May 2017

The public is certainly aware that the Chapter 13 offices are intensely computerized. We rely on complicated software programs to store, calculate and manage our extensive data.

It takes exceptionally talented people to keep our systems running smoothly and safely. In today’s environment, safety is a pervasive issue. We are all aware of massive hacking and data compromising attacks. Our information technology expert, Christine Smith, has selected and monitored a firewall that protects our office from cyber invasion. Her experience in Cyber Security is evident in the article she wrote. It is printed below. Because of her expertise, you can rest assured that our data is safely protected. Furthermore, the website addresses mentioned in her article may personally help protect you and your computer.

Cyber Security – who should practice it?
By Christine Smith, System Manager

Technical Specifications
Articles are published every day to urge us how to protect ourselves from the often silent but potentially crippling cyber-attacks. We are told to make sure we protect our networks using firewalls, security software and installing the endless updates for every form of software used. We need to protect every entry into our network, from our desktops, laptops, cell phones and yes, even printers.
There is the familiar mantra of “backups are a must.” We often forget about the physical control that should be implemented as well. Locking computers when walking away and shutting down or logging out at the end of the day are musts. Only give employees access to what they need to get their work done as opposed to the entire network. Make sure passwords are used, kept private and chanted at regular intervals. If you choose to use Wi-Fi, you are opening yourself up to a broader, harder to protect home base and must secure it with a complex password.

Team Effort
All of the above can be implemented in theory, but if not practiced on a daily basis, your systems will not be safe. In our current atmosphere, it is no longer a question of “if it happens.” It is more like “when it happens,” will you be ready? Will you have a plan that will bring your network back after an attack such as ransomware or a Zero day exploit? Don’t have any idea what these are? Sites like https://www.fireeye.com/current-threats.html can help educate you and give you an idea of what you need to be particularly careful with. The next step is realize that every click of the mouse, whether it be in an email, a word document or a zipped folder, has the potential to bring your network down. Office staff and attorneys alike must be continuously thinking of these possibilities. They should be saying to themselves, “Am I expecting this email? Should it have a zipped folder attached?” Do you allow your staff to check their own email on your computers? Do you allow internet browsing? Are your end users aware of the dangers of doing these things on work equipment?

In the End…
In the end, after all the firewalls, security software, physical security and end user procedures, your network is only as good as your biggest risk to your network. So educate, practice and demonstrate through personal practices to your staff how to create the safest network possible. Here are some tips as well: https://apps.fcc.gov/edocs_public/attachmatch/DOC-306595A1.pdf

After reading her article, I’m sure you agree that Chris is a dependable expert and our data is well guarded. Thank you Chris.

November 2016

November 2016

Bankruptcy Fraud
Recently, we have noticed an increasing number of debtors who have failed to properly disclose assets. It is a duty of the Chapter 13 Trustee to forward this information to the U.S. Trustee for review and possible action. Good, clear, penetrating interviews should eliminate mistakes, omissions or fraudulent statements. Most attorneys indicate as a preface to the interview that debtors must sign documents under penalty of perjury in order to file their case. Debtors need to know that this is not a time for poor or selective memories. The penalties are stiff and can cause lasting damage to a debtor’s reputation and in my observation have become more frequent.

Congress gives debtors broad relief. All they need to do is answer honestly and follow their attorney’s advice.

Please note the following article sent to me recently which highlights the conviction of a debtor.

Minnesota Man Found Guilty In Theft Scheme

Please urge your debtors to be precise and accurate in their responses to your questions. Also, remind them that you can always amend if they forgot an asset in the beginning of their case. Amendments are most effective if filed BEFORE the Trustee’s staff learns of the omission.

April 2016

The Importance of Education

In 2005, Congress of the United States revamped the bankruptcy code. Among other changes, Congress required that Debtors take a pre-filing credit counseling course and a post filing debtor education course. Among other requirements, the post filing course must be a minimum of two hours and touch on a number of core areas.

