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Court rules against changes to Chapter 13 repayment plans

On Behalf of | Oct 19, 2016 | Bankruptcy

Many Virginia residents file for Chapter 13 bankruptcy as a way to get out of debt while retaining their most valuable assets. Debtors who file under this chapter can keep their home, car and other valuable property while they pay off a portion of their debts over three to five years. After the repayment period is over, some of the remaining unsecured debt may be discharged.

Before the process is complete, a debtor may have to modify the repayment plan due to a change in income or circumstances. However, this must be done in accordance with rules outlined in the Bankruptcy Code. In September 2016, a bankruptcy court is California concluded that debtors in San Jose had made changes to their Chapter 13 repayment plans without obtaining authorized modifications.

The decision involved five individual debtors, but the actions that the debtors took had reportedly been customary in the San Jose Division Before the court ruled against the practice, debtors in San Jose were able to pay off their Chapter 13 plans and receive a discharge on the remaining debt, even if the estimated repayment term was not over. The Bankruptcy Court for the Northern District of California ruled that every Chapter 13 bankruptcy plan must have a stated length, and a variation from the stated length requires a motion to modify the plan.

It is important that a debtor’s Chapter 13 repayment plan is reasonable so that it can be complied with in accordance with its terms. A bankruptcy law attorney can often assist a client in proposing an affordable payment plan that can meet with the court’s approval.