This is a one-time complimentary download.

Transcription

1 This is a one-time complimentary download. To gain unlimited access to articles like this one and take advantage of the full range of ABI membership benefits, we invite you to enroll in a Test Drive. This free, 30-day trial membership lets you use and evaluate ABI s unique online resources for research, networking and education. There s no credit card required and no commitment. Take ABI for a spin to enjoy the features of membership including: Instantly expand your network with 13,000 bankruptcy professionals One comprehensive site to begin research on your next case Connect to exclusive content on case summaries, codes and rules, 363 sales, bankruptcy blogs and more Earn CLE credit by attending industry-recognized conferences and webinars One-year subscription to the ABI Journal And much more! Join ABI at any time during the trial and receive a significant discount on your first year of membership. Sign up now for a Test Drive.

2 Bankruptcy by the Numbers Ed Flynn ABI; Alexandria, Va. Ed Flynn is a consultant with ABI and serves as a coordinating editor for the ABI Journal. He previously worked for more than 30 years at the Executive Office for U.S. Trustees and the Administrative Office of the U.S. Courts. By Ed Flynn Chapter 13 Case Outcomes by State It is well documented that there is wide variation in chapter 13 practice across the nation. The Executive Office for U.S. Trustees (EOUST) posts data on money collected and distributed each year, and the outcomes of chapter 13 cases closed during the year. 1 Hidden in the national statistics are wide variations by state. This article will focus on the variations in some of the key chapter 13 numbers at the state level. The National Figures Between Fiscal Years , nearly 2.4 million chapter 13 cases were filed. Table 1 shows the outcomes of cases closed during this period. 2 Prior Filings A substantial number of chapter 13 debtors are repeat filers, and eligibility to refile depends on the timing and outcome of the prior case. 3 Since 2007, the Administrative Office of the U.S. Courts (AOUSC) has published two sets of data on prior filings by chapter 13 debtors. 4 The first set is the number of chapter 13 debtors who have filed a prior case (in any chapter) within 1 The EOUST s posted data goes back to This article concentrates on cases that were closed and had funds distributed during fiscal years No data is available from the EOUST on chapter 13 cases filed in North Carolina and Alabama because these states are served by Bankruptcy Administrators. About 8 percent of chapter 13 cases are filed in these two states. See Chapter 13 Trustee Data and Statistics, U.S. Department of Justice, available at (last visited June 27, 2014). 2 These figures do not include a small number of cases that could not be classified, such as reopened and transferred cases, as well as hardship discharges. 3 The main variations are as follows: A debtor who received a prior discharge must wait for four years from the earlier filing date if the first case was a chapter 7 and two years if it was a chapter 13. For debtors whose prior case was dismissed, some may refile immediately, while others must wait 180 days before refiling. For a more complete discussion, see Harry Boul, Repeat Filings under BAPCPA: Stays, Multiple Discharges and Chapter 20, ABI Consumer Committee Newsletter, Vol. 4, No. 6 (December 2006), available at RepeatFilings.html (last visited June 27, 2014). the last eight years. The AOUSC data shows that about 28 percent of chapter 13 debtors who filed between 2007 and 2012 had also filed at some point in the prior eight years. The AOUSC data does not reveal in the chapter of the prior filings, but other studies have indicated that refilings are much more prevalent in districts with higher concentrations of chapter 13 filings. 5 The AOUSC is also required to report on the number of chapter 13 cases filed after a prior dismissal. Its report lists the number of debtors who had a prior chapter 13 case dismissed within 180 days. 6 There were more than 90,000 such cases filed between 2007 and 2012, about 4.1 percent of all chapter 13 filings. Chapter 13 Disbursements During this seven-year period, more than $41 billion was collected and disbursed by chapter 13 trustees. Chart 1 shows how this money 4 The AOUSC is required to report on chapter 13 cases in which the debtor has a prior filing, and on chapter 13 filings by debtors with a recent prior dismissal. See 28 U.S.C The AOUSC reports for are available at BankruptcyStatistics.aspx (charts 6 and 7) (last visited June 27, 2014). 5 See Jean M. Lown, New Study: Serial Bankruptcy Filers No Problem, ABI Journal, Vol. XXVI, No. 5, p. 36 (June 2007); and John Golmant and Tom Ulrich, Bankruptcy Repeat Filings, (2006), 14 ABI Law Review (2006), available at bankruptcy-repeat-filings (last visited June 27, 2014). 6 This would cover a very narrow subcategory of refilers: debtors who had been dismissed from an earlier chapter 13 case within 180 days of the current filing, but not for the willful failure of the debtor to abide by orders of the court, or to appear before the court in proper prosecution of the case or voluntary dismissal of the case following the filing of a request for relief from the automatic stay. See 28 U.S.C. 109 (g). Chart 1: Chapter 13 Disbursements, Fiscal Years Fees and Expenses 6.0% Table 1: Chapter 13 Cases Completed, Fiscal Years Attorneys Fees 9.8% Ongoing Mortgage 19.3% Total Cases Completed Total Cases Completed 2,264,505 Total Dismissed 1,178, % Dismissed Pre-Confirmation 569, % Dismissed Post-Confirmation 609, % Total Converted 274, % Converted Pre-Confirmation 94, % Converted Post-Confirmation 179, % Payment Plans Completed 810, % Source: EOUST General Unsecured 25.2% Priority 5.5% Mortgage Arrearages 8.4% Other Secured 25.7% Source: EOUST 40 August 2014 ABI Journal

