MEMORANDUM ON TRUSTEE S MOTIONS TO DISMISS

Transcription

1 MEMORANDUM ON TRUSTEE S MOTIONS TO DISMISS In certain circumstances, the Trustee will file a motion to dismiss a Chapter 13 bankruptcy proceeding. The purpose of this Memorandum is to discuss the most common grounds for the Trustee to file such a motion to dismiss; how the debtor can to avoid the filing of such; and how the debtor can avoid the dismissal of the bankruptcy case in the event such a motion to dismiss is filed. The Trustee intends that the information contained herein is nothing more than an explanation of the Trustee s general guidelines with respect to his motions to dismiss. While the Trustee intends to cover the most common motions to dismiss, this Memorandum does not cover all of the reasons that a motion to dismiss may be filed (see 11 U.S.C for other grounds for the dismissal of a Chapter 13 bankruptcy). The Trustee reserves the right to prosecute a motion to dismiss for other grounds other than the ones listed herein and to continue to prosecute a motion to dismiss for the grounds as listed herein as the Trustee sees fit, even if the debtor appears to have met the recommendations as set forth herein, such decision depending upon the specific circumstances of the case. The debtors and their attorney are, of course, free to follow these recommendations; come up with their own solutions in an effort to resolve the motion to dismiss; and/or ultimately present the issues to the Bankruptcy Court for resolution. The Trustee cannot give the debtors or their attorneys any type of legal advice and nothing contained herein should be considered by the debtors or their attorneys for that purpose. Ultimately, the debtors must rely upon their attorneys for advice concerning legal matters pertaining to their case. All of the Trustee s motions to dismiss are set for Court hearing, with the day, time, and location set forth in the motion. The debtor always has the right to appear and be heard at the hearing on the Trustee s motion to dismiss. The Trustee s motion to dismiss may contain more than one ground for dismissing the case. The debtor will have to resolve each of the grounds in order to prevent the dismissal of the case. Other parties (creditors, U. S. Trustee, other governmental agencies, etc.) have the right to file their own motion to dismiss. The Court may, under certain circumstances, dismiss a bankruptcy case without a motion being filed by any party. Finally, the debtor has the right to file his or her own motion to dismiss. This Memorandum only deals with the motions to dismiss as filed by the Trustee. This Memorandum is divided into two parts: motions to dismiss filed in unconfirmed cases and motions to dismiss filed in confirmed cases. I. Unconfirmed Cases: Generally, in his motions to dismiss filed in pre confirmed cases, the Trustee requests that the case be dismissed with prejudice which prevents the debtor from filing any type of bankruptcy for a period of 120 days after the dismissal order is entered. Note: The Trustee will not waive the request to dismiss the case with prejudice absent very unusual circumstances. The Court may, under appropriate circumstances, dismiss the case based upon the grounds as set forth in the motion to dismiss but waive the dismissal with

2 prejudice. Such waiver depends upon the circumstances and will require the debtor to make the request of the Court at the time of the hearing on the motion to dismiss. Note: The Trustee may, under appropriate circumstances, request that a case be dismissed with prejudice for a longer period of time than 120 days. A. Failure to make plan payments 1. Grounds for such a Motion to Dismiss: Pursuant to the provisions of 11 U.S.C. 1326(a), the debtor shall commence making plan payments to the Trustee thirty (30) days after the filing of the bankruptcy petition. The Trustee will file his motion to dismiss the bankruptcy in the event the debtor fails to commence making such payments or falls delinquent in making such payments during the pendency of the case. 2. How to Avoid such a Motion to Dismiss: Debtor should commence making the plan payments to the Trustee within thirty (30) days after the filing of the bankruptcy petition and stay current with these payments thereafter. Note: The Trustee urges the debtor, where possible, to enter into a wage withholding order so that the plan payments are automatically deducted from the debtor s paycheck as a payroll deduction and forwarded to the Trustee by the employer. a. The Trustee will withdraw the motion to dismiss in the event the debtor brings the plan payments current with the Trustee. Note: The Trustee will also withdraw the motion to dismiss in the event the debtor delivers to the debtor s attorney sufficient funds to bring the debtor current in plan payments with the representation of the debtor s attorney, as an officer of the Court, to forward the funds to the Trustee. Note: The Trustee will not withdraw the motion to dismiss in the event that the debtor amends the Chapter 13 plan in order to artificially bring the debtor current with the plan payments by lowering the amount of the debtor s earlier plan payments. The debtor must be prepared to appear at the scheduled hearing to present the issue to the Court on whether the debtor had sufficient justification of amending the plan for the purpose of bringing the plan payments current. Note: The Trustee will not count a plan payment that comes due on the day of Court in calculating whether the debtor is current on the plan payments on the theory that the debtor has until the end of the business day to make such a payment.

