A Review of Recent Chapter 13 Case Statistics
There have been many articles and studies of the Bankruptcy Code since Congress changed the bankruptcy laws in October of 2005. One of the most thorough recent studies concerns the use of Chapter 13 bankruptcy across the country and the likelihood that a Chapter 13 bankruptcy will be successful. In this study the author looked at all Chapter 13 bankruptcies filed in the United States from 2007 to 2013.
During this time period there were just over 2.2 million Chapter 13 cases filed. A Chapter 13 case is filed when a debtor either does not qualify under the Means Test for a Chapter 7 case which requires no repayment plan, or there is some advantageous reason for filing a Chapter 13. Reasons to file a Chapter 13 may include catching up on mortgage arrears through a repayment plan or stripping a second mortgage from real estate owned by the debtor, when the second mortgage is wholly unsecured, meaning there is no equity to cover any portion of the second mortgage or home equity line of credit.
The most surprising finding of this study was that of the 2.2 million Chapter 13 cases filed, more than 52% of the cases were dismissed before the repayment plan was confirmed. In order for the case to be completed the plan for repayment which is put together by the debtor must be confirmed by the Bankruptcy Judge assigned to the case. Also somewhat surprising was that of the cases that were able to have the have their plans approved by the Judge, another 27% of those cases resulted in dismissal before the plan was completed. The study found that just over 35% of Chapter 13 cases filed were successful and resulted in the repayment plan being completed.
It is also important to note that of the approximately 800,000 plans that were completed, unsecured creditors generally did not receive much money compared to what they were owed. An unsecured creditor is one that does not have collateral that may be foreclosed or repossessed should a person who owes money not pay. One of the most common types of unsecured debt is credit card debt. In about 26% of the cases the unsecured creditors received 70% or more of what they were owed before the debtor filed Chapter 13. In about 11% of the cases they received between 40-70% of what they were owed. In 55% of the cases the creditors received 1-39% and in 8% of the chapter 13 cases the unsecured creditors received nothing.
The study also found that there is great variation relative to successful completion of plans, the amount of money paid under the plans and the amounts paid to unsecured creditors. Massachusetts cases which were included within the study, on average, paid total disbursements to all creditors in the amount of $20,602.00 per confirmed Chapter 13 plan. Of that amount in confirmed cases the unsecured creditors received about half of that amount $10,291. The study also found that Massachusetts was one of five states including California, Connecticut, Arizona and Rhode Island with the lowest percentage of confirmed plans at less than 50% confirmed.
The study confirms what is already known by Massachusetts bankruptcy lawyers who regularly represent debtors in bankruptcy cases. It is more difficult to be discharged in a Chapter 13 case, as the repayment plan takes between 36 and 60 months. During that time there are a lot of opportunities for debtors to fall behind on payments for a number of reasons including job loss, health problems diminishing earning ability or other unexpected expenses which affects the debtor’s ability to complete the plan. Counsel in Massachusetts should continue to try to qualify debtors under the Means Test for Chapter 7 cases where there is no repayment plan whenever possible, and file Chapter 13 cases only when necessary, or advantageous to their clients.