CBA CLE Legal Connection: Bankruptcy Plan Modification by Debtor’s Counsel – Part of Bankruptcy Update 2014
June 4, 2014 By Susan Hoyt
In any three- to five-year period, many of us face unanticipated financial obstacles – medical expenses, educational expenses, dependent expenses. For a bankruptcy debtor, these unexpected financial burdens can derail a payment plan. Thankfully, the Bankruptcy Code at 11 U.S.C. § 1329 allows post-confirmation plan modifications so that debtors can adapt to changing life circumstances.
Section 1329 permits a debtor, trustee, or holder of an unsecured loan to request modification to increase or reduce payments to a particular class; prolong or shorten the time for those payments; alter the amount of distribution to a creditor in order to account for another payment not covered by the plan; or reduce payments in order to cover health insurance expenses for the debtor.
Experienced bankruptcy attorney Andrew S. Trexler offers some of the common scenarios in which his clients have requested post-confirmation plan modification:
To remove unpaid mortgage arrears following a mortgage loan modification and reduce plan length;
To bring payments current and reduce payments to account for change in projected disposable income, such as from retirement;
To allow for debtor to transition from one job or business to another through temporary reduction in monthly payment and provide for post-petition mortgage and HOA arrears;
To provide for pre-petition priority support arrears and cram down secured debt;
To surrender property securing Class 2 or 3 debts (Note: this is explicitly allowed by Judge Tallman so long as in good faith but disallowed by Judge Campbell);
Generally, to accommodate any significant decrease in disposable income caused by reduction in hours, job loss, increase in taxes due to end of payroll tax holiday in 2013 or increased medical bills, insurance costs, lawsuit defense, etc.; or
To allow for the purchase of health insurance (now generally required by the Affordable Care Act), so long as the debtor complies with § 1329(a)(4).