Vincent Howard and our Rubidoux consumer bankruptcy attorneys routinely counsel clients about sticking with a Chapter 13 repayment plan. Since the 2005 changes to the bankruptcy laws, Chapter 13 is the only option available to many bankruptcy filers, and this means they must assess their finances, make a plan to repay as many creditors as possible over time. This is usually a five-year period, which requires quite a bit of commitment as well as occasional changes to conform to income and expense changes. However, the Chapter 13 repayment period can sometimes be shortened to three years. That's what Robbyn and Renee Mattson wanted to do after they had a post-confirmation increase in their income, in In re Mattson. They moved to modify their confirmed bankruptcy plan to increase payments and end the plan in three years instead of five, but the bankruptcy court and the Ninth Circuit's Bankruptcy Appellate Panel both denied it.
The Mattsons filed for Chapter 13 bankruptcy in December of 2010, at a time with Robbyn Mattson was between full-time jobs. As a result, he listed no income from a new full-time job, and small amounts of income from self-employment and seasonal work. Their plan was confirmed based on the relatively low amount of income they were able to report at that time. However, Robbyn Mattson was later made a full janitor, increasing the couple's disposable income. They moved to modify their plan to increase their payments to $900 to $1000 a month, and shorten the repayment period from five years to three. Their Chapter 13 trustee objected, saying they should pay the increased monthly amount for the full five years because the law does not allow above-median debtors to deviate from the 60-month period. After briefing, the bankruptcy court devised a test that asked whether the change in plan correlates to the change in circumstances, then determined that the Mattsons failed it. They appealed.
The Bankruptcy Appellate Panel of the Ninth U.S. Circuit Court of Appeals ultimately upheld the bankruptcy court, but using different reasoning than the court had employed. The Bankruptcy Code says debtors may ask to increase payments for a particular class of creditors, or extend or reduce the time for payments. Elsewhere, the code requires that modifications be made in good faith -- and the panel noted that caselaw in the Ninth Circuit requires courts to determine good faith on a case-by-case basis. Thus, it said, there is no requirement that courts look for a substantial and unanticipated change in circumstances. However, it said the bankruptcy court's error was harmless. Indeed, it concluded that the change in circumstance test was an implied good-faith analysis. Under such an analysis, the panel found that the reduction to three years was not proposed in good faith; there was no legitimate reason given for why the Mattsons couldn't continue paying for the original five years. Thus, it upheld the bankruptcy court.
Vincent Howard and our Mission Viejo personal bankruptcy lawyers suspect this isn't the last we've heard of this issue in the Ninth Circuit. The BAP went into some detail about a slight split between the circuits, with the Fourth Circuit the only one thus far to rule that debtors must pass a threshold test before they can change a confirmed bankruptcy plan. Interestingly, however, the Ninth has suggested it might rule the same way when the opportunity arises, and this would put the supposedly most liberal circuit in the same camp as the supposedly most conservative one. At Howard Law, P.C., our Oceanside individual bankruptcy attorneys will keep an eye on the issue, because we're certain that clients would enjoy the opportunity to shorten their Chapter 13 plans if the circumstances allow.
If you're deep in debt and you're not sure how you're ever going to get out, don't hesitate to call Vincent Howard and the team at Howard Law to discuss whether bankruptcy is right for you. You can reach us through our website or call 1-800-872-5925.