Not enough Chapter 13 filings by people who need it

Peculiar to the Chicago area, is the existence of a large amount of debt owed to governmental units, such as City of Chicago for red light and parking violations and water bills, the State of Illinois Department of unemployment security for unemployment overpayments, Illinois Tollway authority for toll violations, and the County for property taxes. These may be compounded by a bizarre multiplying of penalties in no proportion to the original fine, municipalities who issue fines which are not penalties. Such fines and debts can be discharged under Chapter 13 but not under Chapter 7. This is what prominent consumer bankruptcy attorney Peter Francis Geraci had to say about debts owed to governmental units, such as parking tickets.

Debts owed to governmental units, such as parking tickets, red light cameras, toll, water bills, and property taxes, are debts for which there is often no solution other than Chapter 13 Debt Repayment. A vehicle that is booted or impounded, or a license that is suspended, because of multiple parking tickets or red light fines, usually in the $2-6000 range, can be rescued by a successful Chapter 13 Plan. Geraci Law is the third largest filer of Chapter 13 cases in the Northern District of Illinois. However, only 25% of our Chapter 13 cases in the Northern District of Illinois, which includes the suburbs and Rockford, have any parking ticket component. In most of those cases, if not all, there is also secured debt such as a vehicle or a home and other debt. There are very few pure parking ticket or red light camera ticket Chapter 13’s. There are Chapter 7 filings with a parking ticket or municipal debt listed, but since those debts are not discharged, the purpose of the Chapter 7 filing is to elimina te other debt, so that the debtor may possibly devote their excess income, if any to clearing up the government debt.

There are more people filing Chapter 13 debt repayment plans in the Northern District of Illinois, which includes the Chicago Metropolitan area, then in any other district in the country. The problem with Chapter 13 filings in the Northern District of Illinois is that there are not enough of them! It’s not that there are too many. The only reason that there are more Chapter 13 cases filed around Chicago, and in particular in Cook County, is because that the Northern District of Illinois has historically been in the top three filing districts of Chapter 13’s, and of Chapter 7’s, in the country for the last 30 years. This is a function of population and the economics of the area.

There are relatively more Chapter 13’s in areas that are not terribly economically depressed, where you have a lot of population, and a significant population portion of the population s has the ability to make some repayment on their debt. In other words there is a “middle class”, or more properly a working class (or you might want to call it a working poor) that makes between 30 and $100,000 a year, can obtain credit, has some excess income with which to repay their bills, but perhaps not enough to do it without some adjustment of debts.

The conclusion by some writers that there are somehow more bankruptcy filings as a ratio to population may be correct, but hardly surprising, given the depressed economic condition of the northern district of Ohio, which includes Cleveland and Toledo. For instance, in the northern district of Ohio, there were about 6 million people in the MSA, whereas there are about 9 million in the northern district of Illinois MSA. Ohio files about 20,000 bankruptcies in 2015, compared to 47,000 in northern Illinois. In northern Ohio, however only about 22% are chapter 13’s, whereas in the northern district of Illinois 20,000, or about 42% or chapter 13. Therefore, in Northern Ohio there are about .002, or 2 per thousand, but in Northern Illinois, .005, or 5 per thousand population, in 2015. No one would argue that Toledo in Cleveland, and the northern district of Ohio, are more economically depressed than the Chicago area, which is most of northern district of Illinois. The northern district of Illinois is dom inated by almost 7,000,000 and population within 15 miles of downtown Chicago, where is northern Ohio has less population than that divided among six smaller metropolitan areas with 150,000 to 390,000 in Cleveland. The same analysis might apply to the Detroit area.

The second reason there are a lot of Chapter 13’s in the Northern District of Illinois is that you have population who is working and not of the subsistence level as you find in some areas like Las Vegas, where a lot of people that are working three part-time minimum wage jobs if they are working at all.

A third factor is that, in Northern Illinois, there is a small bankruptcy bar who is willing to do Chapter 13 cases, together with a bench that is not hostile to Chapter 13 and that does not make it incredibly difficult and nasty, as they do in Florida. Some districts that do not have a high numerical count such as the middle District of Tennessee, have a high percentage of Chapter 13 plans, because of the policies of the trustee and the bench, certain social economic aspects such as refusal of lenders to land without security, lack of exemptions to protect property in Chapter 7, religious attitudes, and other factors that make Chapter 13 the only solution to stop wage garnishment and bill collectors.

One factor is that the Bankruptcy Court, and the court clerk, at the direction of the office of the US trustee in the bankruptcy court, is encouraging pro se filers to file Chapter 13’s with no lawyer. Pro se filings of Chapter 13’s as of September 30 were 1192, with 1940 pro se Chapter sevens. Pro se Chapter 13’s are the third largest filer of Chapter 13’s in the northern district of Illinois after the #1 Chapter 13 filer, with 5456, and Geraci Law of 2384, all as of September 30. After pro se with 1192 the next highest number of filings was 456 next 335, and then a dozen firms with between 100 and 200. Only 20 entities file more than 100 Chapter 13’s in this time.

