Wow a Hypothetical Chapter 13 case in the middle of a Chapter 7 analysis is a mouthful. Last month Judge Walter in the case of In Re Phillips Case number 08-35148 (6th circuit Southern District of Ohio at Dayton) raised the issues of the Hypothetical Chapter 13 case in determining if the US Trustee motion to convert or dismiss should be granted under 707(b)(3). Although the debtor was ordered to dismiss or convert this was a significant decision.Janice Phillips filed a Chapter 7 case, that was objected to by the US Trustee office. One of the arguments made was that if the debtor stop her voluntary retirement contributions and stop repaying her retirement loans she would have enough money left over to repay 67% of her unsecured creditors. Judge Walter disagreed and found that the changes made under BACPA concerning retirement loans and contribution required an analysis under a hypothetical Chapter 13. He stated that since these deductions were allowed in a 13 they must be looked to determine if there would be a distribution to creditors.
This district looks at the means test for length of the Chapter 13 and the income and expenses to determine what the debtor is going to pay. It is a foward looking district.
Judge Walter found it would be “pointless” to convert or dismiss a Chapter 13 that in reality would not result in a distribution to creditors. The analysis must be real. If the retirement loan and contribution would be allowed in the Chapter 13 then they must be used to figure out how much the unsecured creditors would receive in the hypothetical Chapter 13.
Unfortunately for the debtor her 2 retirement loans were paid off during the 60 month period. Judge Walter then calculated the left over funds over the remaining time period and found that there would be a meaningful distribution to the creditors ( here almost 30%).
It is interesting to note that two weeks later the other bankruptcy Judge in the Dayton District in an oral decision stated he would follow the Phillips decision. More interesting was that the US Trustee pretrial motion for the hearing analyzed the case under Phillips too.
A hypothetical chapter 13 just one more tool to help a debtor.
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