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Good faith and Chapter 13

A judge in Kansas confirmed a Chapter 13 bankruptcy plan that would allow debtors to pay lawyer’s fees and a dividend to creditors over a 36-month period. The judge ruled that the couple, who are in their 70s, were not abusing the system when siding with them over the objections of the bankruptcy trustee. Previously, the U.S. Courts of Appeals for the 1st and 5th Circuits have ruled on such cases and found that they did not violate any provisions in the Bankruptcy Code. The U.S. Court of Appeals for the 11th Circuit, which covers Florida, has issued similar rulings as well.

When the case was filed, the couple had $2,100 in cash in the bank and received $3,461 per month in Social Security income. While the debtors said that they had $2,728 in expenses per month including a $93,000 mortgage and over $50,000 in credit card debt, the judge said that the debtors had underestimated their expenses. Furthermore, the Social Security payments were exempt from disposable income calculations.

Under the couple’s proposed plan, they would pay $125 a month to cover lawyer fees of $3,350 in addition to a filing fee of $310. The rest of the money would go toward Chapter 13 fees as well as $480 to secured creditors. The trustee in the case argued that the case was not filed in good faith because the couple could have filed for Chapter 7.

Filing for Chapter 13 bankruptcy may make it possible to stop creditor harassment and make it easier to come to new terms on secured debt. Filing may also enable an individual to keep his or her property while the case is ongoing. An lawyer can explain the eligibility and other requirements attendant to this chapter.

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