The Bankruptcy Code provides debtors, unsecured creditors, and trustees the capacity to modify a chapter 13 plan, even after confirmation, due to changed circumstances. Modification, under of a Chapter 13 plan must be made post-confirmation of the plan and pre-completion of payments. A debtor, chapter 13 trustee or creditor holding an unsecured claim may request the modification for four limited purposes:

1. to increase or reduce payment amounts on claims of a particular class in the plan;
2. to extend or reduce the timetable for payments on claims of a particular class in the plan;
3. to change the amount of distribution to a particular creditor that account for payments received outside the plan; and
4. to change the payment amount that accounts for payment for health insurance.

Requirements

Any modification to the plan must meet certain mandatory and permissive requirements. Moreover, a creditor who has accepts or rejects a plan is deemed to have accepted or rejected the modified plan, unless the modified plan alters that creditor’s rights.  The modified plan has the binding impact between debtor and creditor of the originally confirmed plan. In other words, the modified plan becomes the plan unless the court disallows the modification.

The modified plan must complete payments within the commitment period of the original plan, absent a court-approved extension. Like the original plan, a modified plan payment period cannot exceed five years. A request for modification requires notice to all creditors.

A chapter 13 plan “remains subject to modification for reasons including a debtor’s decreased ability to pay according to plan, as well as the debtor’s increased ability to pay.” Reasons for modification may include: 1) change in monthly plan payment; 2) change in payment to secured creditor; 3) plan payment delinquencies; 4) post-petition claims; and 5) increases in the debtor’s earnings post-confirmation and unexpected windfalls (including inheritances). Read our complete guide to bankruptcy and windfalls, including lottery, here.

Right to seek modification

A party has the absolute right to seek modification. The party seeking modification bears the burden of proof. Though a court cannot request the modification of a specific plan, it can create local rules requiring modification of plans to comply with other Code provisions. Whether to grant a modification “is subject to the discretion and good judgment of the bankruptcy judge.”

All parties have the right to seek modification, not just the debtor. If a creditor believes that a debtor has increased income, the creditor can seek an upward modification.

Completion of Payments

A plan cannot be modified after the “completion of payments.” Accordingly, if a debtor recovers assets after plan payment completion, the chapter 13 trustee cannot recover those assets. Courts disagree on the precise meaning of “completion of payments” under the Bankruptcy Code. Some courts have held that plan payments are complete when the debtor completes all plan payments to the trustee, regardless of whether the term of the plan, which is either three or five years, expired. Other courts have held that the completing the plan includes participating in the plan for the entirety of the plan period.

Noneligible Use

To obtain a discharge in Chapter 13, a debtor must pay off all child support arears. Therefore, if a debtor experiences a reduction in income and seeks a modification, the debtor would still need to submit a plan for payment of those arrearages. A modification that does not account for child support payments will not be approved.

Procedure

Every court has different rules as to filing a motion for modification. As mentioned, Melanie Tavare is familiar with Bay Area local bankruptcy court rules.

Before filing a motion for modification, review your current situation and make changes accordingly. Though the typical motion seeking to modify a previously confirmed plan usually requests a reduction in payments, a modification request can be for increased payments or that the total time period that the plan covers is extended or decreased.

A request to modify a plan must identify the proponent and be filed with the proposed modification. The debtor, chapter 13 trustee, and all creditors must be given 21 days’ notice of the objection deadline. Objections must be filed with the court, served on the debtor, trustee, and any other entity designated by the court, and be transmitted to the U.S. trustee.

In practice, a debtor will need to file a Motion to Modify Chapter 13 Plan and serve the papers on all of creditors as well as the court and trustee. At a motion hearing, the creditors will have an opportunity to object to the proposed modification.
Generally, if neither the creditors or trustee objects to the proposed modification and the modified repayment plan meets the original confirmation rules, the judge will approve the requested modification.

If you are experiencing debt issues or are currently in bankruptcy and seeking a modification, contact the law offices of Melanie Tavare, an experienced bankruptcy attorney.

Generally

Motion to Modify