Question

Rakes filed for relief in bankruptcy under Chapter 13. At the time of the filing he was behind on his home mortgage payable to Wade. The mortgage note did not have any provision for the accrual of interest on any arrearages. The home was valued for more than the balance due on the mortgage, and Rakes intended to retain the home following the bankruptcy.

In his repayment plan Rakes proposed to make all future mortgage payments as due and to make up his arrearage with an additional amount to be included with each mortgage payment. However, his plan specifically included a provision that he would owe no interest on the arrearage payments. Wade objected to this provision, arguing that he was entitled to interest on the arrearage as well as the interest called for on the mortgage loan, plus attorney’s fees accrued prior to the filing by Rakes. Accordingly, Wade asked the court to either reject the plan or amend it to include interest on the payments made to cover the arrearage.

The bankruptcy court accepted the plan submitted by Rakes, rejecting Wade’s argument. Wade has appealed this decision.

Required: What should the appeals court do? Should it accept the recommendation of the bankruptcy judge or should it agree with Wade’s assertion and impose interest and attorney’s fees? Explain and justify your answer.

Answer 1

That is one among a sequence of articles the creator is writing regarding major and procedural disorders touching on person debtor(s) submitting for relief beneath Chapters 7 and 13 of the U.S. Bankruptcy Code. Different articles focus on important and procedural issues relating participants filing for Chapter 7 comfort; this text will focal point on the major problems and procedural procedure concerning members submitting for alleviation under Chapter 13 of the U.S. Bankruptcy Code.

Ordinarily, if a debtor is qualified - unsecured debts (not procured via fraud or the willful misconduct of debtors) are totally dischargeable beneath Chapter 7; however, secured money owed are usually not dischargeable below Chapter 7 (with just a few exceptions in a Chapter 13 for that matter). Secured collectors preserve their rights to gather all monies owed to them after The chapter court's issuance of its final decree/discharge order in a Chapter 7 case.

Personal loan ARREARS

within the overwhelming majority of cases, Chapter 13 petitions are filed with the intention to supply debtors time to compensate for arrearages (late balances) owed on their loan(s). However, debtor(s) can payoff arrearages owed to secured creditors over a three to 5 year interval by means of submitting for alleviation under Chapter 13. Debtor(s) need to put up a Chapter thirteen plan which presents for the full fee of all arrearages owed to secured collectors over the length of a three to 5 yr plan. On a separate observe, if the complete quantity owed to a secured creditor is larger than the reasonable market price of the debtors property securing the collateral, then the debtor could also be capable to transform the quantity of the debt which is undersecured to basic unsecured reputation and have the unsecured component of the debt discharged.

So long as the debtor(s)' petition suggests that the debtor(s) has sufficient disposable income to permit him/her to payoff the arrearages over a three to 5 yr period, the debtor(s) Chapter 13 plan will probably be demonstrated through The bankruptcy court docket. It's most important for debtor(s) to comprehend that after filing a Chapter 13 petition they will nonetheless have to make their average monthly repayments straight to their personal loan corporation and all other secured lien holders as they grow to be due if the debtor wants to preserve the secured collateral (almost always the debtor residence). Curiosity most likely does now not accrue on the arrearages owed to secured creditors during the size of the Chapter thirteen Plan.

Through instance, if a debtor is $10,000.00 in arrears on their personal loan, the debtor can be in a position to pay the $10,000.00 to his/her secured creditor via a five 12 months Chapter 13 plan, however the usual loan cost ("RMMP") need to be submitted to the personal loan corporation commencing on the first day of the month following the debtor(s) filing for Chapter thirteen remedy. If the debtor(s) fails to submit his Chapter 13 installment plan payments to the Chapter thirteen Trustee, the Trustee will file a motion to disregard the debtor(s)' Chapter thirteen petition. Upon filing a chapter petition the automated stay which fits into outcome which immediately prevents the continuation of all legal movements towards debtor(s), together with state foreclosure complaints; the keep goes into influence as quickly as the debtor(s)' petition is filed. If the debtor fails to make his/her "RMMPs" to the mortgage manufacturer after submitting a Chapter thirteen petition, the mortgage enterprise will doubtless file a movement with the U.S. Bankruptcy courtroom to carry the automatic keep in an effort to or proceed with a foreclosure action towards their collateral. If a creditor is ready to procure an Order lifting the automatic keep, the creditor would then be ready to either commence or proceed prosecuting any foreclosures beforehand filed against the debtors' real property.
Recovery, IF ANY, via UNSECURED collectors

A Chapter thirteen plan can furnish wherever from a 0% to a one hundred% healing to a debtor's unsecured collectors. To ensure that a Chapter thirteen plan to be authorized by way of the chapter court docket, the debtor's unsecured collectors have got to receive at least the same amount of cash they would have bought had the debtor(s) filed a Chapter 7 petition; e.G. If the debtor has $10,000.00 in non-exempt assets, (belongings that can not be blanketed via the quite a lot of chapter code exemptions), the debtor's Chapter 13 plan ought to furnish for unsecured creditors to acquire as a minimum $10,000 by means of the debtor's Chapter 13 plan. Through a further example, if the entire debtor's belongings fall underneath the exemptions allotted by way of '522 of the U.S. Bankruptcy Code and the debtors satisfy the means experiment underneath the new chapter Code, the debtor's Chapter 13 plan does now not ought to provide for any recovery to unsecured creditors. The particular amount of the debtors chapter thirteen plan cost responsibility is determined by the debtor's monthly disposable family income and whether or not or now not the debtor satisfies the chapter Codes manner scan, which is founded on the debtor's the household gross monthly earnings for the period of the previous six months. The bankruptcy Code way test can be carried out with a purpose to check if skills debtors have got to file a chapter 13 versus a chapter 7 petition and pay again no less than 25% of their complete common unsecured debt (the way test necessities fall beyond the scope of this article). All expertise debtors/customers should speak to the undersigned or another skilled chapter lawyer involving the bankruptcy Codes way test specifications.

The initial chapter process for a Chapter thirteen case is basically the identical as that for a Chapter 7 case. The essential exception is that, subsequent to the 341(a) hearing, the bankruptcy court docket schedules a confirmation listening to to take location approximately three months after the 341(a) listening to. The affirmation listening to is when any objections filed by way of the trustee or the debtor collectors are probably resolved in the event that they haven't been resolved previous, the intent of the listening to is for the Trustee to make certain that the Chapter 13 installment cost plan is each fair to the debtor(s)' collectors and a feasible (one which the debtor(s) will probably be competent to complete, at least on paper).

Of course, the discharge order may not be issued by way of the chapter court except after the completion of the Chapter thirteen plan, which is probably at any place from 3 to five years in size. The debtor(s) may not be able to pay off the whole quantity of their Chapter 13 plan in full after the debtor(s) plan is validated by way of the U.S. Bankruptcy court docket except the debtors basic unsecured creditors are receiving 100% of the amount they are owed. That is without doubt the case for the primary three years of the debtors chapter thirteen plan and will have to be discussed with Mr. Alster if debtors suppose they could also be able to do that.