Modification under CARES Act

Posted by NCBRC - February 18, 2021

For plan modification under the CARES Act, the debtor need not have been current in plan payments prior to enactment of the Act. In re Gilbert, No. 16-12120 (Bankr. E.D. La. Oct. 6, 2020).

In four separate cases, debtors sought to modify their chapter 13 plans under section 1329(d) which Congress added to the Bankruptcy Code as part of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). In all four cases, the debtors’ plans were confirmed and they fell behind on payments prior to March 27, 2020. In three of the cases, the debtors sought modification of their plans to pay off the arrearages and extend the length of the plan beyond sixty months. In the fourth case, the debtor sought only to reduce payments to unsecured creditors. The trustee opposed the modifications arguing that the CARES Act permits modifications only if the debtors first fell behind in their plan payments after March 27, 2020, and the sole reason for the default was the pandemic.

The bankruptcy court disagreed.

The CARES Act amended the Bankruptcy Code’s modification provision by adding section 1329(d) which provides that “for a plan confirmed prior to the date of enactment of this subsection [March 27, 2020], the plan may be modified upon the request of the debtor if—(A) the debtor is experiencing or has experienced a material financial hardship due, directly or indirectly, to the coronavirus disease 2019 (COVID-19) pandemic.” Section 1329(d)(2) extends the maximum commitment period for a chapter 13 plan from five years to seven years.

The court faced the question of whether the debtors’ delinquency prior to the enactment of the CARES Act disqualified them from obtaining modification under section 1329(d). It found that the plain language of the Act imposed two requirements: “(1) a debtor’s plan must have been confirmed by March 27, 2020, and (2) a debtor must be ‘experiencing or has experienced a material financial hardship due, directly or indirectly to’ COVID-19.” It found nothing in the text imposing the third requirement that debtors be current in their payments prior to March 27, 2020. “Looking at § 1329 on the whole and finding that the plain text of § 1329(d) is unambiguous, this Court declines to overlay the requirement that debtors be current in their plan payments prior to March 27, 2020, in order to be eligible to modify their plans under the CARES Act.”

The court concluded that the debtors had shown that their delinquency was caused, directly or indirectly, by the pandemic and, absent other objections, the trustee’s motions would be denied and the debtors’ motions to modify granted.

Gilbert Bankr ED La Oct 2020


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