CORONAVIRUS AND DEBT RELIEF
The Janvier Law Firm, PLLC (hereinafter “JLF”) is open for business to assist individuals and businesses who are undergoing financial difficulties as the result of the coronavirus pandemic. Our mode of operation has been changed to protect the health of our attorneys, staff and clients, but we remain available to guide you through these difficult times.
Do not panic! Over the years, JLF has assisted countless clients through difficult financial circumstances. We were here during the Great Recession of 2008-2009 and the resulting foreclosure crisis. We have been and remain equipped with the attorneys and staff to assist all who are confronted with debt problems, be it a business that needs to file chapter 11, an individual to save her home from foreclosure through a chapter 13, or someone who just needs to eliminate debt and get a fresh start.
The purpose of this document is to provide information and guidance to current clients and potential clients of JLF who are experiencing the financial impact of the coronavirus pandemic. The advice is general. Each client must communicate directly with JLF to obtain guidance for his or her particular circumstances.
III. METHODS OF COMMUNICATION
JLF has adapted its methods of communicating with clients to make it easier to provide prompt and accurate advice while protecting the health of everyone involved. We are available to communicate by email, telephone, and skype. For those who want to come into the office, JLF has installed a 60’ TV monitor in which you can consult with one of the attorneys via skype. The telephone number in which to reach JLF is 919-582-2323. If Darlene does not answer, leave a message and she will return your call.
IV. CHAPTER 7 CASES
A. Existing Cases
If you are an existing chapter 7 client who has already filed bankruptcy, and you have already attended the 341 Creditors’ Meeting, your case will likely proceed to discharge without any change. If you have not yet attended the 341 Creditors’ Meeting, you need to be alert for notification of when and how the 341 Creditors’ Meeting will happen.
Hopefully, the relief from debts achieved in the chapter 7 bankruptcy will be sufficient to enable you to maintain payments on secured debts, such as vehicle loans and mortgages. However, if you are not able to do so, all is not lost. If you are not able to negotiate acceptable arrangements with the lender through modification or deferral of the payments, the bankruptcy law provides a way to save your home or vehicle. The law allows you to file a chapter 13 bankruptcy even though you have recently completed a chapter 7. [At JLF, we call this strategy a “Chapter 20”.] The purpose of filing the chapter 13 is not to obtain a discharge of debt, but to give you the means to stop foreclosures and repossessions, and cure the arrearages on the payments over time.
B. Chapter 7 Clients Who Have Not Yet Filed
For each existing chapter 7 client who has not yet filed bankruptcy, you need to communicate with JLF to let us know how the coronavirus has impacted your financial situation. For example, you may have been current with your mortgage payments when you consulted with us, but are now behind. This change in circumstances may dictate that you now file chapter 13 bankruptcy. It may make the proper strategy to go forward with the chapter 7, and then plan on saving your residence through modification after the chapter 7 is completed, with a chapter 20 as the backup plan. Our goal is to provide you with the appropriate debt relief in these fast changing times.
C. Future Chapter 7 Clients
If you are not an existing client of JLF, but are reading this document, you are obviously experiencing financial difficulties. The next 24 lines provide general guidance on how to manage your financial affairs to help us help you when the time comes.
First, prioritize who you pay. If you want to keep your residence, keep the mortgage payment current as best you can. The same goes for car payments. Do not pay unsecured debts, such as credit cards and personal loans, while letting your mortgage loan or car payment fall behind. The minimum payments on credit cards are usually small in comparison to a mortgage payment, so the temptation is to make the credit card payments. This is a mistake. Remember, the credit card creditors will not foreclose on your house. You may be told by the mortgage company that it will not apply a partial payment to your account, but it will put the payment in a “suspense account”, and then apply the funds in the suspense account to your payments when you make additional partial payments sufficient to comprise a full payment. So make partial payments by check so you have proof of the payment.
Do not accept large gifts or get unsecured loans from friends or family members to assist you with your financial woes. Obtain the assistance in the form of secured loans.
Why does this advice make sense? First, when you file bankruptcy, you are entitled to keep (exempt) a certain amount of equity in your residence or vehicle that can’t be sold by the chapter 7 trustee. A gift or unsecured loan does not reduce your equity in the assets, but a loan secured by them does. So, the end result is to place a friendly creditor between you and your unfriendly creditors. The details on how you do it are crucial. You must secure the loan simultaneously with borrowing the money. If you are reading this document, and are considering or being offered help from a friend or family member, you must immediately contact JLF so that we assist you in the process. Don’t do it yourself.
