Five-Year Plans Now Required For Above-Median Chapter 13 Debtors
When Congress amended the bankruptcy laws in 2005, one of the changes concerned the length of Chapter 13 Plans. “Below-median” debtors (those with incomes below the median in their state of residence for a family of their size) were generally required to make payments to the Chapter 13 Trustee for only three years. “Above-median” debtors, however, were generally required to pay for five years.
Because of the ambiguous language of the applicable statute, an issue arose as to an above-median debtor who had negative “disposable monthly income” according to the “means test”. As discussed in a previous article, Judge Perris, over strong objection from the Chapter 13 Trustee, ruled in a 2011 opinion that no “applicable commitment period” exists in such cases, and allowed a three-year repayment period.
Unfortunately, for Chapter 13 debtors, the Ninth Circuit Court of Appeals last August in Danielson v. Floresoverruled prior precedent upon which Judge Perris had relied, and held that a five-year “applicable commitment period” does in fact apply for above-median debtors with negative disposable income. Moreover, in light of this ruling, the Ninth Circuit Bankruptcy Appellate Panel recently issued an opinion vacating Judge Perris’ order in the 2011 case confirming the debtor’s Chapter 13 Plan, and remanded the case for further proceedings.
Aside from extending payments from three to five years in “above-median” cases, these latest rulings have other implications:
1. Debtors in those cases are required to turn over any tax refunds received during the entire five-year length of the Chapter 13 Plan;
2. Debtors as a practical matter in such cases will be unable to obtain credit during the five year plan (and will not be able to start rebuilding credit until after the conclusion of the case); and
3. Debtors in such cases who receive substantial increases in income during the later months of the Plan will have to increase their payments to the Chapter 13 Trustee.
This post is intended to be purely informational in nature, and cannot be considered legal advice. If you have questions related to Chapter 13 issues, please call our office at (503) 545-1061 (Oregon cases) or (360) 836-4238 (Washington cases) to schedule a free initial consultation.