As soon as the changes came into effect, just like mushrooms after a storm, dozens of commercial companies popped up, each promising to provide Debtor Education for a price. Debtors could take the class in person, online or over the telephone. The process became as fast and simple as modern technology could allow. However, the very speed and convenience of modern technology significantly diluted the intended value. In my opinion, there is no substitute for in person classroom instruction.

In early 2005, the Trustee’s office commissioned a study of the demographics of Debtors in Genesee, Shiawassee, Livingston and Lapeer Counties. The report showed that 59% of those surveyed had a college degree or other formal education beyond high school (trade, vocational training or some college), however only 5% of those surveyed had any type of training in personal finance or have ever received any financial counseling. Anecdotally, the Trustee’s staff informally polls each Debtor education class and typically less than 1 in 10 admit to having previously received some sort of financial education. After reviewing this data, I came to the conclusion that there is a serious lack of financial education and as Trustee, I wanted to do my best to remedy this problem.

With the belief that in person instruction is superior to any other form of instruction, my staff began devising a debtor education class to fulfill the requirements put in place. Shortly, we had developed a financial education course, applied for and received certification by the United States Trustee as an approved provider.

In the morning of each 341 hearing, my office holds an orientation class followed by the financial education class, both at no charge to the Debtors. The purpose of the Orientation class is to answer a number of frequently asked questions that come up during bankruptcy. We have been successfully holding this class for the past ten years. In 2015 there were 827 chapter 13 filings in our district and in 2015 the Trustee’s office issued and filed 559 certificates of completion of financial management.

At the conclusion of each class, Debtors are asked to complete a survey about additional topics they believe would benefit them. These surveys have consistently shown that Debtors are interested in learning more about credit scores and budgeting. As a result, the Trustee’s office began offering a series of non-mandatory additional educational classes. The first class is a review of credit. It goes into the components of a credit score and what individuals can do to improve their scores. Second, the Trustee offers a class on budgeting. We share budgeting and savings strategies, tips and tactics. Also offered is a class that goes over common problems post confirmation. This is designed as a companion class the Debtor orientation class and covers many frequently asked questions that happen after confirmation of a chapter 13 case. Finally, we offer a Trustee open forum where Debtors are welcome to bring any questions, comments, complaints or compliments to be addressed personally by the Trustee.

Too often we see ‘frequent filers’ returning to chapter 13 again and again. No Debtor ever filed chapter 13 without serious thought and consideration and it is my hope that Debtors emerge from bankruptcy wiser, more experienced and determined never to file again. Through our education efforts I hope to add to the success rate of Debtors both during their bankruptcy and afterward.

Please encourage your clients to attend the financial education class offered by the Trustee and the additional classes as well. If your client has not attended the post filing debtor education class required to receive their discharge, please have them contact Leo Foley at 810.238.4675 [x228} or lfoley@flint13.com to get them scheduled.

October 2015

Advantages of Plans that Provide for Trustee Paid Claims
It is often the case that the decision to file a Chapter 13 bankruptcy petition is made quickly and out of necessity in an urgent response to imminent foreclosure of the debtor’s home, or by a recent repossession of the family automobile.  These assets are rightfully considered to be the key to a family’s financial health and security. But there is significant disagreement as to who should be responsible for making payments on secured debt within a Chapter 13 plan.

Disagreement persists as to whether allowing the debtor to make some payments directly provides any real benefit to the debtor, to the creditors or to the bankruptcy estate and whether the policy that allows a debtor to make payments directly to a creditor actually undermines the goals of the Bankruptcy Code and decreases the likelihood that a debtor will successfully complete a Chapter 13 plan.