3 b. The Trustee will request the Court to continue the motion to dismiss to allow a payment that has been mailed to the Trustee to post. In order to obtain this continuance, the debtor must provide the Trustee with a copy of the debtor s payment that was mailed; that the payment, when such posts, will bring the debtor s plan payments current; and that the debtor personally mailed the payment to the Trustee. Note: Generally, the Court will grant such a request for a continuance. However, there is no guarantee that the Court will grant such in every case. For example, there may be circumstances relating to a particular case where the Court does not believe a particular debtor has in fact made the payment or the Court believes that the debtor, when combined with other conduct, is acting in bad faith by failing to timely make plan payments. c. The debtor may request the Court for additional time to bring plan payments current. Note: The debtor must have a good reason for not making the plan payments along with a clear and feasible plan on how the debtor will bring the payments current. Even then, the Court will probably dismiss the case but, in appropriate circumstances, may waive the dismissal of the case with prejudice if the failure to make plan payments were beyond the control of the debtor. B. Failure to file Credit Counseling Certificate 1. Grounds for such a Motion to Dismiss: The debtor is required, with certain exceptions, to obtain credit counseling from an approved credit counseling service during the 180 day period preceding the bankruptcy petition filing date pursuant to 11 U.S.C. 109(h). To evidence the taking of such a course, the debtor must file a credit counseling certificate with the Court. Failure to file such a certificate shall result in the Trustee filing his motion to dismiss. 2. How to Avoid such a Motion to Dismiss: Debtor should take his credit counseling course during the 180 day period preceding the filing of the bankruptcy petition and timely file his certificate with the Court. If the debtor took the course within 180 days of filing the petition but had not yet filed the credit counseling certificate, the Trustee shall withdraw the motion to dismiss upon the filing of the credit counseling certificate by the debtor. Otherwise, the Trustee shall prosecute his motion to dismiss, thereby requesting the Court to dismiss the case.

4 Note: The Court may waive the prejudice period upon the dismissal of the case upon the request by the debtor at the hearing on the Trustee s motion to dismiss. C. Failure to file or timely file schedules, statement of financial affairs, Form B22C, Chapter 13 Plan, and/or other documents required under the Bankruptcy Code 1. Grounds for such a Motion to Dismiss: The debtor is required to file these documents within the time deadlines as set forth in the Bankruptcy Code and Bankruptcy Rules (generally, within 14 days of filing of the petition). 2. How to Avoid such a Motion to Dismiss: Debtor should timely file all of the schedules and other documents within the time deadlines as set forth in the Bankruptcy Code and Bankruptcy Rules. Debtor should immediately file the missing documents and, if late, file a motion with the Court requesting additional time to file such documents. Note: Only the Court has the authority to give the debtor additional time to file late schedules and other documents. The Trustee has no such authority. Note: Generally, if the debtor files a motion to allow late filed documents but such motion has not yet been granted by the time of the hearing on the motion to dismiss, the Trustee shall, absent other grounds to dismiss the case, request the Court to continue the hearing on the motion to dismiss so that the Court may consider the motion to allow late filed documents. Note: If the motion to allow late filed documents has been granted and debtor has timely filed the missing documents within the time as granted by the Court, Trustee shall withdraw the motion to dismiss. D. Debtor does not qualify for Chapter 13 relief 1. Grounds for such a Motion to Dismiss: The debtor must qualify for Chapter 13 relief as follows: must have regular income; and owes, on the date of the filing of the petition, noncontingent, liquidated, unsecured claims of less than $360, and noncontingent, liquidated secured debts of less than $1,081, U.S.C. 109(e). Note: The amount of the debt limits periodically adjust, with the next adjustment to be made 4/1/13. Note: Disputed debts are still counted against debt limits. Only contingent and unliquidated claims are excluded from the calculation.

