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Florida Bankruptcy Lawyer: What are “Claims” filed in my case?

The Trustee, in the bankruptcy Chapter 13 case, must pay all allowed claims and creditors must file proof of their claims to get paid. Debtors and the Trustee may also file claims to insure that certain creditors get paid. Once the petition for bankruptcy is filed, there is a claims bar date set when once past, prevents further claims to be filed against the estate.
The date is 90 days from the 341 meeting of creditors unless the Court orders otherwise.

Unless objected to, all claims will be allowed. Your plan may even allow late filed claims, but if a claim is filed late, after notice and a hearing, the Court must (usually) sustain the objection. Claimants can try to extend their deadlines, but unless they can demonstrate that they fit within the exceptions provided for under the Code, their request will be denied.

Once the deadline passes, your attorney as well as the Trustee will review the claims and objections will be made where appropriate. Claims should be filed with supporting documents, such as a note or contract. If not, an objection will likely follow. Supporting documents show the claim to be valid as prima facie evidence but not necessarily wholly undisputed. A creditor may show a claim to be higher than what is really owed. Debtors may still challenge a claim based on standing – which is the right the creditor has to file the claim in the 1st place, the amount owed, interest, fees and costs assessed, the type of supporting documents used and the nature of any amendments filed. The dispute of any creditors claims may be resolved by evidentiary hearing or may turn into an adversarial proceeding.

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Florida Bankruptcy Lawyer: What does Plan Confirmation mean?

When a debtor files Chapter 13 Bankruptcy relief, they are seeking a confirmation of a plan which is basically a pathway that is proposed by their attorney to reach his/her goals, obtaining an Order from the Court for confirmation of the plan which will then establish the rights of all the parties involved, including creditors.
This Order of confirmation, establishes the rights, duties and obligations of all parties and bind the debtor and each creditor even if any particular creditor is provided for, has objected to or has accepted the plan. When a Petition for bankruptcy is filed, the law establishes an estate of all property belonging to the debtor that is managed by the Trustee. The confirmation of the plan reinvests all the property of the estate back to the debtor which, unless specifically provided for within the plan, becomes free and clear of any claim or interest of any creditor provided for within the plan.

The plan must be filed in good faith and comply with all bankruptcy laws which mandate certain requirements but maintains the flexibility so that debtors may formulate a plan that enables them to keep property, stop foreclosure, repossessions, garnishments, attachments, catch up on missed payments, reduce interest rates on certain creditors, in specific circumstances, strip off liens and reduce the amount of unsecured debt being repaid over a period of time.

So long as the plan complies with the aforementioned and is feasible, meaning the debtor has the funds necessary to comply with the terms of the plan, it would likely get confirmed. It is also possible, with changed circumstances for the debtor to request a modification of the plan, such as when there is a substantial change in income.

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Florida Bankruptcy Lawyer: The Chapter 13 Plan, Part 2 Lien stripping

The plan created by your attorney is the most important document of the case. When confirmed, it binds all parties and creditors and may only be modified with Court approval. While there are certain requirements which a plan must contain, there are also things that a plan “may” do. A debtor can choose to designate classes of creditors, such as secured and unsecured and must treat each class fairly.
However the debtor has the right to designate classes such as consumer debts differently than other unsecured claims. The debtor may modify the rights of secured claims, other than the security interest in the debtors principal residence, or of the unsecured creditors or choose to leave any particular class unaffected and provide for the curing of any default.

As a practical matter, debtors who have certain secured claims with exorbitant interest rates can present a plan that reduces the interest rate that the creditor has applied against the property. Unsecured creditors are paid a small percentage of their totals, based on disposable income.

The most interesting aspect of the debtors power in the plan is the strip off or lien-stripping power. When an evaluation is done by the attorney, we look to see if the primary home, like many in Central Florida as well as around the United States, has lost value so that the value is proven to be worth less than what is owed on the first mortgage and note. If this turns out to be the case, then any other secured interest in the property, such as an equity line of credit or second mortgage, is now reclassified as unsecured debt and is treated in that class like any other unsecured creditor. Only a fraction of that debt is repaid and the remaining balance will be discharged at the conclusion of the plan.

As an example, say your home has a 1st mortgage on it for $200,000.00 dollars, a second mortgage for $68,000.00 and a $20,000.00 dollar equity line of credit. The market crashed and now your home is worth $174,000.00 dollars. In this case, so long as you prove its worth less than 200k, you can strip off both the second mortgage and equity line of credit but may not modify the 1st mortgage. You would therefore still owe the entire 1st mortgage but pay only a fraction of the second and equity line as unsecured debt, called a “cram down”, then discharge the balance.

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Florida Bankruptcy Lawyer: The Chapter 13 Plan, Part 1

The most important document filed with the bankruptcy Court when pursuing Chapter 13 relief is the plan. It is the document, that once confirmed, binds all parties to the proceedings. The plan must provide for the submission of all or part of a debtors future income to the Trustee as may be necessary for the execution of the plan. A plan must pay all priority claims unless
that particular creditor agrees to different terms. It must provide for the same treatment for each claim within any particular class of claims if “classes” are designated and may provide for less than full payment of all amounts owed for a claim if all debtors disposable income is being applied to making the payments under the plan. Common classes used would normally appear as secured and unsecured creditors. Secured creditors would hold security instruments such as a mortgage, leases or other instruments demonstrating creditors rights to the property involved. Unsecured creditors would normally be credit cards, medical bills and money judgments (not based on intentional acts). Certain claims must be paid in full such as domestic support obligations.

It’s critical that the debtor have enough income to fund a plan if it will be successful.

Plans typically fail when debtors try to keep property that is simply too expensive for them to own, when unforeseen circumstances arise or when there is a drastic change in income. The Chapter 13 bankruptcy still works to protect the debtor as it is a re0organization of their finances. Motions can be made to the Court to amend the plan and adapt to the changed circumstances as the need arises. If the debtors income changes by more than $10,000.00 dollars up or down, then the plan must be changed.

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Florida Bankruptcy Lawyer:The Meeting of Creditors

After filing a bankruptcy petition, all clients must attend the 341 meeting of creditors. The meeting is presided by the Trustee and creditors may attend and ask questions of the debtor about his/her petition, schedules,statements and finances. Typically, only the Trustee does the questioning and it is rare that any creditor shows at all. The meeting is usually recorded and is held under oath.
Debtors must produce a form of identification such as a driver’s license and their social security card to the Trustee.

Documents are submitted to the Trustee before the meeting which usually include proof of income and tax returns. Additional documents may be requested by the trustee to clarify potential discrepancies in the petition or other supporting documents. It is not a time where the debtor will be intimidated or be asked embarrassing or humiliating questions.

The Trustee usually asks about the debtors background, assets and liabilities as well as income and expenses. They will inquire whether the debtor realized he filed his documents under the penalties of perjury; whether the documents were reviewed for their accuracy, completeness and truthfulness; whether anything needs to be added or changed regarding the petition, schedules or statements; if they have any interest in any real estate; if any transfer of property occurred in the year preceding the bankruptcy; if anyone holds property that belongs to the debtor; if they are owed any monies or are a party to a lawsuit or anticipate receiving funds in the near future. In the event of the debtor being self employed, the Trustee will look into the financial aspects of the business as well. Though this sounds like it may take a while, the typical meeting is concluded in 5 to 10 minutes.

When the meeting is concluded, creditors then have a limited time to object to the debtors claimed exemptions.

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