My friend Peter Orville writes about the procedure for selling a home in a pending Chapter 13.  Peter practices in upstate New York.  He details what you have to do, if you live in upstate New York, to sell your home during Chapter 13.

The most frustrating part of writing about bankruptcy for a national audience is the degree to which Chapter 13 practice differs across the nation. H***, it varies across the San Francisco Bay, where I practice.  I have Chapter 13 cases before three different trustees in three different divisions within the same district, and each has different procedures.

I interact with lots of clients who have found me on the internet doing “research” about bankruptcy.  It’s all too easy to assume that the procedures in upstate New York describe how your case is handled whereever you live.  It isn’t (necessarily) so.

Which is why I uniformly recommend that individuals engage an experienced bankruptcy lawyer to do a Chapter 13 case.  There are simply too many variations, unwritten rules, and local assumptions to master to make representing yourself a feasible alternative.

I’ve spent the last three days at the annual meeting of the National Association of Chapter 13 Trustees in San Francisco. Strewn through the convention site are banners thanking those who have contributed money to put on the gathering of Chapter 13 trustees. Those three sponsors at this event are exclusively big creditors and lawfirms who represent them.

The parties in interest in a Chapter 13 form a triangle: trustee, debtor, creditors. The trustee has obligations to both of the other parties. Debtors come in onesies and twosies. Creditors tend to be national and big money players. There is no organization of bankruptcy debtors; there is an organization of debtor’s attorneys, the National Association of Consumer Bankruptcy Attorneys. By the nature of the practices of its members, NACBA is not a big money player.
At the gatherings of debtor’s lawyers, the usual sponsors are those who want to sell something to the attendees. It’s not the opposing parties.

I don’t think that Chapter 13 trustees can be “bought” by free breakfast and afternoon snacks. But just like influence of lobbyist money on politicians, this feels uncomfortable to me as a debtor’s lawyer.

More on education efforts by the Chapter 13 Trustees.

Peter Orville wrote about the impact of the Chapter 13 trustee’s commission

The point he makes goes to the heart of the debate about whether car loans or current mortgage payments are paid by the Chapter 13 trustee or directly by the debtor. Here in California, with mortgage payments regularly in the $3,000-6,000 a month, requiring debtors to pay their mortgages through the trustee increases the debtor’s cash requirements significantly.

Proponents of making payments through the trustee note the advantages in the event of accounting disputes and the added visibility it gives the trustee. My fear is that at 7-10% commission, routing mortgage payments through the plan is just another barrier to a successful Chapter 13 plan.

My colleague at the Bankruptcy Law Network Pam Stewart addressed the question “should I pay off my Chapter 13 plan early?”.

Her conclusion addressed the policy in some jurisdictions that a payoff earlier than the plan proposed may trigger a requirement to pay 100% of the debt. That isn’t the rule where I practice, at least under pre “reform” law, thanks in part to an appellate decision I won allowing early payoff without an increase in the pay in.

I think there remains a reason not to pay off a plan early: the plan payments, at least to the extent they are going to general unsecured creditors, represent an interest free loan. Why rush to pay off a debt where there is no cost to paying later?

One danger in proposing to pay off a plan early is the possibility that the trustee might seek an increase in the monthly payment if the debtor now has more available money each month.

I see the continuance of the Chapter 13 plan in circumstances where the debtor’s situation has improved as a chance to build up cash reserves. None of my clients have sufficient money set aside for the unexpected. It’s a chance to put some extra money into delayed maintenance, whether it’s on your possessions or your own health. Practice saving money while the Chapter 13 still exercises some control over your spending.

My advice might differ where the clients are younger or might have a real chance to rebuild to buy a house, etc. where getting the discharge behind them has a tangible, rather than a psychological, advantage. But absent that need, sit back, make the payments, and pocket any improvement in your situation for a rainy day.

I’m a real fan of Chapter 13: it’s powerful, flexible, and cost effective. One of its few downsides is that there are caps for how much debt a filer may have and qualify for Chapter 13. Mercifully, those debt limits adjust every three years.

Effective April 1, 2007 the cap on debts in Chapter 13 will increase to $336,900 for unsecured debts and $1,010,650 for secured debts. These limits apply to liquidated debts only; unliquidated debts are not included in the test.

More about Chapter 13.