Fee-Only Chapter 13 Bankruptcy and the Elderly

If you have an elderly parent who is considering filing for bankruptcy, or if you have limited income and are no longer working, you might be thinking about how bankruptcy protection can help you. While personal bankruptcy is not for everyone, it can be an important way for debtors to deal with the constant anxiety from creditors’ calls and contact from debt collection companies. In some instances, consumers who have significant debt but have other limited assets and income may be eligible for “fee-only” Chapter 13 bankruptcy. According to a recent report from Bloomberg BNA, a bankruptcy court just held that an elderly couple could in good faith file a fee-only Chapter 13 bankruptcy repayment plan.
While only a handful of circuit courts have addressed the issue of fee-only bankruptcy under the Bankruptcy Code, this recent decision could pave the way for a similar decision in Illinois.
Learning More About the Recent Case
Although the recent bankruptcy case, In re Moore, did not take place in an Illinois bankruptcy court, the decision could have an impact on residents in Oak Park. In this case, a couple in their 70s filed for Chapter 13 bankruptcy. Neither of the spouses work any longer, and they both have “significant health problems.” When they filed for Chapter 13 bankruptcy, they submitted a fee-only repayment plan. As part of this plan, the couple would pay “their attorney’s fees and expenses, along with a small dividend to their unsecured creditors over 36 months.”
Why did the couple submit this kind of repayment plan? As the Bloomberg report explains, the couple had just over $2,000 in their bank account when they decided to file for bankruptcy. At that point, they were living off Social Security income, which totaled $3,461 a month. Under the Bankruptcy Code, Social Security income is exempt in a bankruptcy proceeding. While Illinois requires debtors to use state bankruptcy exemptions, Social Security benefits also are exempt under Illinois law. Since Social Security benefits are exempt, that money cannot be calculated as part of a debtor’s disposable income.
In total, they estimated that their monthly expenses were approximately $2,728 per month, but the court ended up decided that this number was lower than the couple’s actual monthly expenses, especially given that they care for their adult daughter, who suffered debilitating injuries in a car accident. They also owed credit card debt of more than $50,000.
Good Faith and the Fee-Only Payment Plan
As the report explains, if the debtors had filed for Chapter 7 bankruptcy, they would have had to pay approximately $2,000 in attorneys’ fees up front, along with a filing fee. These costs would have taken more than the debtors had in their bank account. Under a Chapter 13 plan, however, the debtors could propose paying $3,000 in attorneys’ fees over the course of the repayment plan, along with around $500 to their unsecured creditors.
The bankruptcy trustee objected to this fee-only plan, arguing that it was “an abuse of the provisions, purpose or spirit of Chapter 13.” As the article points out, only three federal appeals courts have examined fee-only bankruptcy cases. In each of those cases—which were heard in the First Circuit, the Fifth Circuit, and the Eleventh Circuit—the courts “concluded that there is no per se rule in the Bankruptcy Code prohibiting this practice,” the article emphasizes. In other words, those appeals courts have indicated that the Bankruptcy Code does not prohibit fee-only Chapter 13 plans.
The court determined that, given the totality of the circumstances, the debtors’ repayment plan meet the requirements for good faith, including “whether there are special circumstances, whether this plan will place an administrative burden on the trustee, and whether the debtors have the requisite motivation and sincerity.” Given that the repayment plan passed those tests, the court determined that the repayment plan was acceptable.
Contact an Oak Park Bankruptcy Lawyer
Do you have questions about how a case like this one could influence your bankruptcy filing in Illinois? An experienced Oak Park bankruptcy lawyer can help. Contact the Emerson Law Firm today.
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