Pro se filings are the largest filer. How many of those have parking tickets or city of Chicago debt is speculative. What we do know is that of the 1904 Chapter 13’s filed in February 2016, 642 or 34% are were dismissed by August, six months later. We also know that 89% of those filed without attorneys, pro se, were dismissed within that time 35% of the largest filers were dismissed within that time and of the other filers, between 30 and 88% were dismissed within that time. Only 12% of Geraci Law 13’s were dismissed within that time, the lowest in the District except for one other filer who does not file very many.

We do not know what percentage of pro se had a parking ticket problem, but we do know that a significant percentage of Chapter 13’s that are filed with firms other than Geraci Law are rapidly dismissed. We also know that filing a pro se case, a Chapter 13 at least, is totally useless, clogs up the system, but is encouraged by the courts with their “filing fee in installment” rule. 88% dismissed in six months is simply lawsuit abuse, and this could easily be remedied by a change the rule to permit no filing unless the filing fee was tendered. Anyone that does not have $310 should not be filing a debt repayment plan. This is also a problem in Wisconsin, but less of a problem where the courts don’t seem to be as amused by pro se filings, but it is a growing problem in Indianapolis in and Merrillville. Often it is caused by petition preparers who are basically stealing from the debtors, and actually been encouraged to do this by the bench and the US trustee since there is almost no enforcement except the occasional example that make out of them.

If the premise of some is that there are too many Chapter 13’s filed in the Northern District of Illinois, they are partially right. They are partially wrong because there are too many bogus Chapter 13’s filed in the Northern District of Illinois, when you add up the pro se in the amount of 13’s that are dismissed within six months. Those 13’s are not returning any money to creditors and are burdening the system. My feeling is they are just not well thought out and they are proposed for purposes of delay and are dismissed before confirmation.

Now, my premise is that there are not enough good Chapter 13’s filed, ones that are valuable and well thought out and that the debtor filing such a plan sees value in. The city of Chicago should give my card to every person who is working full time and has debt other than parking tickets, because these people generally have some ability to pay some debt ranging from 10% to 100%. They just do not have the ability to come up with $5000 or $10,000, or even $2000, their vehicle it has been booted or worse yet impounded and will be sold at auction or crunched within 21 days, and as far as Geraci Law is concerned 88% of these cases the Geraci Law takes are confirmed and start repaying money to creditors.

The next question is how many of them are alive after a year and how much money do they return to creditors. My answer to that is: plenty. This can be seen by just one Chapter 13 Trustee’s payments of over 100,000 a month just to the city of Chicago. The reason I say there are not enough Chapter 13’s filed is we know that the rate of 7 and 13 filings and in most populations is less than one half of 1%. That is because, outside of bankruptcy lawyers and petition preparers, and the US Trustee’s office, who wants everyone to do it themselves, no one is encouraging debtors to adjust their debts in a rational manner.

If everyone who had parking tickets and was employed full-time and had other debt would file Chapter 13 the City of Chicago could disband their collection department, they would not have a problem, and if everyone who filed a legitimate Chapter 13 that had a parking ticket problem went to an attorney who could actually put together a plan that they could live with, the confirmation process in the work of the trustee would be greatly reduced, although the volume would increase. And if the City of Chicago sent everyone who was working full-time and had a parking ticket problem to a competent bankruptcy lawyer for advice, the district would have to appoint a couple more Chapter 13 trustees, dividing up the work, and paying creditors a dividend.

So, one problem the City of Chicago does not have is the bankruptcy courts, unless it is bogus 13’s that are filed by petition preparers and pro se debtors. If Chicago wants to collects its finds it should provide repayment plans, but the problem with that is a lot of people can’t make a repayment plan work, because of their other debt, or because they need guidance in budgeting. Payment plans with the City of Chicago only work if there is no other debt. There has to be a pecking order is far as repayment of debt: people cannot stop making their vehicle payment so they can pay the City. Under Chapter 13 the secured creditors, the debtor’s attorney and court costs, and after that priority debt such as support arrears, and then after that general unsecured creditors, such as red lights and parking fines.

The City of Chicago knows that the actual fine for the violation is only a small part of their claim, and if they collect that, at no cost to the City except for filing a claim in Chapter 13, it should be pleased. Generally most of a City claim arises from penalties for failure to pay the original fine, exorbitant storage and towing charges, and fraudulent tickets that were never placed on the vehicle in the first place, and the tickets that the debtor is never going to go to Chapter 13 with, because they are very small $100 or $200, and they know that if they don’t pay them nothing happens anyway.

The City of Chicago needs an intelligent plan to handle their parking ticket in municipal violation and water bills: we think that part of the city’s budget problem could be quickly solved. And there are a variety of other problems that we could discuss. How about the failure of the city to provide safe municipal parking in neighborhoods. The City used to do this for shopping districts, but has no program for residential districts? The City could easily solve this, and a variety of other problems by the intelligent application of modern business principles.