Secondly, secured creditors are more effectively protected from non-payment in a bankruptcy. By securing the loan, you make it possible to pay the debt while you get rid of your other debts.
V. CHAPTER 13
A. Existing Cases
The impact of the financial difficulty arising out of the coronavirus on your particular case depends on a number of factors, including whether your chapter 13 plan has been confirmed and, if so, JLF plans to reach to each of you on an individual basis to discuss your case, but some general principles follows:
- Chapter 13 Plan Not Confirmed
When you filed your case, you proposed to make payments of some amount per month. If you fall behind on these proposed payments, the chapter 13 trustee will file a motion to dismiss. We have 21 days to object to the dismissal. One possible avenue to avoid dismissal is to file an amended plan. Whether we can do so depends on the nature of your plan. One component of each plan is a calculation of your “projected disposable income (“PDI”), which is essentially your average income for the six-month period to filing bankruptcy minus the expenses you are allowed to deduct under the bankruptcy guidelines. You are required to pay your unsecured creditors an amount equal to sixty times your PDI. So if your PDI is $200.00, you have to pay unsecured creditors $12,000.00. If your income has decreased from the time you filed the bankruptcy, then your PDI will have decreased, and we can probably file an amended plan to lower your chapter 13 payment.
Not all clients who have a decrease in income can lower their payment. Some clients have zero PDI and have filed a plan paying nothing to their unsecured creditors. If you are already paying nothing, you can’t go lower. Other clients’ payments to their unsecured creditors are based upon how much non-exempt equity they have in their assets. A decrease in income does not reduce the amount of the non-exempt equity, so the decrease will not justify a reduction in the plan payment.
If you are in a situation in which you are temporarily unable to make the payments you have proposed to pay, we may be able to modify your plan to “step” the payments or extend the term of the plan. Whether stepping or extending the plan can work for you requires an individual analysis.
A step plan means that we provide for lower payments now and then step the payments to a greater amount in the future. In the long run you pay the same amount, but pay less now and more later.
The term of most plans is sixty (60) months from the date you file the bankruptcy, but the current law permits you to modify your plan to extend the term to sixty (60) months from the date your plan was confirmed, which date could have been several months after you filed. In a modified extended plan, you make up for paying less now by paying longer.
If you find yourself in such bad shape that we are not able to propose a chapter 13 plan that will be approved by the court, you have two options: (1) convert your case to chapter 7; or (2) request or allow your case to be dismissed. In both options you will be refunded most of the funds you have paid into your plan, after JLF has applied for and been paid the attorneys’ fees we have earned in your case. We can determine which offer better serves your interests only after consulting with you.
Whether you convert your case to chapter 7 or allow it to be dismissed, you are not prohibited from filing another chapter 13 at the appropriate time. After you are back at work earning income again, starting with a fresh chapter 13 may be the better strategy in achieving your goals, as compared to digging yourself out of the hole that has occurred in this one.
- Chapter 13 Plan Confirmed
If your chapter 13 plan has been confirmed, then you are operating under a schedule to make payments of some amount each month. If you fall behind on payments, then the chapter 13 trustee can’t dismiss your case, but can only file a motion to dismiss your case. Assuming that you oppose dismissal and tell us that you oppose dismissal, we will consult with you to determine the best strategy to avoid dismissal. The strategy may be as simple as catching up the arrears (the amount by which you are behind) over a six-month period. The six-month cure is the normal cure period. Perhaps, due to the unusual and wide-spread nature of the economic crisis, the court will be more limited in allowing twelve-month cures.
Other possibilities include filing amended plans. Once a plan has been confirmed, one criteria you must meet to amend the plan is to show a substantial and anticipated change in circumstances. That should not be difficult to do. Additionally, Congress just passed a law that allows you to extend the term of your plan to eighty-four (84) months from the date your first payment was due under the plan, if you have experienced financial difficulties from the coronavirus pandemic. However, that does not mean that you can amend your particular plan. That depends on the same factors set out under Paragraph V.A.1 of this document related to amending plans in unconfirmed cases. (See pp. 3-4).
You also have the same options of converting to chapter 7, allowing dismissal, and if appropriate, filing another chapter 13. (See pp. 4-5), available to debtors whose chapter 13 plan has not been confirmed. The major difference is that no money paid into the chapter 13 plan will be refunded to you because they have been distributed to creditors pursuant to your plan.