Fee-only Chapter 13 may be allowed in some circumstances

On Behalf of | Aug 23, 2016 | Chapter 13 Bankruptcy |

Texans who are considering filing for Chapter 13 bankruptcy might be interested in a case that was decided in Kansas earlier. In the case, a bankruptcy court ruled that an elderly, retired couple could file for a fee-only Chapter 13 bankruptcy through which they would pay their attorney’s fees, bankruptcy costs and a small monthly amount to their creditors.

In fee-only Chapter 13 bankruptcy cases, the debtors repay their attorney fees over the life of their repayment plans along with the court costs and fees associated with filing. There will be little left over to pay the unsecured creditors. A few federal appellate courts have determined that the Bankruptcy Code does not specifically prohibit this.

In the Kansas case, the elderly couple lived on $3,461 per month in Social Security payments, which is exempt from being included in disposable income. Their proposed repayment plan would pay their attorney in the amount of $3,350 over a period of three years with a total of just $480 earmarked for their creditors. The couple owed more than $53,000 in credit card debt, and the trustee objected to their plan. The bankruptcy court held that the couple had proposed the plan in good faith, that they were judgment proof and that the amount they proposed to pay was more than they would otherwise be required to if they had filed under Chapter 7.

People who need debt relief have a few options. The couple in the Kansas case chose Chapter 13 because they were unable to afford their attorney’s upfront $2,000 fee for Chapter 7. Chapter 13 has other benefits as well, such as stopping foreclosure and allowing people to catch up on their mortgage payments.