Chapter 13 Trustees in Florida, Georgia and Puerto Rico to double their fee in May!

Bankruptcy attorneys practicing in the Middle District of Florida, Jacksonville Division received the following email from Chapter 13 Trustee Doug Neway:

“Effective with all cases filed on May 1, 2008 or later: . . . All plans should be calculated using a 10% fee. This change is necessary to insure sufficient fund are collected during the life of the plan to pay both creditors and trustee fees should there be a fluctuation in the percentage fee during the life of the plan. If the fee is less than 10% and there are additional funds at the end of the case, the funds will be applied to the unsecured class or pay the case off early if the plan provides for 100% to unsecureds.

This is not a change just to the Jacksonville Division, but to the entire Region 21 (Georgia, Florida & Puerto Rico). So, if you file cases in other courts in the Region, be prepared to make the same changes.”

Ocala Bankruptcy Attorney Richard A. Perry notes, “The chapter 13 trustee in the Jacksonville Division has historically required, until recently, that all mortgage payments be paid through the plan, instead of directly to a mortgage holder. More and more practitioners design plans, where the mortgage holder is paid directly, and this significantly decreases the amount of money funneling through the grasp of the trustee.”

However, as I reported two weeks ago, bankruptcies are soaring in the Middle District of Florida. After an initial decline in the months following the enactment of BAPCPA in October 2005, bankruptcy filings in the MDFL rose 70% in 2007!

Neway responds, “Receipts in chapter 13 cases are down 33% in our office since the beginning of fiscal year 2006. There is a serious delayed reaction to changes in bankruptcy filings and actual money in the door. It was recommended that our office increase its percentage fee over 5% a couple of months ago, but we couldn’t without modifying all of the plans in existence. Other offices in the region are at 10% already. So, the UST directed all offices to require calculations at the statutory rate. When Judge Funk was the trustee, all plans were calculated at 10%.”

What will this mean for consumer debtors attempting to reorganize their secured debt to save a home and or a car? Well, let’s say you have normal monthly mortgage payments equaling $1,200, and you are $6,000 behind. You also have two cars that, upon re-amortization of the loans by your attorney, you will pay $400 apiece per month over a 60 month plan. Total disbursements by the trustee each month equal:

$1200 mortgage payment

$100 toward the arrearage

$400 for the first car

$400 for the second car

________________________

$2,100 per month

The trustee would charge a 5% administrative fee which is calculated by dividing the total disbursement by .95, or in this example:

[$2,100 total disbursement/.95] - $2,100 = $110.53.

Therefore, the trustee is paid $110.53 per month in this case, but when the rate increase goes into effect May 1, 2008, the trustee will require the debtor to pay an additional $110.53!  That’s an additional $6,600 over the life of the plan.

If you needed evidence that the Office of the United States Trustee is a government agency, this is it. It would be impossible for anyone other than a bureaucrat to be so out of touch with reality. OUST is a fitting acronym for this agency because it is helping to oust debtors from their homes.

I invite Assistant UST Kenneth C. Meeker of Orlando to sit in on my bankruptcy consultations one day for a taste of reality. My clients hire me because they have a reduction in their income. They cannot afford an additional 5%.

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