In our last post, we discussed how a woman who could not afford to pay attorneys’ fees up front in a Chapter 7 bankruptcy filing, instead, filed a “fees only” Chapter 13.
In most Chapter 13 plans, the debtor has to pay their secured debts and some percentage of unsecured debts, depending on how much income they have left over after living expenses and secured debts are paid.
The percentage varies, and in this case, the woman was going to pay zero percent to her unsecured creditors, as she apparently had no disposable income after living expenses and the attorneys’ fees were deducted.
The trustee objected, claiming the filing was in bad faith because her situation lacked “special circumstance.” But as the bankruptcy judge explained, the Bankruptcy Code does not require that there must be a minimum payment to unsecured creditors to avoid classifying the plan as having been filed in bad faith.
The court pointed out that “fees only” filings had been allowed by bankruptcy courts in many states. Wisconsin is one state he cited as having permitted this type of case to be filed.
The court looked the totality of the circumstance of this woman’s financial condition and found that she met the requirement of a good faith filing. The code only demands that unsecured creditors are not to be treated worse than if she had filed a Chapter 7
Since unsecured creditors would typically receive nothing in a Chapter 7, they were not being treated any worse by the Chapter 13 plan, and that if she was denied a Chapter 13 filing, she would likely be denied any bankruptcy relief.
The trustee’s objection may have been because the trustee receives their compensation based on a percentage of the Chapter 13 plan payments and a “fees only” filing would generate little revenue for the trustee’s office.
Source: bna.com, “Debtor Can Confirm ‘Fees Only’ Chapter 13 Plan,” Daniel Gill, May 12, 2016
