Once dismissed, a chapter 13 bankruptcy case cannot be reopened absent "extraordinary circumstances", says Rochester Bankruptcy Judge Paul R. Warren. And failure of the debtor and attorney to pay attention to warning letters and motions is, unfortunately, not what is ment by extraordinary.
In a written decision dated January 16, 2015, In re Trine, Judge Warren was faced with a motion to reopen a chapter 13 case that had been dismissed two months earlier. The case was filed October 8, 2013. In chapter 13, the debtor is obligated to start making chapter 13 plan payments within thirty days of filing the case. In this case, like most Rochester chapter 13 cases, plan payments were to be deducted from the debtor's wages by order of the bankruptcy court. The court issued a "wage order" on November 4, according to the docket, and I assume the chapter 13 trustee forwarded it to the debtor's employer right after that. But for some reason plan payment were not deducted from the debtor's pay until February, three months late.
A chapter 13 debtor is obligated to start plan payments within 30 days of filing the plan whether or not the employer has started to deduct payments from wages. In my practice, I inform my clients of this obligation before the case is filed, and once filed I send my clients a letter telling them exactly when plan payments must start, and giving them specific instructions as to how to make these payment, in what amounts, and where to send them. If a client is paid biweekly and files on January 1 a plan calling for $500 monthly payments, I will notify them in writing to start deducting $231 from each paycheck, effective the end of January, and to forward this payment to the chapter 13 trustee's bank account in Memphis Tennessee, with the case number (15-20001, for example) written on the check. I tell the client to deduct this money and make this payment every paycheck until the court-ordered wage order kicks in.
In any case, the debtor in Trine did not make any plan payments the first three months of the case. On May 14, the trustee sent the debtor and her attorney a letter stating that the plan payments were in default, requesting that the debtor or attorney respond withing 10 days, that if they failed to respond a motion to dismiss the case would follow, and that if the case was dismissed the creditors would be immediately notified of the dismissal.
The letter was rather generic as to the specifics of this particular case. It did not specify the amount of the default or the cause. In this case, the cause was failure to start payments within 30 days of filing; when the letter was received by the debtor, plan payments were being paid by the wage order. In the motion to reinstate the case, the debtor argued that she did not understand how her plan payments could be in default, as they were being made by wage order. The letter did state that if the debtor responded, the trustee could probably accept an arrangement where the default could be caught up over three months or so.
In any case, there was no response to the letter, and the trustee brought on a dismissal motion on May 28. At the first hearing on the motion, July 7, the trustee's attorney asked for it to be adjourned to August 18. At the August 18 hearing date, the trustee's attorney reported that the debtor's attorney had told the trustee that he (the debtor's attorney) had been unsuccessful in reaching the debtor after several phone calls. On August 18, the court entered an order giving the debtor until October 17 (about three months from the initial default letter) to bring the plan current.
Neither the debtor nor her attorney appeared at either court hearings on the motion, and no responding papers were ever filed with the court. On October 27, the trustee filed a report that the payments had not been brought current and the court entered an order dismissing the case.
When a bankruptcy case is filed, all efforts of creditors to collect on their account must be suspended: this is the "automatic stay" (section 362) of the bankruptcy code. When a case is dismissed, the automatic stay is lifted, and creditors can resume collection actions. Unfortunately for this debtor, Wells Fargo did just that, repossessing her car after bthe case was dismissed. Only then did the debtor's attorney make a motion, asking for the dismissal to be vacated and the case reinstated so that the car could be returned to the debtor. The chapter 13 trustee opposed the motion, and the court denied it.
Judge Warren stated that Rule 60(b) of the Federal Rules of Civil Procedure states the grounds for obtaining relief from a judgment or order. Most of the reasons are fairly specific and obvious: if the order was obtained by fraud, or if newly discovered evidence which could not have been discovered at the time the order was entered. The debtor in this case relied on the 'catch-all' grounds of Rule 60(b)(6), which allows relief from a judgment or order for "any other reason that justifies relief." Judge Warren made clear that this provision "does not provide the easy procedural do-over frequently envisioned by litigants appearing before this court" (decision, page 4-5).
