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Court rejects Chapter 13 bankruptcy repayment plan

On Behalf of | Apr 22, 2016 | Chapter 13 Bankruptcy, Firm News

Many Florida residents feel that they need to file for bankruptcy, but they want to be able to keep their assets — particularly their homes. Therefore, they file for Chapter 13 bankruptcy, which is often more homeowner friendly than Chapter 7. The mortgage loan for the filer’s primary residence often becomes part of the Chapter 13 bankruptcy repayment plan.

Mortgage lenders are granted certain rights under the U.S. Bankruptcy Code, and there are restrictions for modifying the lender’s rights in the repayment plan. Another section of the code allows for the payment of priority expenses as well, such as administrative fees. These payments can often be made in advance of any other payments under the code.

It might not be surprising that these two sections of the code can sometimes be at odds. One Michigan man’s repayment plan was rejected on appeal because it created a default on his mortgage loan. Post-petition defaults can often be cured through the payment plan, but on appeal, it was ruled that the plan itself couldn’t create such a default.

This might be the ruling of only one court, but it does bring to light the fact that creditors might be able to appeal a plan if they do not believe it is fair to them. Therefore, it is important for a Florida filer to be sure that his or her Chapter 13 bankruptcy repayment plan does not cause a similar issue. Where it is true that the bankruptcy process is designed to protect the filer, creditors are not precluded from appealing the decisions of the bankruptcy court, which could end up jeopardizing a plan that took a significant amount of time, effort and expense to put together.

Source: Bloomberg BNA, “Ch. 13 Debtor Can’t Pay His Attorney Before Mortgage”, Diane Davis, April 13, 2016

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