Arkansas Attorney Blog

Modifying your Chapter 13 bankruptcy plan to reduce your payments

  

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Traditionally, given the fact that chapter 13 bankruptcy can last three to six years, the Bankruptcy Code has allowed much flexibility and given the debtor’s attorney ample opportunity to modify confirmed chapter 13 plans to adapt to an individual debtor’s changing circumstances. One of these key flexibilities was the ability to modify the plan to lower the plan payments when a debtor has a corresponding reduction in income. The debtor’s attorney would simply file the modification and file an amended budget showing that the reduction was warranted. This was a wonderfully useful tool to get around any requirement to pay back the unsecured creditors in an “above-the-median” situation. However, a recent Court decision has thrown this technique on its head. This recent decision now says that in one of these modification situations where the debtor has had a reduction in income the debtor’s attorney may only lower the plan payment by the corresponding reduction in the debtor’s income. In other words, the Court has effectively closed a “loophole” that debtor’s attorneys have enjoyed since the passage of BAPCPA.  

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