Christopher Todd Morrison, P.C.
Affordable Bankruptcy
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Judge rules on Chapter 13 payment plan modification

When Texas residents pursue Chapter 13 bankruptcies, their court-approved payment plans may be modified in certain situations. Some courts have ruled that such modifications require a substantial change in circumstances, but a judge on the U.S. Bankruptcy Court for the Western District of Arkansas found that only two circuit courts have addressed this issue. The case involved a couple who requested a modification after surrendering a financed vehicle, and the judge ruled on May 26 that a substantial change in circumstances was not needed.

The couple's Chapter 13 bankruptcy plan called for payments of $605 per month. More than half of this money would be used to pay down an auto loan, and the balance would then be distributed by the bankruptcy trustee to the couple's unsecured creditors on a pro rata basis. The couple petitioned the court to allow them to return the vehicle to the lender and asked that any resulting deficiency be treated as an unsecured debt.

The lender claimed that granting these requests would deny it fair and equitable treatment under the law, but this argument failed to impress the court. In making his ruling, the bankruptcy judge said that the proposed payment plan modification was feasible and made in good faith. He then gave the couple 30 days to submit a modified budget to the court.

While Chapter 13 payment schedules may sometimes be modified, attorneys with experience in this area could seek to avoid legal challenges by developing plans that satisfy creditors while leaving their clients with enough money each month for living expenses. Attorneys could also dispel many of the myths surrounding personal bankruptcy to individuals with unmanageable financial situations who are reluctant to pursue debt relief due to misconceptions or misunderstandings.

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