National Consumer Bankruptcy Rights Center

Protecting The Rights Of Consumer Debtors In Bankruptcy

Plan modification

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Removal of Trust Contingency Benefits Estate

Removal of a contingency in a Trust did not create a new asset such that the resulting increase in value to the debtor/beneficiary would be considered a post-petition asset. In re Wright, No. 19-21544 (Bankr. D. Kans. Dec. 7, 2022).

The Wrights filed for chapter 13 bankruptcy with unsecured debts totaling $14,196.53. They confirmed a three-year plan that provided little to no distribution to unsecured creditors. When they filed for bankruptcy, Ms. Wright and her siblings were the beneficiaries of an irrevocable Trust consisting of 40 acres of real property. The Trust had a contingency that one of Ms. Wright’s siblings, Ronnie True, would receive the Trust income and continue to live on the Trust property for the remainder of his life. Upon Mr. True’s death, the Trustee could then either deed or sell the property for the benefit of the remaining siblings, including Ms. Wright. [Read more…] about Removal of Trust Contingency Benefits Estate

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3% Change In Debtor’s Income Not Enough for Modification

The bankruptcy court abused its discretion when it granted the trustee’s motion to modify the debtor’s chapter 13 plan to capture the $300.00/month the debtor saved when he refinanced his home loan where the change in the debtor’s financial circumstances was not “substantial” as a matter of law. Martinez v. Gorman (In re Martinez), No. 21-1077 (E.D. Va. June 16, 2022). [Read more…] about 3% Change In Debtor’s Income Not Enough for Modification

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Covid Mortgage Forbearance Justifies Plan Modification

The court granted the trustee’s motion to modify the debtor’s chapter 13 plan, finding that the debtor’s mortgage deferral due to Covid was an “unanticipated and substantial” change in his financial status which he had a duty to disclose and which increased his income for 18 months during the plan. In re Ilyev, No. 17-12987 (Bankr. E.D. Va. July 26, 2022). [Read more…] about Covid Mortgage Forbearance Justifies Plan Modification

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Bankruptcy Court Takes 7th Circuit to Task

The bankruptcy court gave the debtors guidance on how to challenge a decision issued by the Seventh Circuit earlier this month by pointing out, among other things, that the circuit court decision addressed an order not actually on appeal before it. In re Terrell, No. 18-28674 (Bankr. E.D. Wisc. July 19, 2022). [Read more…] about Bankruptcy Court Takes 7th Circuit to Task

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Debtors May Not Modify Plan to Deprioritize State’s Claim

The bankruptcy court erred in permitting the debtors to modify their chapter 13 plan to deprioritize the State of Wisconsin’s claim based on a public assistance overpayment, where the only authority for such modification would come from Rule 60(b)(1) and the debtors sought the modification too late to rely on that Rule. In the Matter of Terrell, No. 21-3059 (7th Cir. July 12, 2022). [Read more…] about Debtors May Not Modify Plan to Deprioritize State’s Claim

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Failure to Pay Property Taxes Precludes Discharge

A mortgage refinance agreement approved by the court is not equivalent to a motion to modify under section 1329. The debtors, who failed to pay their property taxes directly as required by their plan were not entitled to discharge even though the mortgagee paid those taxes on their behalf and the debtors and mortgagee refinanced their lending agreement to encompass that change. In re Villarreal, No. 16-10106 (Bankr. S.D. Tex. April 12, 2022). [Read more…] about Failure to Pay Property Taxes Precludes Discharge

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Mortgage May Be Bifurcated Under Section 1322(c)

The Bankruptcy Court for the Eastern District of Wisconsin joined the majority of courts in finding that section 1322(c)(2) “authorizes modification of a principal residence loan through bifurcation, when the last payment on the original payment schedule is due before the final plan payment is due.” In re Harris, No. 21-26280 (Bankr. E.D. Wisc. March 16, 2022).

The debtor filed her chapter 13 petition shortly after the final balloon payment was due on her home mortgage. At the time of her petition, she owed $78,009.00 on the mortgage and she valued the residence at $45,000.00. In her plan, she proposed to bifurcate the claim and pay the entire secured portion and none of the unsecured portion. The mortgage creditor objected to confirmation on three grounds only one of which was addressed in this order. That issue was whether section 1322(b)(2) precluded the debtor from modifying the treatment of the mortgage beyond altering the terms of the repayment schedule. [Read more…] about Mortgage May Be Bifurcated Under Section 1322(c)

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“Effective Date of the Plan” for Best Interests Test upon Modification

The best interests test does not provide authority to compel turnover through plan modification of settlement funds from the debtor’s post-petition personal injury case where that money would not be available to unsecured creditors in a case converted from chapter 13 to chapter 7 under section 348(f). In re Taylor, No. 16-40873 (Bankr. D. Kans. July 21, 2021). [Read more…] about “Effective Date of the Plan” for Best Interests Test upon Modification

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Modification under CARES Act

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. [Read more…] about Modification under CARES Act

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Change in Circumstances Not Required for Plan Modification

A change in circumstances is not a pre-condition to modification of a confirmed chapter 13 plan under section 1329(a). Whaley v. Guillen (In re Guillen), No. 17-13899 (11th Cir. Aug. 25, 2020).

When the debtor filed for chapter 13 bankruptcy, she listed two creditors with security interests in her home. Her proposed plan included payments toward her bankruptcy attorney’s fee of $4,900, as well as a challenge to Wells Fargo’s junior lien. She then initiated an adversary proceeding seeking to avoid that lien. The debtor and Wells Fargo eventually settled the adversary complaint with Wells Fargo agreeing to be treated as an unsecured creditor. Finding that it met the statutory requirements, including section 1325’s “best interest of creditors” test, the bankruptcy court confirmed her plan. [Read more…] about Change in Circumstances Not Required for Plan Modification