Posted On: April 30, 2010

No Plan Term In Chapter 13 If You Qualify

A Sacramento bankruptcy lawyer discuess Chapter 13 with regard to plan terms...

In one of the most important bankruptcy cases of 2008 the 9th U.S. Circuit Court of Appeals has ruled that the strict language of the 2005 bankruptcy reform law allows higher-income debtors to limit the amount of money and time for repayment of debts, though lower-income debtors do not share the same benefit.

Also, the 9th Circuit held that bankruptcy judges must stick to the terms of the 2005 bankruptcy reform law even though it treats higher-income debtors better than lower-income debtors when it comes to calculating income available to pay creditors in Chapter 13 reorganizations.

The decision provides a potential windfall for what the law defines as "above-median income debtors" because repayment plans can be created to pay creditors smaller amounts over shorter periods of time. Debtors in the "below-median income" classification must still make "reasonable" repayments for a minimum of three years.

The ruling allows the repayments to be for periods shorter than five years, meaning that if a debtor received a windfall after the shortened repayment period, the creditor would have no recourse to collect.

If the Chapter 13 debtor(s) projected disposable income comes out to be negative then there is no applicable commitment period or plan term. Hence a debtor with a 0 or negative disposable income is free to propose any plan term.

A negative disposable income is usually achieved by having large monthly liabilities such as taxes, car payments, child care, 401k loan repayments, 401k deductions and of course the $3,500 1st mortgage payment.

As one bankruptcy judge remarked “This creates an incentive for a higher- income debtor ‘to fiddle with his expenses and income just before he presents his creditor plan for confirmation, [s]o long as he can push up his expenses and delay receipt of income so as to show no 'disposable income' at the time of plan confirmation, he can propose such a short period of time that he can save any postponed income from the creditors' clutches."

This current law makes it even more advantageous to file Chapter 13. Many Chapter 13s are filed in order to pay $0 to the 2nd lien holder on a house while treating the balance as credit card type debt and getting it discharged. No longer will some above median Chapter 13 filers have to propose a 60 month Chapter 13. If after careful planning with an experienced attorney a Chapter 13 filer may be able to show the means to repay $0 and therefore propose a plan that is substantially shorter than 60 months. I would love to hear from attorneys in other 9th Circuit jurisdictions about their trials or sucessess in incorporating In re Kagenveama in their Chapter 13 plans.

Its been this author’s experience that Sacramento trustees permit at least 36 month plan terms for Chapter 13 filers with negative disposable income. One trustee has made it clear that he will object to a less than 36 month plan.

The dispute began when Chapter 13 trustee Edward Maney of Arizona challenged a repayment plan by Kagenveama when her bankruptcy petition showed she had an income of $74,000 a year and $1,500 per month in disposable income to dedicate to paying creditors. But as an above-median-income debtor, she was required to recalculate her living expenses under Section 1324(b)(3), leaving her with zero in disposable income.

She volunteered to repay $1,000 per month for three years, rather than the typical five-year commitment period. The trustee appealed, and the 9th Circuit agreed she could limit her repayment to three years at the lower amount, even though her income projections realistically showed a greater ability to pay.

If you have questions regarding Bankruptcy in Sacramento please contact us at (916) 492-6020 in Sacramento or (916) 724-1690 in Roseville for a free consultation or visit and we can connect you with one of our experienced Sacramento Bankruptcy Attorneys. After you have spoken with one of our Sacramento bankruptcy attorneys, we can schedule you for a free face to face appointment in an office location nearest you. Our team of Sacramento Bankruptcy Lawyers can assist you with all aspects of your bankruptcy or legal debt settlement case. If you have questions about filing a Chapter 7 bankruptcy, a Chapter 11 bankruptcy, a Chapter 13 bankruptcy, or would like to learn more about bankruptcy litigation, legal debt settlement, mortgage modification, lien stripping, cram down, stopping a foreclosure, wage garnishment, asset protection, discharging a debt, etc. we can help! We have bankruptcy attorneys located throughout California and Oregon who can assist you with all of your debt resolution questions. Please feel free to complete our free online bankruptcy evaluation and we can quickly determine if you are a qualified candidate for bankruptcy. We look forward to hearing from you, Sacramento and Roseville!

Bookmark and Share

Post a comment

(If you haven't left a comment here before, you may need to be approved by the site owner before your comment will appear. Until then, it won't appear on the entry. Thanks for waiting.)

100% Money-Back Guarantee from Sagaria Law

If the courts do not accept your bankruptcy filing because of an error on our part, we will refund 100% of your money, including the filing fee!

At Sagaria Law, PC we want to guide you on the path to financial freedom and realize this is not an easy task for most. We respect your devotion to better your circumstances even with financial hardship and thus are willing to guarantee that if you retain us, we will do everything we can, legally and ethically, to help you become debt-free.

The Fine Print

The Sagaria law guarantee covers everything that a bankruptcy law firm produces in order to successfully complete a bankruptcy filing. We guarantee that it will be done in a manner that is accepted for filing with the bankruptcy clerk's office.

There may be reasons beyond our control that may cause a case to be dismissed. Therefore, the 100% Money-Back Guarantee does not guarantee;

  1. That you will receive a discharge.
  2. That you will receive a discharge of all debts or of any particular debt.
  3. That your case won't be dismissed for reasons not related to the paperwork being accepted for filing.
  4. That you, our client, will successfully complete all of your obligations including accurate disclosure of debts, completing your forms on time and attending your 341 meeting as scheduled.
  5. That you will not lose assets in chapter 7, or that creditors won't successfully argue for the repossession of collateral in chapter 13.
  6. That you will not encounter challenges of any kind to your bankruptcy case.

Take advantage of this offer. Get started now by completing your FREE online bankruptcy evaluation, accessible from our home page.

Click Here To Close This Window