The Trustee in Flint believes that the goals of debtors, creditors and the bankruptcy estate are significantly advanced when the Trustee disburses on all claims.  He believes that the goals of the bankruptcy system are often frustrated when the debtor makes direct payments to their creditors.  Bankruptcy Courts who have considered whether or not the debtor may be permitted to be their own disbursement agent consider the following factors: The degree of responsibility of the debtor, as evidenced by his past dealings with creditors;

A. The reasons contributing to the debtor’s need for filing a Chapter 13 petition and plan;
B. Any delays that the Trustee might make in remitting the monthly payment to the targeted creditor;
C. Whether the proposed plan modifies the debt;
D. The sophistication of the target creditor;
E. The ability and incentive of the target creditor to monitor payments;
F. Whether the debt is a commercial or consumer debt;
G. The ability of the debtor to reorganize absent direct payments;
H. Whether the payment can be delayed;
I The number of payments proposed to pay the targeted claim;
J. Whether a direct payment under the proposed plan will impair the trustee’s ability to perform his duties;
K. Unique or special circumstances of a particular case;
L. The business acumen of the debtor;
M. The good faith of the debtor;
N. The debtor’s post-filing compliance with statutory and court-imposed duties;
O. The consent, or lack thereof, by the affected creditor to the proposed plan treatment;|
P. The plan treatment of each creditor to which a direct payment is proposed to be made;
Q. The consent or lack thereof by the affected creditor to the proposed plan treatment;
R. The ability of the court and the trustee to monitor future direct payments;
T. The potential burden on the Trustee;
U. The possible effect upon the Trustee’s salary or funding of the U.S. Trustee system;
V. The potential for abuse of the bankruptcy system.

Consideration of these factors rarely favors preference for direct payments.  Whether or not the debtor is delinquent on claims, there are many good reasons for the proposition that all secured claims should be paid by the Trustee and few reasons why direct payments should be allowed.  Chief of these reasons is that a Trustee payment system promotes effective supervision and control over the debtor’s plan and over the conduct of the parties.  A policy of close supervision, control and an environment where parties enjoy an access to accurate records of disbursement on claims protects the integrity and efficiency of the Bankruptcy System.  Also, of great importance is that a system of payments disbursed via the Trustee fosters a protected environment for debtors and encourages the successful completion of a plan with the consistent payments to creditors.

The Following are Advantages for Trustee Paid Claims 

1. Having all claims disbursed by the Trustee means that there should be more funds on hand in between disbursement cycles and thus a shorter wait times for debtor’s counsel on the payout of attorney fees in any given month of the plan.

2. Making payments to creditors through the Trustee’s office increases the likelihood that the debtor will successfully complete their Chapter 13 plan by reducing or eliminating the risk or impact of events occurring outside the plan.

3. The Trustee’s records make it easier to resolve disputes amongst the parties: 

a) A debtor’s ability to counter a creditor’s allegation of missed or insufficient payments is enhanced because the Trustee’s independent records make it easier for a debtor to prove payment was made or that it was posted by the creditor to an incorrect account and to obtain credit for misapplied payments.

b) Debtor and creditors benefit from clear accounting of Trustee disbursements.  When creditors are paid via the Trustee’s office both the debtor and the creditors have access to clear, reliable and independent accounting of the amount and a timeline of those payments.  Records of payments made are part of the Trustee’s electronic records.  Both debtor and creditors benefit from the fact that these records are accessible online.

4. The debtor may enjoy greater protections of the Automatic Stay:

a) In most cases where the plan provides for the direct payment to a creditor, the automatic stay would then be terminated as to that creditor.  Whereas, in cases where the Trustee disburses to the creditor, the automatic stay remains in place.  Debtor enjoys protection from the automatic stay and more time is allowed to address any default in plan payments that may occur.

b) The debtor enjoys pre-confirmation protections from motions to terminate the automatic stay.  There is a lower risk of stay lift pre-confirmation even if the payments are coming in slowly or in partial payments as most payments are held until confirmation to be disbursed.

5. Often times after confirmation the debtor defaults to a direct pay creditor, which may then cause that creditor to foreclose on property, or repossess a vehicle –  the end result is that after that property is sold, any unsecured deficiency claim would then have to be paid directly by the debtor.  When the debtor elects to have creditor paid directly, the unsecured deficiency claims will not be allowed to later become part of the plan. [1] In re Adkins, 425 F.3d 296 (6th Cir. 2005)   and [2]In re Parmenter, 527 F.3d 606 (6th Cir. 2008).

