Chapter 12 Carrying Out Your Plan

• Library: Chapter 13 Bankruptcy (Nolo) (2020 Ed.)

CHAPTER 12: Carrying Out Your Plan

Your Income Increases

Selling Property

Modifying Your Plan When Problems Come Up

You Miss a Payment

Your Disposable Income Decreases

You Need to Replace Your Car

You Incur New Debt

Attempts to Revoke Your Confirmation

When You Complete Your Plan

Debts Covered by the Discharge

The Discharge Hearing

Ending the Income Deduction Order

Debtor Rehabilitation Program

Once the court has approved your repayment plan, you should be in for smooth sailing as long as you make your monthly payments. If an unforeseen problem arises, and you think you're going to have trouble making a payment, notify your attorney right away. Your attorney will notify the trustee and help you work something out.

The trustee is interested in the successful completion of your Chapter 13 plan. Remember, the trustee gets a cut of everything paid to creditors under your plan. If you have to convert to Chapter 7 or your case is dismissed, the trustee's income from your case will be cut off.

This chapter covers issues that might arise after your plan is confirmed, as well as what happens once you complete your plan.

Your Income Increases

There are a couple of ways for the trustee to keep track of your income as your case proceeds. You might be asked to submit an annual income and expense statement to the trustee (and to any creditor who requests one). Also, you must remain current on your tax returns throughout your case and might have to provide a copy of your tax return to the trustee (and to any creditor who makes a request). (For more information on these requirements, see Ch. 10.) From these documents, the trustee can determine whether your income has increased.

If your financial condition improves sufficiently to allow you to pay more to your unsecured creditors (assuming your plan doesn't provide for them to be paid in full), the trustee or an unsecured creditor may file a motion with the bankruptcy court to amend your plan. The motion will request that the court order you to increase each payment, pay a lump sum amount (especially if you've inherited valuable property or won the lottery), or extend your plan (unless it already lasts for five years). The bankruptcy court will most likely grant the motion.

What If Your Income Increases Because You Pay Off a 401(k) Loan?

If, during the course of your Chapter 13 plan, you pay off a loan you took out from your 401(k) plan, your income will effectively increase (since you'll no longer be making those loan payments). Do you have to modify your plan to pay more into it?

One court has ruled that in this situation your plan payments can remain the same. (In re Egan, 458 B.R. 836 (Bankr. E.D. Pa. 2011).)

However, other courts have ruled the opposite: That you must modify your plan so that unsecured creditors get paid more. (See, for example, In re Seafort, 669 F.3d 662 (6th Cir. 2012) and In re Brann, 457 B.R. 738 (Bankr. C.D. Ill. 2011).)

If You Get a Windfall

If you win the lottery, get a substantial bonus or raise, or receive an inheritance, or if your house goes way up in value, you might be able to dismiss your case and pay off your debts outside of bankruptcy. But keep in mind that the interest (and sometimes the penalties) on your debts that stopped accruing while you were in bankruptcy can be added back to the outstanding balance still owed when you dismiss your case. And, don't assume you can use the equity in your home to apply for and obtain a loan. Don't dismiss your case and then apply for the loan. If you are rejected, you'll just have to refile for bankruptcy.

Selling Property

While you are in Chapter 13, if you want to sell any of your property and the sale is not in the ordinary course of the operation of a business, you will need to file a motion with the court and obtain court permission. You must send notice of the motion to authorize the sale of property to all creditors and the trustee so that all parties have an opportunity to object. It is possible that any money you realize from the sale, after all of the liens are paid, will have to be paid into the plan if you have not claimed the...