March 18, 2014

Chapter 13 Repayment Plans—Adhering To Approved Models…Or Not

Today, more people than ever are seeking relief from debt in the form of a Chapter 13 bankruptcy filing. That’s partially due to the fact that tougher bankruptcy regulations passed just before the housing market crash made it harder to qualify for a Chapter 7 liquidation bankruptcy. Additionally, Chapter 13 plans tend to be a little less damaging to your credit score.

Yet, few of those Chapter 13 bankruptcy cases are completed and closed out without running into a hiccup or two and issues pertaining to the repayment plan are not uncommon.  A good example of what can go wrong was revealed recently in the case of Gordon, et al v. Bank of America, reviewed recently by the U.S. Court of Appeals for the Tenth Circuit. What should have been a fairly straightforward process for a group of debtors instead dissolved into a drawn out, expensive mess.

The court consolidated two appeals from two separate cases because both posed essentially the same questions of law.

The court requires that when people file for a Chapter 13 reorganization of debt, they use a previously-approved court model for that repayment plan. In this case, the debtors modified the plan to meet their specific needs. There didn’t seem to be any major issue with this, as the bankruptcy court affirmed both modified plans and the cases went forward.

However, that decision was appealed by some of the creditors, and the district court determined that the debtors should not have been allowed to deviate from the court’s approved models. Thus, approval of those plans was reversed and the cases had to go back to the bankruptcy court to re-enter their plans so that they were consistent with the approved models.

In one of the cases, while that appeal was pending, the trustee and the debtor agreed the debtor would continue to make payments consistent with the earlier plan until the court ruled. However, the debtor didn’t keep up with those payments and, as a result, one of the creditors moved for a dismissal of the bankruptcy entirely. No one objected to this motion (likely an oversight) and the bankruptcy was dismissed – undoing all action that had taken place in the bankruptcy court to that point. The case would have to be refiled.

Because the case had been dismissed, the appellate court ruled that it couldn’t grant any relief. The court dismissed the debtor’s appeal, and remanded the case back to the district court, ordering it to vacate its decision as moot with regard to the confirmation of the debtor’s repayment plan and then ordered the district court to remand the case back to the bankruptcy court.

In the second of these cases, a married couple filed for Chapter 13 relief and was ordered to resubmit another plan to the bankruptcy court that was in line with the court’s model. While it was determined that the couple would be free to revise substantive portions of it, the court would have to provide creditors with ample notice and allow for hearings regarding any objections – which did not happen prior to the confirmation of the amended plan in this case.

Modified Chapter 13 bankruptcy plans in Miami are available. There are even cases where, partway through the repayment plan, debtors may seek alterations to the agreement. However it’s critical that debtors seek the advice of an experienced attorney before pressing forward with these actions.