5 2. How to Avoid such a Motion to Dismiss: Debtor should not file a petition seeking relief under Chapter 13 if the Debtor does not qualify for such relief under the provisions of 11 U.S.C. 109(e). If such a motion to dismiss is filed, debtor must be prepared to demonstrate that the debtor is eligible to file relief under Chapter 13. Note: Absent the debtor showing the Trustee that the motion to dismiss was filed in error, the Trustee will not withdraw the motion to dismiss. Thus, to prevent the dismissal of the case, the debtor must appear at the scheduled dismissal hearing to present the issue to the Court. E. Failure to attend 341 creditor s meeting 1. Grounds for such a Motion to Dismiss: The debtor shall appear and submit to examination under oath at the meeting of creditors duly set pursuant to the provisions of 11 U.S.C U.S.C Generally, the Trustee will allow the debtor two opportunities to attend a 341 creditor s meeting. In the event the debtor fails to appear or in the event the meeting cannot be held for whatever reason, the Trustee shall file such a motion to dismiss. Note: If the bankruptcy is a joint case filed by a husband and wife and if the 341 creditor s meeting is unable to be held for one of the spouses but is held for the other, the Trustee shall file a motion to dismiss only the spouse for whom the meeting was not able to be held. The bankruptcy would then continue for the debtor who did attend the 341 creditor s meeting. Note: The Trustee has, on his website, other memorandums concerning 341 creditor s meeting, the documents to be produced, when meetings will be held, and when meetings will not be held. 2. How to Avoid such a Motion to Dismiss: Debtor should timely file all of his schedules and other documents with the Court; timely provide the Trustee with all of the documents he has requested to be produced; and appear at the original or rescheduled 341 creditor s meeting. The debtor may prevent the dismissal of the bankruptcy case by filing all of the required documents with the Court, provide copies to the Trustee of all of the missing documents, confirm all of the debtor s plan payments have been made; and/or cure whatever else the problem was that prevented the meeting from going forward if the debtor appeared. If the debtor had failed to appear, the debtor also needs to provide the Trustee with a sufficient explanation on why the debtor failed to appear at the

6 original and, if applicable, the rescheduled 341 creditor s meeting. If the Trustee is satisfied with the information received, the Trustee may enter into a conditional dismissal order thereby giving the debtor one last opportunity to appear at another rescheduled meeting, with the failure of the debtor to appear will result in the automatic dismissal of the case without further notice or motion. F. Bad Faith Note: In the event the Trustee declines to enter into such a conditional dismissal order, the debtor must appear at the scheduled hearing to present the issue to the Court. In the event the debtor is able to convince the Court that the debtor should have one more opportunity to appear at a rescheduled meeting, the Court will, of all probability, enter a conditional dismissal order thereby ordering the debtor to appear at a reset 341 creditor s meeting, with the case being automatically dismissed without further motion or notice if the debtor fails to appear. 1. Grounds for such a Motion to Dismiss: This motion to dismiss is filed if the Trustee believes that the debtor filed his bankruptcy petition in bad faith in violation of 11 U.S.C. 1325(a)(7). The Trustee rarely files a motion to dismiss alleging this ground, saving such for the most egregious cases where the debtor performed some act prior to the filing of the bankruptcy petition that suggests the debtor acted in bad faith. Note: The Bankruptcy Code does not define bad faith. Thus the good faith or the bad faith of the debtor in filing the petition will be determined by the specific circumstances of the underlying case. 2. How to Avoid such a Motion to Dismiss: The debtor should avoid in engaging in any conduct which may bring into question the debtor s good faith in the filing of the bankruptcy petition. The Trustee may withdraw the motion to dismiss upon the debtor providing the Trustee with evidence that the petition was proposed in good faith. Note: In that this type of motion to dismiss is rarely filed by the Trustee, the Trustee will, of all probability, not withdraw the motion to dismiss and the issue will need to be presented to the Court for determination. Note: Under appropriate circumstances, the Trustee may request the dismissal of such a case for a prejudice period greater than 120 days. II. Confirmed Cases: Generally, in his motions to dismiss filed in confirmed cases, the Trustee requests that the case be dismissed without prejudice, meaning that the debtor may immediately re file another case subject to any restrictions on such re filing by the Bankruptcy Code and Bankruptcy Rules.