6. When the Trustee disburses funds to creditors, the debtor will have fewer payments to make on his own.  It is easier and more manageable for the debtor to make one lump sum payment to the Trustee each month instead of an additional monthly payment to the mortgage company, automobile lender, student loan company and others.  The chances of plan success are increased because of payments to creditors occurs more regularly.

For example, there are inevitably months where the debtor has insufficient income available to make a full mortgage payment, or a car payment while paying for necessary household living expenses.  When this happens there is a temptation for the debtor to make full payments to one creditor and partial or no payment at all to other creditors.  A creditor receiving direct payment may refuse a payment that is not a full payment amount.  In this circumstance, the delinquency is higher than it would be if the Trustee had disbursed the payments.  When the Trustee is making disbursements, creditors with secured claims receive priority in payment, so while a debtor’s plan payment may  not be in the full amount it may be sufficient to pay all the secured payments in full.  Furthermore, secured creditors do not refuse partial payments from the Trustee.  Partial payments are credited to the debtor’s account thus reducing the amount of a delinquency.

7.  The debtor should not be charged a late fee on Trustee paid claims – (as long as the debtor receives a discharge)

8. The Trustee can establish an escrow account to ensure the payment of non-escrowed real property taxes.  In cases where the debtor’s mortgage creditor does not maintain an escrow account for property taxes the debtor must accumulate and budget funds for that purpose.  In months where the debtor has less disposable income, there is a substantial risk that the debtor will not set aside sufficient funds for the payment of the property tax, or the debtor may feel tempted to use the funds in the account earmarked for future property taxes for other unrelated expenses leaving the debtor with insufficient funds to pay the property taxes when they become due thereby putting the debtor’s bankruptcy case in jeopardy.  If the Trustee escrows for property taxes there will be less of a likelihood that the tax would become delinquent.  This will lessen the likelihood the that mortgage lender will advance post-petition property taxes and then subsequently increase the debtor’s ongoing monthly mortgage payment to recover the advance.   Property taxes are a large expense which can be difficult for the debtor to budget and manage.  Having the Trustee maintain an escrow account for the payment of property taxes is one additional safeguard to ensure successful completion of the Chapter 13 plan.

9. The Trustee encourages all debtors to request that the Chapter 13 Trustee make all disbursements to all creditors within the Chapter 13 plan.  This way the Trustee is able to assist the debtor and to help protect the debtor’s discharge. The Trustee in this way helps to protect the debtor from events outside the plan, to insulate the debtor from financial pressures and everyday temptations that can doom a plan into failure and assures the debtor every opportunity to have a successful plan.

10. Far too many debtors are hampering their fresh start and their ability to reorganize by exiting Chapter 13 with debt being exempted from discharge because they are not current on their direct pay secured obligations at the end of the case. This also causes debtor’s counsel to scramble at the end of the case in responding to objections from creditors to the Trustee’s Notice of Completion of Payments. Debtor’s counsel is placed in a difficult position because trying to obtain records and proof payment from a direct pay debtor can be a nightmare.  Counsel may also have to attend court hearings trying to resolve the objection and once resolved there might not be funds available to pay debtor’s counsel for the services rendered.

11. When secured debts are paid directly, they are excluded from the Trustee’s estate and are excluded from the formula for the calculation of the Trustee’s fee.  The result is that the Trustee fee will rise.  The Trustee’s fees are set in direct proportion between the costs of providing Trustee services to the revenue generated by the receipt of the debtor’s plan payments. The Trustee’s costs are set by an annual budget approved by the United States Trustee.  Congress set the means by which the Chapter 13 Standing Trustees are compensated and has elected to have the individuals that avail themselves of the system to pay for the service based upon payments received by the Trustee.  By diverting payments away from the Trustee, there are fewer payments received and less funds  available for the Trustees to perform their statutory duties.  However, if all secured claims were paid through the Trustee’s office, the Trustee’s percentage fee would likely decrease.