3 was apportioned, but total disbursements averaged about $12,300 per case filed, or $18,400 per confirmed case. Payments to unsecured creditors average about $5,300 per case filed and $8,000 per confirmed case. The EOUST has data on the percentage payouts to general unsecured creditors for cases with completed plans. Of the more than 800,000 repayment plans completed between fiscal years 2007 and 2013, payments to general unsecured creditors were as follows: percent paid 70 percent or more; 10.8 percent paid 40 to 69 percent; 54.9 percent paid 1 to 39 percent; and 8.2 percent paid nothing. To briefly sum up the national figures, if you start with a random sample of 100 chapter 13 cases, on average: 28 have filed a bankruptcy case in the previous eight years; 25 will be dismissed prior to confirmation of a repayment plan; four will be converted to chapter 7 prior to confirmation; 71 will get a repayment plan confirmed; 27 will be dismissed after confirmation; eight will be converted to chapter 7 after confirmation; 36 will complete the repayment plan; and 7 These figures exclude the 1.5 percent of completed plans in cases with no general unsecured claims. Chart 2: Chapter 13 Confirmation Rate, cases with completed plans will pay an average of 39 percent to general unsecured creditors. State-Level Data The national numbers are a blend of chapter 13 operations at a more local level. At the state level, there is substantial variation. The following is an analysis of the EOUST chapter 13 data at the state level. 8 Confirmation Rate The first benchmark for a chapter 13 case is confirmation of a repayment plan. If this does not happen, the debtor cannot receive a discharge and his/her creditors will receive no payments (within the bankruptcy case). Nationwide, about 70 percent of chapter 13 cases are confirmed. As shown in Chart 2, in five states, less than one-half of cases are confirmed (California, Connecticut, Massachusetts, Arizona and Rhode Island). In 19 states in the same chart, at least 80 percent of chapter 13 cases are confirmed, including three states with confirmation rates exceeding 90 percent (Kansas, North Dakota and Nebraska). 8 As previously noted, data for North Carolina and Alabama is not available. In addition to the remaining 48 states, data for and Washington,, is included. continued on page 76 Chart 3: Chapter 13 Completion Rate for Confirmed Cases, Data compiled by EOUST. Under 50.0% % % 80.0% or More Data compiled by EOUST. Under 40.0% % % 60.0% or More Chart 4: Chapter 13 Case Completion Rate, Chart 5: Chapter 13 Refiling Rate, (Debtors with at Least One Prior Case Within Eight Years) Data compiled by EOUST. Under 20.0% % % 50.0% or More Data compiled by AOUSC. Under 20.0% % % 40.0% or More ABI Journal August