7 A. Failure to Make Plan Payments 1. Grounds for such a Motion to Dismiss: Pursuant to the provisions of 11 U.S.C. 1326(a), the debtor shall commence making plan payments to the Trustee thirty (30) days after the filing of the bankruptcy petition. The Trustee will file his motion to dismiss the bankruptcy in the event the debtor falls delinquent in making such payments during the pendency of the case. 2. How to Avoid such a Motion to Dismiss: Debtor should stay current with these payments thereafter. Note: The Trustee urges the debtor, where possible, to enter into a wage withholding order so that the plan payments are automatically deducted from the debtor s paycheck as a payroll deduction and forwarded to the Trustee by the employer. Note: The Trustee urges the debtor, where the debtor s situation has changed which prevents the debtor from making the on going plan payments pursuant to the terms of the confirmed Chapter 13 plan, to contact the debtor s attorney to discuss the debtor s options, including the possibility of filing a motion to modify the terms of the debtor s confirmed plan. Note: The Trustee has no authority to allow the debtor to skip plan payments, unilaterally lower plan payments, or otherwise not meet the debtor s obligations as set forth under the terms of the debtor s confirmed plan or the Bankruptcy Code. Only the Court has such authority. a. The Trustee will withdraw the motion to dismiss in the event the debtor brings the plan payments current with the Trustee. Note: The Trustee may also withdraw the motion to dismiss in the event the debtor delivers to the debtor s attorney sufficient funds to bring the debtor current in plan payments with the representation of the debtor s attorney, as an officer of the Court, that the attorney shall forward the funds to the Trustee. Note: The Trustee will not count a plan payment that comes due on the day of Court in calculating whether the debtor is current on the plan payments on the theory that the debtor has until the end of the business day to make such a payment. b. The Trustee may request the Court to continue the hearing on the motion to dismiss to allow a payment that has been mailed by the debtor to the

8 Trustee to post. In order have the Trustee to request such a continuance, the debtor must provide the Trustee with a copy of the debtor s payment that was mailed; that the payment, when such posts, will bring the debtor s plan payments current; and that the debtor personally mailed the payment to the Trustee. Note: Generally, the Court will grant such a request for a continuance. However, there is no guarantee that the Court will grant such in every case. For example, there may be circumstances relating to a particular case where the Court does not believe a particular debtor has in fact made the payment or the Court believes that the debtor, when combined with other conduct, is acting in bad faith by failing to timely make plan payments. c. In the event the debtor brings his plan payments to within two payments or less delinquent by the time of the hearing and if the debtor has a reasonable chance of bringing the balance of the plan payments current, the Trustee may enter into an agreed conditional dismissal order wherein the debtor will have additional time (up to two months) to bring the debtor s plan payments current. In the event the debtor fails to meet the deadline as set forth in the conditional dismissal order, the case will be dismissed by the Court automatically without further notice or motion. d. The debtor may request the Court for additional time to bring plan payments current. Note: The debtor must have a good reason for not making the plan payments along with a clear and feasible plan on how the debtor will bring the payments current. Even then, the Court will probably dismiss the case but, in appropriate circumstances, may waive the dismissal of the case with prejudice. e. The debtor may file a motion to modify pursuant to the provisions of 11 U.S.C to bring the debtor current under the terms of the confirmed plan. Upon timely filing such a motion to modify, the Trustee shall request the Court to continue the dismissal hearing (usually for a two month period) in order to allow the Court to consider and rule upon the motion to modify. Note: The motion to modify must be filed prior to the scheduled hearing on the Trustee s motion to dismiss. The Court has announced in open Court that motions to modify must be timely filed prior to the hearing on the motion to dismiss and that waiting until the morning of the dismissal hearing to file such a motion to modify is not timely. The Court further noted that the filing of such a motion to modify has

