Accelerated payment in Chapter 13 = modification.

• Author: Meyer, Robert C.
• Position: Business Law

Recent events in Ch. 13 cases have confused debtors as conflicting rulings have been entered regarding whether debtors can pay off creditors in a period less than those statutorily created under 11 U.S.C. [section] 1325. (1) In plain English, [section] 1325 is the Ch. 13 provision that requires a debtor to have his/her/their plan exist either a minimum of 36 months or a maximum of 60 months. Part of the confusion arises when certain courts interpret 11 U.S.C. [section] 1325 to apply in all circumstances in Ch. 13, while other courts see a discrepancy arising through a statutory interpretation, determining that [section] 1325 should not be universally applied. (2) A lack of decision by any of the U.S. circuit courts on this particular issue has prolonged the conflict. A review of the dichotomy is reviewed below.

Background

Ch. 13 is a world of numerous divisions. Sometimes, there are alternative choices, and other times the division is a legislated creation based upon seemingly arbitrary numbers and dates.

One legislated division is the debtor. In Ch. 13, there are two kinds of debtors: those who earn greater than the median income of their venue and those who earn less than the median income of their venue. The "above-average" earners are compelled to have their Ch. 13 plans be for a period of 60 months --no less and no more. (3) The "below-average" earners are allowed to have their plans last for a shorter period of time --but never less than 36 months. (4)

Ch. 13 has two kinds of plans--those for confirmation and those for modification. Plans for confirmation are filed and proposed before confirmation. Plans for modification are filed and proposed after confirmation.

Ch. 13 commences when the debtor delivers to the court an original plan, sometimes subjected to numerous amendments, which must meet the numerous requirements as provided under 11 U.S.C. [section] 1325(a). In addition to the nine pertinent provisions of [section] 1325(a), the debtor may also be compelled to address 11 U.S.C. [section] 1325(b)(4) which states in pertinent part: "For purposes of the subsection, the 'applicable commitment period' ... shall be (i) three years; or (ii) not less than five years...." The only clear exception to that particular rule is stated in 11 U.S.C. [section] 1325(b)(4)(B), which allows a lesser period "if the plan provides for payment in full of all allowed unsecured claims over a shorter period." In short, only full payment will allow a plan to propose an expedited exit from the time periods of [section] 1325(b)(4).

After confirmation, similar, but not identical, parameters exist for modification. Modification only occurs after the original plan has been confirmed and can be requested, "at any time after confirmation of the plan but before the completion of payments under such plan...." (5)

Modification allows many tools. Modification, for instance, may "increase or reduce the amount of payments on claims of a particular class provided for by the plan" (6); "extend or reduce the time for such payment" (7); "alter the amount of the distribution to a creditor" (8); "reduce amounts to be paid under the plan by the actual amount expended by the debtor to purchase health insurance for the debtor," (9) and more.

Modification has a unique provision --11 U.S.C. [section] 1329, including [section] 1329(c) --which provides the following clause:

A plan modified under this section may not provide for payments over a period that expires after the applicable commitment period under [section] 1325(b)(1)(B) after the time that the first payment under the original confirmed plan was due, unless the court, for cause, approves a longer period, but the court may not approve a period that expires after five years after such time. (Emphasis added.)

What causes trouble is following clause from [section] 1329(a): "[T]he plan may be modified, upon request of the debtor, the trustee, or the holder of an allowed unsecured claim, to (1) increase or reduce the amount of payments on claims of a particular class provided for by the plan...." (10)

Effectively, [section] 1329(a) of the Bankruptcy Code provides modification of a plan to increase or reduce the amount of payment to claims, and [section] 1329(c) refers to such payment's increase or reduction to be for a period not in excess of the maximum period under 11 U.S.C. [section] 1325(b)(1)(b) (which would be 36 or 60 months). Unfortunately, the modification provisions of [section] 1329 are silent about whether the modification's period can be for a period less than the requisite 36 months...