Lefkovitz & Lefkovitz
Nashville Office 615-686-2279 Cookeville Office 931-400-2218
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Modifying a Chapter 13 payment plan

When Tennessee debtors seek relief from overwhelming financial obligations by filing Chapter 13 bankruptcies, they enter into payment plans lasting either three or five years. Bankruptcy courts approve these payment plans as long as they are realistic and equitable, but they may be modified or revised in certain situations. Some bankruptcy judges have ruled that borrowers must be able to establish that their financial situations have changed substantially before modifications can be granted, but other courts have taken a different approach.

This was the legal conundrum facing a bankruptcy judge in Arkansas when a couple petitioned to have their Chapter 13 payment plan modified. The couple told the judge that most of the $605 they paid each month on their plan was applied to an automobile loan, and they sought court approval to lower their payments by returning the car. The couple also asked for any deficiency resulting from the return of the vehicle to be classified as an unsecured debt. The couple's plan called for unsecured debts to be paid on a pro rata basis after the car loan had been paid.

The lender involved raised strong objections, but the judge granted the modification despite seeing no clear evidence that the couples situation had changed substantially. The judge says that he made his May 26 ruling after reviewing two circuit court decisions. In both cases, the courts ruled that modifications could be granted, as long as they are reasonable and fair, even when situations remain largely unchanged.

The nation's bankruptcy laws were written to provide borrowers with an escape from unmanageable financial situations, but many people are reluctant to pursue debt relief because they have been led to believe that these rules were established to punish poor decisions. Attorneys with experience in this area may clear up this misconception as well as many of the other myths surrounding personal bankruptcy.

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