Increasing Chapter 13 Plan Payments

The Problem:

You filed a Chapter 13 bankruptcy case several months or even years ago. You have made all the payments but the Chapter 13 Trustee is now demanding that you increase the payment amount. The Trustee is threatening to dismiss your case or perhaps change it to a Chapter 7 case. Your lawyer is telling you to agree to save the case. What's going on? What should you do?

The Law:

Under Chapter 13 you are required to make payments under an approved Chapter 13 plan. Most plans are 5 years long and a lot can happen in 5 years.

To get your Chapter 13 plan approved, the plan has to meet a lot of requirements. Those requirements are located in Section 1325 of the Bankruptcy Code (11 U.S.C. §1325). You can google this part of the law if you want to read it - but the law is written in legalese.

One of the requirements is that you pay as much as you can afford to your creditors over the life of the plan - again, usually 5 years. This is based on how much money you have available to you on a monthly basis and your reasonable monthly living expenses. We call this the "best efforts" test. You must use your "best efforts" to pay your creditors. This requirement is found at Section 1325(b)(1)(B).

Once your plan is approved, however, you have made a "deal" with the Court, the Trustee and the creditors. If you want to change the deal (modify your Plan), you have to meet all of the same standards and make a new "deal". But your creditors and the Trustee do not have the right to change the terms of the deal by unilaterally asking you to increase the monthly payments.

Reality:

As I said before, a lot can happen in 5 years. You could get a raise, or you could lose your job. You might get a bonus, or you could get sick. The value of your home might go up. If bad things happen, the bankruptcy laws can help you. Lawyers and Judges are aware that these things happen and there are rules to deal with them. If good things happen, however, some Chapter 13 Trustees will demand that you pay more to your creditors and if you don't agree, they start threatening you.

The first thing to know is that Chapter 13 Trustees do NOT have the power to dismiss your Chapter 13 case or convert it to Chapter 7. That is up to the Bankruptcy Judge. The Chapter 13 Trustee must ask the Judge and must give the Judge a reason. This is done on paper. The reason must have two parts. First, the Trustee has to provide the Judge with facts - information - about why the Trustee is making the request and what has changed. Second, the Trustee has to tell the Judge what law should be applied to those facts to get the result that the Chapter 13 Trustee wants. You have the right to file opposing papers - a written statement sent to the Court which explains that the facts have NOT changed or the law is NOT as the Trustee believes. You have to act quickly and it has to be done in the right way. This is complicated and probably not something you want to do on your own - there are a lot of formal requirements. If this is important to you, don't be cheap! If you haven't done so already, hire a qualified lawyer.

The Chapter 13 Trustee is likely to argue that you have more (the facts), and therefore you should pay more (the law). Chances are the Trustee will rely on Bankruptcy Code Section 1325(b)(1)(B) to support the request for increased payments.

The problem with this argument is that Section 1325(b)(1)(B) only applies at the time your Chapter 13 plan is first approved. It is not a continuing requirement. In other words, you don't have to evaluate your income and expenses EVERY month to figure out your plan payment for THAT month. The amount is set at the time the plan is approved. In short, a deal is a deal is a deal. You made your deal with the Court, the Chapter 13 Trustee and the creditors. They don't get to renege and demand more.

If this happens to you, discuss the situation with your lawyer. If you don't have one or you don't like the answers you are receiving, give us a call. The Law Offices of David A. Tilem has been handling bankruptcy cases for more than 30 years. David A. Tilem is certified as a bankruptcy specialist by the State Bar of California, Board of Legal Specialization and by the American Board of Certification.

Let us use our experience and expertise to help you through this problem.