We’ve been looking in recent posts at the process of modifying a Chapter 13 repayment plan and the grounds for doing so under the U.S. Bankruptcy Code. As we noted, either creditors or debtors may petition the bankruptcy court to modify a repayment plan, but so may the trustee in the case.
One reason the trustee might seek to modify a repayment plan is to account for a debtor’s increased earnings after the plan has already been established. Last month, the Seventh Circuit Court dealt with the issue in a case which held that a trustee is able to amend a Chapter 13 plan based on an increase in the debtor’s income even after the debtor has already completed his or her five year repayment plan.
The court was charged with sorting out various provisions of bankruptcy law which made it unclear as to whether a trustee is allowed to modify a repayment plan after it has already been completed. A provision of the code which allows a trustee to demand copies of a debtor’s post petition tax returns was one of the reasons the court ruled the way it did. Under the ruling, the bankruptcy court is able to look at a debtor’s financial information after a repayment plan is completed and determine whether a retroactive modification of the plan is appropriate. If the debtor is found to be in default due to the court’s finding that additional payment is due, the court is able to pronounce the debtor to be in default, in which case several things might happen.
In our next post, we’ll wrap up this discussion and look at the importance of working with an experienced advocate in the bankruptcy process, particularly with respect to handling repayment plan issues.