4 Bankruptcy by the Numbers: Chapter 13 Case Outcomes by State from page 41 Completion Rate for Confirmed Cases If a debtor has a chapter 13 case confirmed, there is a slightly-better-than-even chance that the repayment plan will be completed. In four states, the odds of completion are under 40 percent, while in 11 states, the plan completion rate exceeds 60 percent (see Chart 3 on p. 41). Overall Plan-Completion Rate Combining the confirmation rate and plan-completion rate allows us to compute the completion rate for chapter 13 cases (see Chart 4 on p. 41). Nationwide, the completion rate has been about 36 percent over the last seven years. In four states, less than 20 percent of chapter 13 cases are completed, while in seven states the completion rate has exceeded 50 percent. In Kansas, more than 60 percent of chapter 13 debtors completed their plans. Prior Filings Many debtors require more than one bite at the bankruptcy apple. More than one-quarter of chapter 13 debtors have a prior bankruptcy filing. By taking refilings into account, we shrink the debtor population while the number of completed cases stays the same. Thus, the success rate increases when refilings are considered. However, it is not possible to precisely determine the impact of multiple filings on the success rate of chapter 13 cases because data on the chapter number of the prior case(s) is not publicly available. At the state level, less than 15 percent of chapter 13 debtors filing in Alaska, Vermont, Montana, Hawaii and Maine had a prior filing, while more than 40 percent of chapter 13 debtors who filed in Arkansas, Idaho, Utah and Tennessee had at least one prior filing. States with the highest refiling-after-dismissal rates were Connecticut (9.9 percent), Massachusetts and the District of Columbia (7.4 percent), Pennsylvania (6.9 percent), California (6.4 percent), New York (6.2 percent) and Tennessee (5.8 percent). Refilings after dismissal accounted for less than 1 percent of cases filed in Chart 6: Refilings of Dismissed Cases, (Percent of Cases in Which a Prior Chapter 13 Case Had Been Dismissed in the 180 Days Before Filing) Vermont, North Dakota, Nebraska, Kansas and Colorado (see Charts 5 and 6). Payouts to General Unsecured Creditors for Completed Plans From an unsecured creditor s perspective, not all repayment plans are created equal. In some courts, most of the plans include a substantial percentage payment to unsecured creditors, while unsecured creditors generally receive only a token amount or nothing at all in other plans. To compare payouts by state, I used the mid-point of the three non-zero payment ranges in the EOUST data and multiplied that by the percentage of completed repayment plans in each state, as shown in Chart 7. This results in very roughly estimated payment percentages, which range from about 20 percent in Kansas to more than 70 percent in Connecticut. 9 Most of the states with high-percentage payout rates have relatively low case completion rates. There certainly seems to be a tradeoff between the terms of the repayment plans and their completion rates. It is probably not too difficult to complete a 0 percent plan, but completing a 100 percent plan might be quite the opposite. Payments Per Case To make interstate comparisons on payments to prepetition creditors in chapter 13 cases, two categories of payments should be excluded: ongoing mortgage payments and attorney fees. Ongoing Mortgage Payments: 10 Nearly 20 percent of disbursements in chapter 13 cases are for ongoing mortgage 9 Of course, this methodology does not account for differences in the amount of allowed claims among individual cases within or between states. More precise payout figures could be calculated if case-bycase information were publicly available. 10 A number of people have commented on the issue of chapter 13 being a conduit mortgage payments. For example, see Gordon Bermant and Jean Braucher, Making Post-Petition Mortgage Payments Inside Chapter 13 Plans: Facts, Law, Policy, 80 American Bankruptcy Law Journal 261, 269 (Spring 2006); Doreen Solomon and Martha Hallowell, Chapter 13 Trustees Weigh Advantages and Disadvantages of Paying Debtors Ongoing Mortgages, originally published in the National Association of Chapter 13 Trustees (NACTT) Quarterly, available at nac_ pdf (last visited June 27, 2014). continued on page 78 Chart 7: Estimated Payouts to Unsecured Creditors (Plans Completed Fiscal Years ) Under 35.0% % % 45.0% or More Data compiled by AOUSC. Under 2.0% % % 6.0% or More Data compiled by EOUST. 76 August 2014 ABI Journal