12. Having the Trustee pay claims benefits the greater good.  We would all like to keep the costs of filing a bankruptcy case down.  When creditors receive their payments via the Trustee, this helps to keep the Trustee’s administrative fee low. In turn, a low Trustee administrative fee benefits the debtors, creditors and debtors’ counsel.  We all know explaining a Chapter 13 bankruptcy case to a prospective debtor can be difficult.  However, it should be somewhat easier to recommend a bankruptcy case to a prospective debtor with a 5% Trustee Fee as opposed to a 10% Trustee Fee.

While the debate goes on, the Trustee believes that the weight of the evidence favors a policy to require the Trustee to make disbursements as to all debts of the debtors.   The Trustee is able to fully assist the debtor and to protect the debtors discharge.  The Trustee also helps to protect the debtor from events that occur outside of the plan, to insulate the debtor from financial pressures that can doom a plan to failure and assures the debtor every opportunity to have a successful outcome.  The Trustee’s services do have a minimal cost, but that cost is rarely borne solely by the debtor or to the debtor’s detriment. Rather, that fee is a shared expense that benefits all debtors and creditors.

Opponents of a Trustee paid case believe that they are saving their client money by not paying a trustee fee on direct payments.  These opponents are selling their clients short of all the benefits and protection a Chapter 13 provides.  In reality the debtors are required to commit all of their disposable income into their Chapter 13 Plan.  This pot of money will insure payment to all secured creditors and Trustee fees regardless of the percent paid to the unsecured creditors.

-Carl L. Bekofske

[1] In re Adkins, 425 F.3d 296 (6th Cir. 2005) The Sixth Circuit Court of Appeals determined that even when debtor’s actions, such as a default, provide cause for lifting the automatic stay the debtor was not permitted to reclassify the deficiency balance resulting from the sale of the underlying repossessed collateral – can’t change the classification of the claim even when collateral is subject to an involuntary lift of stay.

[2] In re Parmenter, 527 F.3d 606 (6th Cir. 2008) The Sixth Circuit Court of Appeals determined that § 1329 permits modifications related to the amount and timing of payments, but it does not allow the creation of a new obligation that would trump other claimants.  In Parmenter, the terms of the confirmed plan assumed a vehicle lease to be paid directly by the debtors.  After confirmation debtors’ defaulted on the lease and creditor obtained lift of stay.  Creditor filed an administrative expense claim seeking to be paid via the Trustee.   The court held that if creditor wants to obtain any additional relief against the debtors it must do so outside the plan.

April 2015

Recently, I assisted a law professor on a project regarding causes of consumer bankruptcy. It resulted in an article in the Maine Law Review, Volume 67, Number 1, written by Daniel A. Austin.

 It is a very readable article exploring the background, history and dynamics of consumer bankruptcy.

The result of his exploration of this field is the conclusion that medical debt is the single largest cause of consumer bankruptcy. This corroborates the study by Professor Elizabeth Warren who wrote on this topic before she became Senator Warren from Massachusetts. I am tempted to recite much of Professor Austin’s article but it is readily available for you (attached below) and is an easy, relatively short read. Nevertheless, I will recite a few facts from his writings:

  • Medical bills were found to be the single largest cause of filing bankruptcy; second to loss of a job;
  • • 61% of debtors reported medical debt on Schedule F;
  • • $9374.00 was the average debt reported; average unsecured debt was $55,967.00 and average income was $40,920.00 annually;
  • • 9% of the debtors had medical debt greater than half of their unsecured debt; 15% reported medical debt as greater than their annual income.

There are many other interesting conclusions reported in this article and again I encourage you to read the entire article below.

“Medical Debt as a Cause of Consumer Bankruptcy”– Daniel A. Austin

-Carl L. Bekofske

January 2015

When I interview a person needing to fill an opening in the Trustee’s office, I like to remind them that this is an ever changing environment: expect new Court rules, statutory changes (State or Federal), new attorneys, new plans and many new procedures. Some procedural changes are caused by our software system “upgrades,” some by staff agreement or easier ways to process our workload and some changes occur just to stay current, e.g. new monitors, printers and other office equipment. In fact, one of my frequently used slogans to staff is, “We need to run fast just to keep up!!”

