Chapter 13, Kagenveama, And Great Chapter 13 Plans.
By Michael G. Doan, San Diego Bankruptcy Attorney on Aug 10, 2008 in Bankruptcy Practice and Procedure, Benefits of Bankruptcy, Chapter 13 Bankruptcy, General Bankruptcy Information, Means Testing
The Dissent in the Ninth Circuit Kagenveama case said it the best: “So long as the debtor can calculate no “disposable income” at the time his creditor plan is confirmed, he can rest easy. The debtor can propose as short a time period as he wants: a day, a week or a month………So long as he can push up his expenses and delay receipt of income so as to show no “disposable income” at the time of plan confirmation, he can propose such a short period of time that he can save any postponed income from the creditors’ clutches.”
For more information re the amazing new Kagenveama case, click my other blog here.
So lets play this new amazing Ninth Court decision out into some real life examples:
Example 1: Sole Income $993 social security. Actual expenses: $800 per month. $20,000 unsecured debt and car worth under $2000, bought over 2.5 years ago, and with $6,000 owing. Result? No projected disposable income or plan length since social security is treated as $0 income minus reasonable expenses. Debtor can afford $93 per month. 5 year plan, $93 per month, $5,580 total payout. $2000 to car, $3,000 to attorney fees, and $580 to chapter 13 trustee fees. All debt eliminated.
Example 2: Mortgage Broker previously earning $200,000 per year, unemployed, and recently employed 1 month prior to filing chapter 13. Earns $12,000 per month. CMI is $2,000 (12,000 earned over previous 6 months). No minimum plan length or projected disposable income since reasonable expenses exceed $2,000 per month. Owes $300,000 in credit card debt and $15,000 on $10,000 car. Result? $1,000 per month for 10 months, all other debt eliminated. But Watch out! Make sure Chapter 13 trustee does not move to modify the plan between confirmation and month 10 under 1329 due to the new high income.
Example 3: Homeowner makes $120,000 per year. Has a house with 2 mortgages, first of $600,000 and second of $200,000. House bought in 2006 for $820,000, at its high point was worth $1.1 mil, now is worth $590,000. Homeowner is behind 9 months on mortgage payments due to credit cards and interest rate adjustments on mortgages. Homeowner owes $40,000 in arrears on the first mortgage. Homeowner also has $75,000 in credit cards, $40,000 owed on a 2006 BMW worth $28,000, and leased Range Rover at $699 per month for 29 more months. Under the means test, due to the mortgages, its negative DMI, since both mortgages and cars combined with all the other fake IRS expenses clearly exceed the $10,000 CMI monthly income. Result? All credit cards eliminated with $0 repayment. BMW debt reduced to $28,000 at 6% interest. Second mortgage eliminated in its entirety with NO repayment whatsoever. 9 months arrears on the first mortgage now cured and repaid. Chapter 13 plan payment is $2500 (which is $100 less than the $1800 second mortgage payment and $800 BMW payment…doesn’t even include any of the credit card minimum payment) and completed in 29 months. NO MORE DEBT IS OWED AFTER 29 MONTHS, HOUSE IS CURRENT, BMW PAID FOR, TIME FOR NEW LEASED CAR.
Written by Michael G. Doan
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