A debtor has filed the Voluntary Petition in a Chapter 13 case in the District of South Carolina. The Chapter 13 Plan or Plan of Reorganization has, often after much work, been confirmed and now at a later time, the plan payment has become too much for the debtor to pay. Are you, the debtor, stuck with the now unbearably high plan payment?
What can you do now? If changes are not made, you will not be able to make your payments as the come due under your confirmed Chapter 13 Plan. Your Chapter 13 Bankruptcy Case will be dismissed and your creditors will come and take your property.
- SURPRISE-AMENDING THE PLAN TO LOWER THE PAYMENTS IS POSSIBLE
The plan payment can be lowered in some situations. What happens if the car blows up, medical expenses increase or your income is decreased? There are a series of questions that must be studied before a motion to modify the confirmed plan can be filed. Remember, if the plan payments are reduced, the amount of money available to your creditors will also be reduced. If your expenses are higher than you expected or your income is lower than expected when the plan was confirmed, you MAY be able to lower your Chapter 13 Plan Payment.
- THE BIG TEST BEFORE YOU CAN LOWER YOUR CHAPTER 13 PLAN PAYMENT THAT HAS BEEN CONFIRMED BY THE COURT.
- TEST QUESTION THAT MUST BE ANSWERED IS AS FOLLOWS:
- THE REASON YOU CANNOT AFFORD TO MAKE THE PRESENT PAYMENT IS NOT SOMETHING THAT YOU COULD NOT HAVE FORESEEN WHEN YOU TOLD THE BANKRUPTCY COURT YOU COULD AFFORD THE PRESENT PLAN PAYMENT?
In order to obtain a lower payment, a motion to modify the confirmed plan must be filed under 11 U.S.C 1329 of the United States Bankruptcy Code. There are several requirements that must be met before the motion will be approved by the Bankruptcy Court Judge.
The thing that must be shown is that the event causing the need for a modified plan was not reasonably foreseeable when the plan was confirmed. Children get older, cars age and need more repairs. On the other hand, you expect that your car will be fixable for a reasonable amount. The test of whether the change is one that should have been planned for before you said you would be able to pay the Chapter 13 plan payment amount. The Courts do not want Chapter 13 Plans that are confirmed that will need to be changed later. Creditors need to be able to rely on plans and to be able to receive the money promised in the Chapter 13 Plan. The Bankruptcy Judges in the District of South Carolina have been willing to liberally construe this requirement. You should not, however, assume that a Bankruptcy Judge will approve all modification requests.
- IS THERE ROOM IN YOUR CHAPTER 13 PLAN TO LOWER YOUR PAYMENTS?
A common problem with lowering the payments you have agreed to pay a Chapter 13 Trustee is that there is no room to lower your plan payment. Many times, the plan payment is barely covering the secured and priority payments due to be paid to your creditors. Chapter 13 plans routinely cause the payment amount to be changed that you may have contracted to pay to your creditor on for example, your car. Chapter 13 seldom eliminates your need to pay the creditor at all.
Priority creditors must be paid 100% of their allowed claim. In the District of South Carolina, the Bankruptcy Court routinely requires that a Chapter 13 plan payment pay at a minimum 1% to the unsecured creditors. In addition the Chapter 13 Trustee must be compensated and it is very common for all or part of attorney’s fees and charges owed to your attorney to be paid through the Chapter 13 plan.
If the lower payment you are trying to obtain does not pay all of these various entities, then, the Bankruptcy Court is not going to approve an amended Chapter 13 Plan Payment that does not pay the entites.
- ARE THERE OTHER OPTIONS TO OBTAIN A LOWER CHAPTER 13 PLAN PAYMENT?
- OPTION 1. GET RID OF SOME PROPERTY THAT SECURED CREDITORS HAVE A LIEN UPON SO THAT THE TOTAL AMOUNT YOU NEED TO PAY IS REDUCED.
The obvious option to lowering your plan payment is one that most debtors do not want to discuss. The option is to give up something that will allow the new plan with a lower payment to pay for the remaining things bundled into a Chapter 13 Plan Payment. Giving up a car, a home or some other secured debt may give a debtor enough room to allow for the lower payments you need. This is never an easy decision, but, it must be explored and discussed.
- OPTION 2. DO NOT MAKE YOUR PLAN PAYMENT TO THE TRUSTEE.
Do not make your payments to the Trustee. As strange as it sounds, this often works in the favor of a debtor. If a debtor dismisses a case, then there are times that a new case cannot be filed. If you dismiss your case, the Court and creditors may think you are planning this so you can re-file at the last second. Yes, your case will be dismissed and your secured creditors will come get the property that is under a lien. It often will take the creditor a while to take the property securing its lien. Mortgage debt especially usually takes a while to foreclose upon. During that time, you are not making your mortgage payments, you may be able to pay off some other secured debt and then re-file with the lower debt amount and a lower Chapter 13 Plan Payment. Maybe you can use the money you are not paying to the Trustee and your mortgage company to pay cash for a used car.
- OPTION 3. STICK YOUR HEAD IN THE SAND AND HOPE THAT EVERYTHING WORKS OUT FOR YOU ANYWAY. THIS MAY ACTUALLY WORK SOMETIMES, I DO NOT KNOW WHY OR HOW.
Over and over, debtors refuse to acknowledge the awful truth. Your income is not sufficient to keep all of your property, even with the lower payments obtained in a Chapter 13. Debtors keep hoping that something will happen and they will somehow be able to work out a way to keep it all. If that is what you are hoping to do, then, I will help you when you finally accept the fact that you cannot keep it all. I wish that there was a way all debtors could keep all of their property. Unfortunately, debtors lose property everyday, both inside or outside of bankruptcy.