9 B. Infeasibility underfunded historically resulted in the continuation of the dismissal hearing in this District; however, nothing in the Bankruptcy Code requires such a continuance. The Court suggested that if the motion to modify is not timely filed, the hearing on the motion to dismiss will not be continued. Note: If the hearing on the motion to dismiss is set on the same day as a motion to modify and the hearing on the motion to modify needs to be continued for whatever reason, the Trustee will request the Court to also continue the hearing on the motion to dismiss to the same day. 1. Grounds for such a Motion to Dismiss: This motion to dismiss is filed when there is not sufficient funds being paid to the Trustee to allow the Trustee to pay his Trustee s fees for administering the case as well as all of the creditors that must be paid pursuant to the terms of the confirmed plan. Note: This motion to dismiss is usually filed soon after the Trustee files his Trustee s Recommendation Concerning Claims (the TRCC herein) after the Trustee has reconciled the claims as actually filed by creditors with the amounts owed to the creditors as estimated by the debtor in the terms of the debtor s confirmed plan. The underfunding usually occurs when the claim amounts are higher than the amounts as estimated by the debtor in the Chapter 13 plan. Note: The confirmed plan may also become underfunded during the course of the term of the plan where the debtor consistently skips plan payments, thereby delaying disbursements to secured creditors which in turn causes more interest to accrue on the underlying secured claim than the amount of interest that was estimated at the time of confirmation (which assumes timely plan payments and timely disbursements to creditors). 2. How to Avoid such a Motion to Dismiss: The debtor should propose a Chapter 13 plan that is fully funded and thereafter timely make the plan payments. Note: The debtor may avoid such a motion to dismiss by immediately taking action to either increase the plan base (through a motion to modify); decrease the amount being paid to creditors (by objecting to the underlying proof of claim, thereby obtaining a Court order reducing the amount to be paid by the Trustee to said creditor; and/or by surrendering collateral through a motion to modify); or a combination of both. The debtor needs to cure the underfunding of the debtor s plan by either increasing the plan base (through a motion to modify); decreasing the amount being paid to creditors

10 (by objecting to the underlying proof of claim, thereby obtaining a Court order reducing the amount to be paid by the Trustee to said creditor; and/or by surrendering collateral through a motion to modify); or a combination of both. The debtor may also provide evidence to the Trustee that the Trustee s calculations are in error and that the terms of the confirmed plan is fully funded. C. Infeasibility priority claim not provided under the plan 1. Grounds for such a Motion to Dismiss: All priority claims are to be paid through the plan unless the holder of the priority claim agrees to a different treatment of the claim pursuant to the provisions of 11 U.S.C. 1322(a)(2). 2. How to Avoid such a Motion to Dismiss: Debtor may avoid such a motion to dismiss by either including all priority claims in the plan; obtaining an agreement from the priority claimant to be treated in a different manner (usually by direct payment); or object to the priority claim thereby obtaining a Court order disallowing the claim. The creditor may, upon proper evidence from the debtor, withdraw the claim. Note: For example, the IRS may file an estimated priority claim where the IRS has no record of receiving a tax return from the debtor. The IRS usually amends the claim to $0.00 upon the debtor providing the IRS with a copy of the missing tax return thereby indicating that the debtor does not owe the IRS any money for the year in question. Note: For example, the Attorney General s Office may agree to a direct payment of a priority child support payments where there is wage garnishment already in place not only paying on going child support payments but also a payment toward the delinquency priority claim. The debtor usually must timely file a motion to modify the terms of the confirmed plan to provide for the payment of the priority claimant or indicate that the claim is to be paid in some other manner (for example, direct). The debtor may object to the priority claim thereby obtaining a Court order disallowing the claim or the creditor may, upon proper evidence from the debtor, withdraw the priority claim. Note: The Court has ruled that the failure of a priority creditor to object to a proposed Chapter 13 plan that provides for the direct payment of the priority claim constitutes consent by the priority creditor of such treatment for the purposes of 11 U.S.C. 1322(a)(2). D. Infeasibility failure to fully provide for secured claim subject to cram down 1. Grounds for such a Motion to Dismiss: Terms of confirmed plan provides that a particular secured creditor will be paid the replacement value of the underlying

