfire]

I don't know of any bank that gets richer, in general, from bankruptcy cases. In the limited cases where a Chapter 13 Reorganization is simply a refinancing of the debt, the debtor leverages protection from their creditors in exchange for meeting some or none of the contractual obligations. That is... most debtors pay their creditor nothing at all. Very very few pay interest.

Yet look at the salaries of top dogs at the banks. PRA Group's top executive made 5 million in 2019. While the CEO of the mortgage servicer I sued was getting paid a ridiculous amount in their Chapter 11 bankruptcy while consumers lost their right to sue.

So despite all the interest losses from consumer bankruptcies, these banks are still thriving.

Would it hurt for honest consumer's to truly get a fresh start in a bankruptcy?

I supposed I could lose my only asset of value and file Chapter 7 and not pay interest which is likely going to end up happening to me if I lose my husband or he gets injured for sure.

[justbroke]

So despite all the interest losses from consumer bankruptcies, these banks are still thriving.

That's why most interest rates are high. To hedge against losses from non-payment. The banks make money by taking risk on the lending. They know that some won't pay, but that's hedged in the interest rates. If you go back to the housing market collapse, that took out a lot of banks (including a very large national bank which no longer exists, and a bunch of local regional banks). I think that banks are doing well now, but I think a lot of debt is out there. I was, and remain, fairly certain that the impact of COVID will be felt in bankruptcies over the next several years.

Executive pay and incentives are a different beast. I'll never understand how a CEO, of a large company, is paid a multi-million dollar bonus when the company performed poorly. No one can convince me that losing billions of dollars, deserves a bonus.

Would it hurt for honest consumer's to truly get a fresh start in a bankruptcy?

That's not exactly what Congress has written in the bankruptcy code (as amended in the BAPCPA of 2005). Specifically, Congress wanted debtors, honest consumers, to pay their debts. This is why the BAPCPA (2005) specifically pushes more individual debtors to Chapter 13.

I supposed I could lose my only asset of value and file Chapter 7 and not pay interest which is likely going to end up happening to me if I lose my husband or he gets injured for sure.

I know it's tough losing a house. I gave up one home and sold another short. The bankruptcy saved me from paying hundreds of thousands of dollars for the home by allowing me to discharge the debt.

Bankruptcy is solely a tool to get a fresh start. With Congress' push to get more debtors to repay creditors something (in a Chapter 13), bankruptcy loses some of its appeal. However, one can save property and actually achieve that head start in a Chapter 13. It's just not for everyone and it take work and grit to make it through.

[flashoflight]

Bankruptcy is solely a tool to get a fresh start. With Congress' push to get more debtors to repay creditors something (in a Chapter 13), bankruptcy loses some of its appeal. However, one can save property and actually achieve that head start in a Chapter 13. It's just not for everyone and it take work and grit to make it through.

Yes, Congress intended debtors to pay back as much as they possibly can (eg. above median filers) and put up roadblocks like the means test so you can't game I/J by itself, but messed up when it heavily favored secured creditors over unsecured creditors. I'm not sure how the unsecured creditor's lobby in Congress missed this but too bad for them.

The problem is Georgia. That's why you can't get a head start or even a decent fresh start. If you give the house to the trustee, you get a $43k check back and a "good luck". Or you end up with a monster plan payment that pays PRA in full with interest.

Meanwhile, it's quite possible to get a head start in California or Florida, home equity completely protected, and with PRA getting paid nearly nothing. It's just not possible in Georgia given how tiny the homestead exemption is.

[womanonfire]

Yes, Congress intended debtors to pay back as much as they possibly can (eg. above median filers) and put up roadblocks like the means test so you can't game I/J by itself, but messed up when it heavily favored secured creditors over unsecured creditors. I'm not sure how the unsecured creditor's lobby in Congress missed this but too bad for them.

The problem is Georgia. That's why you can't get a head start or even a decent fresh start. If you give the house to the trustee, you get a $43k check back and a "good luck". Or you end up with a monster plan payment that pays PRA in full with interest.

Meanwhile, it's quite possible to get a head start in California or Florida, home equity completely protected, and with PRA getting paid nearly nothing. It's just not possible in Georgia given how tiny the homestead exemption is.

Thank you! You hit the nail on the head! Georgia sucks!

[justbroke]

Yes, Congress intended debtors to pay back as much as they possibly can (eg. above median filers) and put up roadblocks like the means test so you can't game I/J by itself, but messed up when it heavily favored secured creditors over unsecured creditors. I'm not sure how the unsecured creditor's lobby in Congress missed this but too bad for them.

I don't know what happened there, but secured creditors were always favored by priority (even in the old code). I think the intent of Congress' changes to the code was simply that more people pay.

The problem is Georgia. That's why you can't get a head start or even a decent fresh start. If you give the house to the trustee, you get a $43k check back and a "good luck". Or you end up with a monster plan payment that pays PRA in full with interest.

Thank you! You hit the nail on the head! Georgia sucks!

I can't speak for Georgia. But Florida has its downsides too. Many people have had an appraiser come to their home to appraise all their personal property due to Florida's low $1,000 personal property exemption. Many Chapter 7 debtors were immediately referred to these appraisers despite what the debtor put on the schedules (as the personal property value).

It was almost sport for Chapter 7 Trustees before the Florida Supreme court clarified how the "unused" unlimited homestead exemption worked.

[womanonfire]

I'm reviving this thread because I'm going to modify my plan and I think the Trustee is going to ask for interest even though he did not ask for it and the plan was confirmed. I think he is going to come back and ask for it now since I am going to try and extend my BK payments to 60 months from 36 months.

My first question is: Would judicial estoppel apply if the Trustee seeks interest now in a plan modification if the plan was confirmed without interest?

As for how I think my particular judge would rule, I do not know because I don't think that he has ever issued an opinion on this before. My district has and it was decided no In re Stewart-Harrel, 443 B.R. 219 (Bankr. N.D. Ga. 2011). The SD of GA and one particular judge there demand it. Ugh!

Anyway, one up on a time not too long ago, the Trustee did challenge one of my judge's orders before, and it was lost on appeal. I think I have a good chance of getting a favorable ruling from this particular judge because he is no-nonsense and doesn't like adding stuff to statutes such as requirements that don't exist.

The latest opinion from SC ruled that there was is interest requirement for debtors paying 100% of the claims:

https://www.scb.uscourts.gov/sites/default/files/opinions/Judge%20Waites/opn_84_21-01904_637740334077116981.pdf

And lastly, just for shits and giggles, I would like to know what some of your personal opinions are on the matter of interest in a Chapter 13 plan that proposes to pay all 100% of all claims. Should debtors have to pay interest? Or should only above-median debtors have to pay interest?