Avoiding Foreclosure with Bankruptcy

In re: Gonzales, was a Southern District of Texas Case where the debtors who were an above medium income household proposed a Chapter 13 Plan which would cure payment arrearages on their home.  A month later, the debtors decided to surrender their home.  The trustee and debtors disputed how the Court should evaluate future payments contractually due on the to-be-surrendered home when determining the debtors’ disposable income.  The debtors argued that the Court should consider payments due on the petition date, while the trustee argued only those payments due as of the confirmation date should be considered.  The Court rejected both snapshot views in favor of a more expansive moving picture view.  While acknowledging the wealth of opinions that analyzed the calculation of projected disposable income under 1325(b), the Court found that the opinions are neither uniform in reasoning or results.  The Court utilized a flow chart to resolve 1325(b) disputes.  If an objection has been raised, the Court will then ask if the Plan proposes full payment to unsecured creditors.  If yes, the Plan is confirmed without disposable income analysis.  If no, the Court performs the analysis.  Five components are considered for the analysis: 1.) current monthly income; 2.) projective monthly income; 3.) allowed expenditures; 4.) projected allowed expenditures; and 5.) amounts reasonably necessary to be expended for projected allowed expenditures.

While the first four components are the same for above or below medium debtors, the last element is applied differently.  In the case at bar the Court found mortgage payments on a surrendered home failed the fifth prong.  The Court concluded if the debtors filed an amended plan, an evidentiary hearing would be held to evaluate if the debtors would continue to rent for the duration of the plan or if they might purchase a home during the plan period.

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