I love doctors. I can explain the bankruptcy rules but they never listen, ask or follow directions. Other clients learn and follow directions but doctors won’t. It’s like watching train wrecks on you tube. An attorney told me about an easy Chapter 13 to 7 Bankruptcy. I give you Exhibit A his doctor case. The names/specific facts were changed to protect the guilty and demonstrate principles.
The client was a 64-65 year old doctor with a significant salary, who hired him for a Chapter 13 Bankruptcy. He filed her Chapter 13 bankruptcy, got budget and plan confirmed, and life went on. She had a low payment thanks to the large deductions allowed for Louisville Kentucky, and no non-exempt property to lose. She was in a Chapter 13 because she’d filed a Chapter 7 a few years earlier due to an oncoming disability and didn’t qualify yet for another Chapter 7 discharge. Start as Chapter 13 and then dismiss and refile as Chapter 7 after disability. An easy case.
Until it wasn’t.
He later received a Motion to Dismiss the Chapter 13 bankruptcy for failure to make Chapter 13 plan payments. She hadn’t made a payment in 9 months. No explanation why it took so long for the Chapter 13 Trustee to file a motion to dismiss and the mortgage company to file a motion to terminate the stay and foreclose but that’s another story.
He called to find out what was going on and was told his client lost her job. . . Ten months ago. The attorney could have filed a motion to temporarily reduce or suspend plan payments; perhaps she could have converted to Chapter 7 or gotten an early discharge. However she never called or came in to talk.
Instead, the client cashed her 401 k and got a severance package. It was enough to continue making plan payments and live on for a year in case another job didn’t roll around quickly. What she did, however, was completely different.
First, she sent a large check the student loan company. (Although she was becoming disabled and would have soon been able to discharge the student loan).
Second, she gave a sizable sum to repay her mother to be a good daughter. (creating a preferential and fraudulent transfer)
Third, she bought a new car. A really nice 40,000 dollar one (retail therapy is too expensive to cover with an exemption).
Fourth, she lived on the balance (creating a non-dischargeable tax problem).
Now, she has no money left, the client will probably have her Chapter 13 bankruptcy dismissed. Her creditors will resume foreclose and collections, she will not be able to file a new Chapter 13 until she gets an income, and may not qualify for a Chapter 7. If she does, the money she gave to her mother, the car and the taxes are problems. Learn the rules, ask questions.
Nick C. Thompson Louisville Kentucky Bankruptcy Attorney
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