Case law interpreting the rule holds that relief will only be granted by the existence of "extraordinary circumstances". One practice manual cited by the judge summarizes these findings: "in the vast majority of the cases finding that extraordinary circumstances do exist so as to justify relief, the movant is completely without fault for [the] predicament; that is, the movant was almost unable to take any steps that would have prevented the judgment from which relief is sought." 12 Moore's Federal Practice Section 60.48[b] (Matthew Bender 3d ed.) (decision, page 5; "movant" means the party moving for relief; in this case the debtor is the movant).
Here where neither the debtor nor the attorney responded to the default letter or the motion to dismiss, and did not appear at the two dismissal hearings, the judge could not find any extraordinary circumstances that would justify the reopening of the case.
POSTSCRIPT: I understand from one of the parties to this motion that Judge Warren stated from the bench that he might well have reopened the case, against the trustee's objection, if the debtor could have shown that reopening the case would, in legal fact, have required the car loan creditor to return the car to the debtor. The debtor's position was that the automatic stay of bankruptcy would have requred this, just as it does when a chapter 13 case is first filed and a creditor has possession of a repossessed car. However, the debtor did not present any case law to support the position that the same result happens when a dismissed case is reopened.
Chapter 13 cases are always complicated, and if chapter 13 is the correct bankruptcy for you, you need an attorney who will fully inform you of all your obligations and will follow up during the course of the case to let you know what is happening. If you live in the Greater Rochester NY area and are considering a chapter 13 bankruptcy, you may contact me by email or phone, through my web site, for a phone consultation, at no charge, of your situation.
In this particular case, what should the debtor have done? If you are a debtor in a chapter 13 case in Rochester NY, and if you receive any letter from the Chapter 13 trustee, George Reiber, asking you to do something, you should always respond somehow. This is especially important if the letter says you are behind in paying your plan payments. And this is super-specially important if the trustee files a motion asking for your case to be dismissed for any reason.
At a minimum, you should contact your attorney, by phone, email or letter. And if for whatever reason you are unable to get hold of your attorney, or if he or she does not seen to be responding to the letter or the motion, then you need to take action yourself. You may respond to a trustee letter by writing back to the trustee, and if you do so, you should copy the letter and envelope and note down the date you mailed it.
You can also call the trustee's office (585-427-7225 for Rochester NY bankruptcy cases). Mr. Reiber's office can be very cooperative with debtors who request help. Make a note of any phone call you make; time and date of the call, who you spoke with (or if you left a message for them to call back) and what was said, and SAVE THAT NOTE.
You can also email the trustee's office with a response (in Rochester NY, the trustee's email address is [email protected]). Save any email you send and print out a copy, if possible. Again, I would assume that Mr. Reiber's office will assist cooperative debtors.
If you receive motion papers in the mail, and if your attorney will not respond to them on your behalf, you should mail a response of your own (you may want a new attorney as well, but that's another story). A mailed response should be sent to the Bankruptcy Court Clerk (for Rochester NY cases: 100 State Street, Rochester NY 14614), with a copy mailed to the trustee (again, for Rochester cases, Trustee George Reiber's mailing address is 3136 Winton Road South, Rochester NY 14623). You should also mail a copy to your attorney.
Put your case number on anything your mail, and make a copy of anything you mail to the court, as well as copies of the mailing envelopes (to prove they were property addressed) and the date of the mailing. You may want to call the court clerk a couple days later to confirm that they received the mailing (for Rochester NY cases, the clerk's phone number is 585-613-4200). While responses to motions prepared by an attorney need to follow a formal legal format, responses from debtors do not. Again, you should respond directly to the court ONLY if your attorney, for whatever reason, will not.
And if you receive a notice of a hearing on a motion to dismiss your case (and, again, only if your attorney will not be appearing for you), you should appear at that hearing. Bankruptcy hearings in Rochester cases are held in the bankruptcy courtroom on the first floor of the Federal Building, 100 state Street. If you appear 'pro se' (that is, without an attorney), the judge will hear what you have to say. If you are having a problem with your attorney, the judge may be able to help you with that.