A Court's view of the chapter 13 bankruptcy process

The processes, theories, and inner workings of a Chapter 13 Bankruptcy can sometimes be hard to explain.  Recently, the United States Court of Appeals for the Eleventh Circuit, which covers Alabama, Georgia, and Florida, released an opinion in In Re: Paul L. Cumbess, Debtor; Microf LLC vs. Paul L. Cumbess, et al, Case No. 19-12088; which gave a really good explanation of the overall Chapter 13 Bankruptcy process.

As you will see from the opinion below, Chapter 13 Bankruptcy’s, even when explained as straight forward as possible, can be complicated.  This is why you should see a qualified bankruptcy attorney. At Collins Law Offices, your Cullman Bankruptcy Attorney, we offer Free In-Depth No Obligation Consultations.  We will answer any questions you may have and provide you with the best options possible, whether it is Chapter 13 or Chapter 7 Bankruptcy or debt settlement or debt defense. And, we will do so with No Strings Attached. We will not add any more pressure to your life.  

Here is the pertinent part of the 11th Circuit’s opinion:

Before we dive into the details of this case, a bit of Chapter 13 background is in order. First, let’s talk mechanics. A Chapter 13 bankruptcy—sometimes called a “wage earners plan”—enables a debtor with a regular income to repay all or part of his debts, typically over a three- to five-year period. After the debtor initiates a Chapter 13 case by filing a petition, he must then—within 14 days—file a proposed plan of reorganization, which provides that he will make certain fixed payments over time. The bankruptcy court then determines whether the proposed plan conforms to the Bankruptcy Code. If it does, the court confirms the plan, which then becomes binding on the debtor, the creditors, and the Chapter 13 trustee, whose job it is to assist with the plan’s administration. In a Chapter 13 proceeding, the bankruptcy estate—the pool of property from which the debtor’s creditors are paid—comprises all of the debtor’s legal and equitable interests in property at the time of the filing of the case, as well as those that he acquires after the filing. See 11 U.S.C. §§ 541, 1306(a). Unlike in a Chapter 7 “liquidation” proceeding, however, a Chapter 13 debtor can maintain possession of some or all of his assets throughout the bankruptcy; the debtor’s plan payments (and thus the payments to his creditors) typically come from his future earnings. 

Generally speaking, there are two types of claims in a Chapter 13 case: secured and unsecured. Importantly for our purposes, the Bankruptcy Code treats different kinds of unsecured claims, well, differently. A typical unsecured claim— also called a “general unsecured claim”—needn’t be paid in full. The Code requires only that creditors holding general unsecured claims receive what they would under a Chapter 7 liquidation. 11 U.S.C. § 1325(a)(4). The Code also provides, though, that some unsecured claims are entitled to “priority,” such that they have to be paid in full unless the creditor agrees otherwise. 11 U.S.C. § 1322(a)(2). Examples of claims entitled to priority include domestic-support obligations, certain taxes, and—as particularly relevant here—“administrative expenses” associated with the proceeding, including the “actual, necessary costs and expenses of preserving the estate.” 11 U.S.C. §§ 503(b)(1)(A), 507. 

Now, the players. First, of course, there’s the debtor—he initiates the Chapter 13 proceeding, proposes the reorganization plan, and (if all goes well) makes payments in accordance with it. Within the Chapter 13 process, the debtor’s objective is to “obtain court approval . . . of a plan that provides for the payment of as little as possible to creditors and to emerge at the end of the process with as much property and as little debt as possible.” Hon. W. Homer Drake, Jr., et al., Chapter 13 Practice and Procedure § 1:1 (2019). Then, there are the creditors—the people or entities who have claims against the debtor. Predictably, the creditors’ incentives run counter to the debtor’s: Their aim is to “maximize their recoveries by having the debtor pay as much as possible.” Id. Finally, there’s the trustee, who is appointed by the bankruptcy court after the debtor files a Chapter 13 petition to assist with the case’s administration. The Chapter 13 trustee is a “representative of the bankruptcy estate,” id. at § 17:1, and her “primary purpose . . . is . . . to serve the interests of all the creditors,” Hope v. Acorn Fin., Inc., 731 F.3d 1189, 1193 (11th Cir. 2013). Although a Chapter 13 trustee has many statutory rights and responsibilities, see 11 U.S.C. § 1302(b), she plays a particularly important role in connection with the debtor’s plan: She must appear and be heard at any hearing regarding plan confirmation or modification, advise and assist the debtor in his performance under the plan, ensure that the debtor makes timely payments under the plan, and disburse those payments to creditors in accordance with the plan. See Drake, et al., supra, at § 17:3. 

There’s one last piece of introductory ground we need to cover: executory contracts. At the time a debtor files a Chapter 13 petition, he may be subject to the ongoing benefits and burdens of an unexpired executory contract—such as, in this case, a lease. When this happens, the debtor has three choices going forward: he can “assume” the contract (i.e., commit to performing its obligations), “reject” the contract (i.e., commit to breaching its obligations), or “assign” the contract (i.e., provide that a third party will perform its obligations). 11 U.S.C. § 1322(b). Less clear, however—and the issue at the center of this appeal—is the effect that the debtor’s assumption-rejection-assignment election has on the bankruptcy estate and whether, for instance, the debtor’s decision to assume a lease obligates the bankruptcy estate independent of any action by the Chapter 13 trustee.
​(for the full text of the opinion click HERE)

Chapter 13 Bankruptcies and Bankruptcy in general is a complex area of the law; however, with the right bankruptcy lawyer it can be an excellent tool to solve your financial problems. This is why it would benefit you to consult with a qualified bankruptcy attorney instead of continuing to worry about the situation. At Collins Law Offices we offer Free In-Depth No Obligation Consultations with a bankruptcy attorney that are designed for just this reason. 

We can help you stop worrying, because you will have a plan and the support of an expert bankruptcy lawyer to get you back on your feet.  We have years of experience working in bankruptcy and will be at your disposal should questions arise during your bankruptcy -- our goal is to provide peace of mind while also providing expert advice on what course of action may work best for your situation.  If you are having problems with debt, there is no reason not to at least learn about possible solutions that are out there even if you are not ready to take that step at this time.  There will not be any added pressure or obligation placed on you, only relief and understanding.  For a Free In-Depth No Obligation Consultation click here.

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