5 Table 2: Average Payments Per Case by State (Cases Closed Fiscal Years ) Total Disbursements Payments to Unsecured Creditors Per Case Filed Per Confirmed Case Per Case Filed Per Confirmed Case National Average $12,303 $18,435 $5,328 $7,983 Alaska $26,463 $41,006 $13,109 $20,313 Arizona $14,193 $36,481 $5,344 $13,734 Arkansas $13,536 $14,522 $3,970 $4,259 California $7,964 $28,222 $3,552 $12,588 Colorado $10,356 $20,648 $6,542 $13,043 Connecticut $9,233 $30,447 $4,364 $14,392 Delaware $15,388 $21,818 $5,382 $7,631 Florida $8,709 $18,681 $5,075 $10,888 Georgia $10,821 $14,880 $3,401 $4,667 Hawaii $14,322 $27,637 $8,006 $15,448 Idaho $14,762 $17,329 $8,589 $10,082 Illinois $11,850 $18,179 $5,535 $8,491 Indiana $13,996 $17,737 $6,528 $8,273 Iowa $18,519 $23,581 $11,594 $14,763 Kansas $15,479 $19,217 $5,271 $6,543 Kentucky $15,038 $19,055 $7,030 $8,908 Louisiana $12,272 $16,198 $4,290 $5,662 Maine $15,906 $26,518 $5,777 $9,631 Maryland $10,426 $17,125 $6,272 $10,303 Massachusetts $7,126 $20,602 $3,559 $10,291 Michigan $15,865 $18,598 $8,440 $9,895 Minnesota $14,734 $19,046 $9,615 $12,430 Mississippi $13,367 $17,142 $3,186 $4,086 Missouri $13,420 $17,865 $5,158 $6,867 Montana $16,115 $21,785 $8,241 $11,141 Nebraska $17,060 $19,396 $6,882 $7,825 Nevada $9,728 $17,707 $6,008 $10,937 New Hampshire $7,381 $16,762 $3,871 $8,791 New Jersey $11,419 $15,282 $5,638 $7,545 New Mexico $21,563 $23,545 $10,813 $11,806 New York $14,510 $20,326 $7,886 $11,047 North Dakota $17,589 $21,735 $14,201 $17,549 Ohio $17,534 $20,555 $7,990 $9,367 Oklahoma $22,239 $29,155 $9,129 $11,968 Oregon $15,770 $20,274 $8,187 $10,525 Pennsylvania $12,947 $18,881 $5,909 $8,618 $8,603 $11,023 $4,207 $5,390 Rhode Island $9,663 $23,909 $6,180 $15,291 South Carolina $16,890 $16,247 $5,797 $5,576 South Dakota $21,942 $32,088 $16,650 $24,349 Tennessee $11,984 $15,186 $4,564 $5,783 Texas $15,677 $19,935 $5,284 $6,719 Utah $8,505 $11,984 $3,763 $5,303 Vermont $18,078 $25,109 $7,686 $10,675 Virginia $13,379 $18,112 $6,698 $9,068 Washington $15,799 $22,221 $7,150 $10,057 Washington, $13,064 $19,647 $7,095 $10,671 West Virginia $18,407 $26,311 $9,748 $13,934 Wisconsin $13,889 $21,381 $5,459 $8,404 Wyoming $16,841 $26,446 $11,855 $18,616 Source: EOUST ABI Journal August

6 Bankruptcy by the Numbers: Chapter 13 Case Outcomes by State from page 76 payments. In nearly one-half of the states, ongoing mortgage payments are rarely or never made through chapter 13 plans. In Tennessee and Michigan, ongoing mortgage payments account for more than 40 percent of disbursements (trustees in Michigan charge a fee on these payments, while in Tennessee the trustees generally handle the mortgage payments without a fee). Attorney Fees: About 10 percent of disbursements in chapter 13 cases are paid to debtors attorneys. Attorneys fee payments are reported in every state, and in most states they account for between 5 and 12 percent of total disbursements. After excluding ongoing mortgage payments and attorneys fees, Table 2 on p. 77 compares the states on four payment measures: payments to creditors per case filed and per case confirmed, and payments to general and priority unsecured creditors per case filed and per case confirmed. Discussion At the simplest level, success in chapter 13 can be looked at by the percentage of cases in which a repayment plan is completed. With only a little over one-third of chapter 13 debtors achieving plan completion, some may conclude that chapter 13 is a failure. When other factors are considered, the picture improves. Plan-completion rates rise to slightly more than 50 percent if we look at the completion rate for cases with confirmed plans. Many chapter 13 debtors do not achieve success until their second or third try. In addition, completion of a repayment plan is not the goal of every debtor. Some debtors may file chapter 13 to stave off home foreclosure or the repossession of a vehicle, and then voluntarily dismiss their cases after pre-petition arrearages are cured. In so-called chapter 20 cases, a chapter 13 debtor may be attempting to cure a default through chapter 13 after obtaining a discharge of other debts in chapter 7. Creditors also need to be worked into the equation. A more realistic assessment of chapter 13 includes looking at both returns to creditors and completion of repayment plans resulting in the discharge of remaining unsecured debts. Conclusion This article presented eight measures of chapter 13 outcomes. Three dealt with the outcomes of cases: the percentage of cases that have been confirmed, the percentage of completed plans for confirmed cases, and the percentage of cases filed that result in a completed plan. The other five outcomes deal with payments made in chapter 13 cases: the average disbursements per case confirmed and completed (excluding ongoing mortgage payments and attorneys fees), average payments to unsecured creditors per case confirmed and case completed, and the average payout percentage to general unsecured creditors in cases with completed plans. Local variations in practice lead to different results. The following question then arises: Are there any states that are above average on each of the eight measures in other words, states where cases are likely to be confirmed, confirmed cases are likely to be completed and payments to creditors are relatively high? The data indicates that there are five such states: South Dakota, Oklahoma, Ohio, Hawaii and North Dakota. Are there any states that are below average on all eight measures? Fortunately, the answer is no. abi Copyright 2014 American Bankruptcy Institute. Please contact ABI at (703) for reprint permission. 78 August 2014 ABI Journal