A few months ago I wrote a post explaining why New York bankruptcy debtors should consider the role that future deteriorating financial conditions can play in their decisions to file in chapter 13. The focus of that post was post-petition debt. Today I’m going to discuss the opposite situation: why future improving financial conditions are a reason to avoid chapter 13. What are these and why can they pose problems?
“Future improving financial conditions” is not a term that appears in the Bankruptcy Code. Rather, it’s just a catchall phrase for future events that might improve debtors’ financial positions that would make chapter 13 easier. Examples of these would be a post-petition windfalls: inheriting money or receiving an insurance payout. The Bankruptcy Code contemplates these kinds of events, and it even identifies three post-petition assets that can be roped into the bankruptcy estate within the first 180 days of filing.
Some debtors in chapter 13 have argued that they should be allowed to keep post-petition, “after-acquired” property, but courts generally don’t allow it. Even if debtors are content with their after-acquired assets going into their chapter 13 plans, that still doesn’t mean they should anticipate receiving those assets before filing.
When debtors consider filing chapter 13, they shouldn’t try to factor these assets in their repayment plans for two reasons. The first one is common sense: The assets might not materialize or they just might not be sufficient to cover the full costs of a chapter 13 plan. The second reason is that any plan including them probably won’t be confirmed anyway. Debtors can only base their chapter 13 plans on their disposable income, which is their current monthly incomes less any deductions. Future improving financial conditions will not include big windfalls.
Naturally, the context matters. A debtor who anticipates an inheritance in year four of his or her repayment plan is not going to be on the same footing as a debtor who has just been notified of a promotion and raise that will go through in a matter of weeks. However, when it comes to plan confirmation, current monthly income is what matters—not future potential income.
If you are experiencing serious financial difficulties, and you think chapter 13 might help, then talking to an experienced New York bankruptcy lawyer is crucial to strategizing your options. A poorly formed plan can be costly and end badly for debtors.
For answers to more questions about bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced bankruptcy attorney Brooklyn NY Bruce Weiner for a free initial consultation.