Altering bankruptcy plans under Chapter 13
Can a court change an approved Chapter 13 bankruptcy plan? A man argued the bankruptcy court had no right to change his approved plan. The plan said he would pay $600 a month for 47 months (or until all debts were satisfied) Secured creditors would get back 100% and unsecured creditors would get 10% of the debt owed. However, when all was said and done, fewer creditors than anticipated had filed proofs of claim. The trustee moved to have the unsecured creditors' percentage raised to 19%. That's when the man claimed that there had to be an "unanticipated substantial change" in finances before the plan could be altered. Failure to file claims was a normal part of any bankruptcy proceeding, and therefore did not cross this "threshold."
The court said, "In contrast to a Chapter 7 bankruptcy, which requires liquidation, Chapter 13 'allows a debtor to keep his assets, but he must use his future income to pay his creditors… The court noted that a Chapter 13 plan "establishes an estimated payment schedule which includes the monthly payments the debtor will make, the time period in which these payments will be made, and the total percentage each creditor will receive on his claim. The payment schedule, however, is only an estimate. For various reasons, at the time that the bankruptcy plan is submitted the exact amount of allowable claims is unknown…Once the allowable claims are established, the actual amount the debtor must pay may differ from the amount of the estimated claims…This may require an adjustment of the payment schedule, depending on the type of plan." The court noted that Section 1329 of the bankruptcy code clearly states, "Any time after confirmation of the plan but before the completion of payments under such plan, the plan may be modified, upon request of the debtor, the trustee, or holder of an allowed unsecured claim." Allowable modifications include increasing or reducing the amount of payments, extending or reducing the time for such payments, and altering the amount of distribution to creditors. No where in this section is there any need to prove "unanticipated substantial change in circumstance" before asking for modification. The man then argued that the modification changed his "percentage plan" (a plan which provides a set percentage of the claim each creditor will receive, but leaves the exact amount the debtor will pay until all claims are approved) to a "pot plan" (a plan which the debtor pays a fixed amount into the bankruptcy estate, but the percentage creditors will receive ultimately depends on the total amount of claims that are approved). He claimed this change was not permissible under the code. The court ruled that such a change was clearly anticipated under Section 1329, and therefore it confirmed the modified bankruptcy plan. Matter of Witkowski, 16 F.3d 739 (7th Cir. 1994) Comment:"Section 1329 does not require any threshold requirement for a creditor, debtor, or trustee to seek modification of an approved bankruptcy plan…Rather, a creditor, debtor, or trustee has the absolute right to seek modification of a bankruptcy plan after its confirmation but before completion of the plan payments. Whether the modification will be granted is within the bankruptcy court's decision." Therefore, if you find reason to change a bankruptcy plan--within the time payments are being made--you have the right to request that change in court. Editor's Note: The above article originally appeared in the Credit & Collection Manager's Letter, a newsletter purchased by Credit Today in 2006. This article originally appeared prior to 2000.
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