11 collateral subject to cram down. The secured creditor files a proof of claim for a secured amount larger than the alleged replacement value as set forth in the terms of the confirmed plan. All claims are presumed to be valid until objected to. The Trustee is only allowed to disburse to the secured creditor in the amount of the replacement value as set forth in the confirmed plan. Until these numbers are matched (either by Court order, modification of plan, or amended proof of claim), the plan is infeasible. 2. How to Avoid such a Motion to Dismiss: The debtor should make every effort to have value set by the Court or agreement of the collateral subject to cram down before or soon after the TRCC is filed by the Trustee. Through the TRCC, the Trustee reconciles the claims as actually filed by the creditors with the terms of the confirmed plan, thereby noting in the TRCC that the plan is infeasible when these claims do not match. If the debtor fails to timely address the issue, the Trustee files his motion to dismiss based upon infeasibility. The debtor needs to do one of the following in order to set value of the collateral in question: (a) Reach an agreement with the creditor to accept the replacement value as set forth in the plan, with the creditor thereby filing an amended proof of claim. (b) Reach an agreement with the creditor at a different replacement value as set forth in the plan, thereby filing a motion to modify in order to match the new replacement value. The creditor, as evidence of the agreement, should either file an amended proof of claim or enter into a letter agreement which will then be attached to the modification order. (c) Request the Court to set value (usually through an objection to the creditor s proof of claim). If the Court sets the replacement value to match the value as set forth in the confirmed plan, no further action is necessary. If the Court sets the replacement value at a different amount as set forth in the confirmed plan, the debtor will need to file a motion to modify to match the value as set by the Court. (d) Take whatever action the attorney for the debtor recommends. E. Tax Return and/or Tax Refund 1. Grounds for such a Motion to Dismiss: The Court has ruled that tax refunds are disposable income. All confirmation orders require that all tax refunds received greater than any portion thereof protected in the budget, if any, be turned over to the Trustee within ten (10) days of receipt as well as turning over a copy of the debtor s tax return

12 within ten (10) days of filing of such. The tax return is needed in order to verify the amount of tax refund the debtor is entitled to receive. Upon failing to receive the tax return or tax refund, the Trustee will generate a letter requesting such be turned over to the Trustee. If the debtor fails to do so, the Trustee generates his motion to dismiss. Note: If the debtor has timely provided the Trustee with a copy of the tax return but has not paid to the Trustee the appropriate amount of the resulting tax refund, the resulting motion to dismiss for failure to turn over the tax refund will probably be the one alleging the debtor s failure to make plan payments with the delinquency being the amount of the tax refund. See Paragraph II(A) above. 2. How to Avoid such a Motion to Dismiss: The debtor should turn over his tax return each year the debtor is in bankruptcy within ten (10) days of filing such and turn over the non protected portion of the tax refund, if any, to the Trustee within ten (10) days of receipt. (a) If the debtor is not required to file a tax return, the debtor will receive a letter from the Trustee requesting the tax return, the bottom of which has a couple of options that the debtor can check off. The debtor should check off the appropriate spot indicating that the debtor was not required to file a tax return, sign such, and return the letter to the Trustee. (b) If the debtor did not receive the tax refund that the anticipated receiving, the debtor should return to the Trustee any documentation from the IRS indication that the debtor s tax refund was recalculated by the IRS with the new amount of the tax refund. (c) The Trustee does allow the debtor to reduce the amount of the tax refund that is supposed to be turned over to the Trustee to be added to the plan base by any reasonable fee for the preparation of the tax return by a professional tax preparer. However, the Trustee does not recognize other fees that may be associated with the obtaining of the refund (the service fees for rapid refund or tax refund anticipation loan, etc.). In the Trustee s opinion, these latter fees are unnecessary (and may in fact violate the terms of the debtor s confirmed plan). Thus, the total amount of the tax refund to be added to the plan base by the Trustee is as follows: Tax refund to be received as reflected in debtor s tax return Less: Reasonable costs for preparation of tax return by professional tax preparer

13 Less: Protected amount as set forth in the confirmation order (as supported by the budget Equals: The amount of the debtor s tax refund, if any, to be added to plan base. The debtor should immediately turn over the tax return and the non protected portion of the tax refund, if any, to the Trustee prior to the hearing.