Sometime you and your lawyer don’t know everything you need to know to put together a perfect Chapter 13 plan. So then you can modify it.
Last time we got into how important it is to know that your Chapter 13 payment plan can be adjusted later. It’s important because when you enter into a 3-to-5-year Chapter 13 case you need to know that it’s flexible.
But you also need to know that flexibility has some limits.
It’s not easy to summarize how flexible a Chapter 13 plan will be. It’s hard to say how much you can adjust your Chapter 13 plan because plans can be SO different. Some plans have tremendous flexibility; some have very little. We’ll give some examples to help make sense of this.
Plan Modification BEFORE Court Approval
In a Chapter 13 case everything revolves around your formal payment plan. So, during the first couple months of your case most of the focus is on getting that plan approved by the bankruptcy court. A lot is up in the air until that point when the court or “confirms” your plan. Then once the court confirms the plan, you’re on your way. Everybody knows the rules you and the creditors are operating under in your Chapter 13 case.
Because of this focus on confirmation of your plan, it makes sense that there’s a difference between changes made to your plan before and after the court confirms it. Today we focus on pre-confirmation plan modification.
Ambiguities in Preparing Your Chapter 13 Plan
Sometimes when you and your bankruptcy lawyer put together your Chapter 13 plan, you have all the information you need. But often you don’t. For example, if you’re behind on your mortgage, you might not know exactly how much. Or you owe income taxes for last year but the tax returns are not yet due and still being prepared.
Or sometimes part of your payment plan is based on a debatable fact. For example, the amount you pay on a vehicle loan “cramdown” depends on the vehicle’s value. You and your lender may disagree on that value. Or similarly, whether you can strip away a second mortgage depends on the home’s value.
The plan may even be based on goals that aren’t fully firmed up at the time the plan is filed. For example, your vehicle may have gotten repossessed right before filing your case. You may have access to a replacement vehicle from a relative but aren’t yet sure. So you need to file the case quickly to get back your repossessed vehicle in case you can’t get another one.
In all these situations your lawyer prepares your Chapter 13 plan based on some imperfect information and/or debatable assumptions.
Tying up the Loose Ends
In the first few weeks after your Chapter 13 case and plan are filed, these loose ends start getting tied up. Using the above examples:
- Your mortgage lender provides an itemization of your missed payments, late charges, and all other fees.
- You or your tax preparer prepare your current income tax returns and firm up those numbers.
- Your lawyer contacts your vehicle lender or its lawyer to settle on the value of your vehicle for the “cramdown.”
- Your lawyer files a motion to strip the second mortgage and you learn whether your home valuation will stand.
- You find out that your relative’s vehicle is available and reliable so you decide to surrender your repossessed one.
The Pre-Confirmation Modifications
Chapter 13 law says that you “may modify the plan at any time before confirmation.” See Section 1323 of the U.S. Bankruptcy Code on “Modification of plan before confirmation.” That modified plan understandably just needs to meet the usual requirements of a Chapter 13 plan. See Section 1322 on “Contents of plan.”
Generally, the sooner you modify your plan the better because that increases the likelihood it will get approved faster.
Practically speaking, there are two important events that often drive when your plan is modified.
About a month after your lawyer files your case you have a meeting with the Chapter 13 trustee. The trustee administers your case, receives and distributes your plan payments, and has some oversight responsibilities. Creditors can also come to this meeting, the so-called Meeting of Creditors. It’s an opportunity to exchange information and come to agreement about any loose ends.
Then another month or so later is the Confirmation Hearing (which you almost never attend). By then all the loose ends need to be tied down or the judge does not confirm (approve) the plan. So everybody has an incentive to cooperate in getting it done.
Informal and Formal Plan Modifications
If the change in your plan is very minor, your lawyer may not need to prepare an entire new plan. The change can just be put into the Order Confirming Chapter 13 Plan. If so your creditors get notice of this change and an opportunity to object. They get this opportunity usually before, but sometimes after, the Confirmation Hearing.
Most of the time a change in a plan requires your lawyer to prepare a full modified plan. It’s filed at court along with supporting documents.
Either way, once the bankruptcy judge signs the Order Confirming Chapter 13 Plan that modified plan essentially becomes the law of your case. If you comply with it you will get all of its benefits.
Next time: Chapter 13 plan modifications AFTER confirmation, to address changes in your circumstances.