What Happens if the Someone Objects to My Chapter 13 Bankruptcy?
Before your Chapter 13 plan can be confirmed, the court must allow the trustee and your creditors the opportunity to review the plan and make objections if they wish. Why would a creditor or the trustee object? Usually because they would like to see more of a payout to unsecured creditors. Chapter 13 bankruptcy plans often pay back unsecured creditors, like credit card lenders, at pennies on the dollar. Objections often ask for a larger percentage of the debts to be paid back.
Under 11 U.S.C.A. § 1325(b)(1)(B), if a creditor or the trustee objects to your proposed Chapter 13 payment plan, it should not be confirmed unless:
the plan provides that all of the debtor’s projected disposable income to be received in the applicable commitment period beginning on the date that the first payment is due under the plan will be applied to make payments to unsecured creditors under the plan.
Put simply, the court will only confirm a proposal over the objections of creditors or the bankruptcy trustee if you plan to pay ALL of your disposable income toward your unsecured debts.
Disposable income is any income you receive above and beyond what you need to support yourself and your dependents. An unsecured debt is a debt not linked to collateral; credit card and medical debts are unsecured.
In Re Brady
In re Brady, 361 BR 765 (D. N.J. 2007), a case out of New Jersey, provides a good example of the Court’s analysis when an objection is lodged.
Poor budgeting led the Bradys to amass an immense amount of debt, forcing them to file for Chapter 13 bankruptcy. Among other debts, they owed more than $85,000 on their credit cards. Under their proposed repayment plan, the Bradys claimed they could commit only $9 per month to repaying this debt. Both the creditor for the credit card debt and the trustee objected to confirmation of the Brady’s plan.
The Issue: Calculating Projected Disposable Income
As mentioned above, § 1325(b)(1)(B) requires debtors to put all of their disposable income toward their unsecured debts if either the creditor or trustee objects to their plan. Because credit card debt is unsecured and both the creditor and trustee objected, the Bradys were required to pay all of their projected disposable income to the credit card company. How does the court calculate projected disposable income?
According to the Brady’s form B22C, they had $-590 after paying their living expenses. However, their bankruptcy schedules I and J showed a positive disposable income. The difference in the amounts occurred because of the different calculation techniques used by the two forms. The Bradys argued that the calculations under form B22C were controlling, and thus they had no disposable income to pay. The credit card company argued that the schedule I and J calculations were controlling and that the Bradys should pay them disposable income shown on those forms.
What is the difference between form B22C and schedules I and J? This article published by the American Bankruptcy Institute does a nice job of explaining the differences.
The crux of the confusion is the substantial difference between how excess income is calculated under Form B22C and how it is calculated under schedulesI & J. While the income listed on the two forms will often be the same, it is not uncommon for a debtor’s CMI to be different than the “average monthly income” on schedule I, and it is a veritable certainty that the sum of expenses on B22C will be different than the sum calculated by schedule J. As a result, the“monthly disposable income” listed on line 58 ofB22C will almost never be the same as the“monthly net income” listed on schedule J.
The Courts Resolution
The Bradys earned an above-median income. Under the bankruptcy laws, if debtors earn an above-median income, their disposable income is calculated using a formula specified by 11 U.S.C.A. § 707(b). Form B22C uses the same calculation. So, the B22C disposable income figure controlled and the Bradys had no disposable income for the purposes of bankruptcy. The court confirmed their Chapter 13 plan with no payments to the credit card company.
Bankruptcy is not a cut-and-dry procedure. Different forms and different calculations can make a huge difference in the outcome of your case. If you’re considering filing for bankruptcy, contact an experienced attorney to make sure you get the most out of your case.