Well, once again a change is upon us. When I first became Trustee in 1984, we deducted the Trustee fee upon receipt of funds in our office. Strangely, that’s what the statute directed. However, the United States Trustee, the agency monitoring Chapter 13 and all bankruptcies, interpreted it to mean “at the time payments are made to creditors.” With newer description, we changed our procedure.

I could state more details, but it is sufficient to say that the interpretation has changed back to the original timing of Trustee fee deductions upon receipt. At the beginning of 2015, our computers will be programmed to calculate and deduct Trustee fees upon receipt. This should make no difference to debtors and their attorneys, except in one instance. Note that orders of pre-confirmation conversion and dismissal shall no longer be required to pay a fee of $100.00 to the Trustee.

Please review the Notice Regarding Changing the Timing of Taking Trustee Fees which has been disseminated to the public. If there are any questions or comments, please post them to our website blog section or contact our office in your favorite way.

Happy, healthy and prosperous New Year to you and yours!!

-Carl L. Bekofske

September 2014

Client relationships are an important part of an attorney’s role. We know we can get more or better “voice of mouth” advertising if we have a good “bed side manner.” Keeping clients satisfied should be one of our main goals. This goal is often easier to achieve in the bankruptcy specialty than other legal service areas because the automatic stay gives such prompt, thorough relief from the debtor’s stress. However, there are times when conflicts, misunderstandings or other problems can occur between attorney and client.

Sometimes it boils over to the point that the Trustee is informed. Occasionally, debtors call the Trustee’s office and make unjustified complaints about an attorney. We try to explain the process to eliminate the negativity or we sometimes urge the parties to work out their differences through better communication. Periodically, the matter is so severe that we send the debtor a copy of the letter attached as a link below.

Please make every effort to establish and maintain good communication between your office and your clients. This will not only more likely lead to a satisfied client, but also yield more referrals. If you have any questions or comments, please do not hesitate to contact me.

 

Attorney Complaint Form Letter

March 2014

COMING SOON…………………

The Chapter 13 system is constantly evolving- from pencil and ledger to high powered accounting software. We went from manual document submission to ECF and PACER and we are now able to go from inconvenient and clumsy certified checks and money orders to ePay.

The volume of payments being remitted through online channels has been steadily increasing due to the safety, convenience and ease of use for the bill payer. More frequently, consumers and businesses pay their bills electronically and prefer multiple payment options. Companies that allow their customers to make electronic payments online or over the phone often improve the customer experience, build customer loyalty and improve collection times. While as a Chapter 13 Trustee we do not have all of the same considerations, the ability to provide your debtors with a safe and convenient electronic method to make payments can provide significant benefits to them and to you.

We are excited to be offering one of our new services, referred to as ePay. This service will allow debtors to go to a bank operated website to initiate electronic plan payments to their trustee. It will be linked to and appear to be part of our website. This service is ideal for those new case first time payments, future one time payments, bonus, tax refund, unemployment, disability or just regular catch up payments. There will be a small fee to the debtor for use of this option. It is estimated to range between $1.00 – $3.00 for each transaction.

EPay will be available 24 hours a day, 7 days a week for acceptance of plan payments.

Registration and payment is a simple process which will be available through our website. There will be a quick reference guide, frequently asked questions, links for registration and making payments as well as e-mail support. Payments can be initiated by your debtor on any day of the week at any time. Your debtors will have until 5:00 PM ET to initiate their payment, at which time all payments for that date are processed. Payments made after 5:00 PM ET or on the weekend will be processed the following bank business day.

The ePay system will be a convenient electronic option for the debtor and debtor’s counsel. Debtors may control when funds are debited from their bank account and it is inexpensive and a fast payment option. This will be great for those last minute deposits prior to a Motion to Dismiss.

Let me stress that the ePay option will not be approved for regular plan payments as a Payment Order or ACH will still be the required method for regular plan payments. However it will be a great option for those one time payments.

Please keep checking our website under the Debtor Tab for this new option as we expect a 2 – 4 month period for implementation and installation.