Chapter 13 Debtors Could Modify their Plan in order to Defer Payment of Arrears Beyond Initial Plan Term Since it was Within 60-month Period Mandated by Section 1329

Chapter 13 Debtors Could Modify their Plan in order to Defer Payment of Arrears Beyond Initial Plan Term Since it was Within 60-month Period Mandated by Section 1329

The Chapter 13 Standing Trustee moves for the dismissal of this case pursuant to 11 U.S.C. § 1307 (c) alleging a material default because the Debtors failed to make several payments due under the terms of Debtors’ plan of reorganization. In response to the trustee’s motion, Debtors request a second modification of their plan in order to increase the monthly plan payments and “defer” payment of their current arrearage beyond the initial term of their plan but within the sixty month period mandated by Section 1329 (b) of the Bankruptcy Code.

The Debtors’ petition and original schedules disclosed that the wife was employed as a bus driver. The husband is unemployed and receives Social Security benefits. They have no dependents. In their initial submissions the Debtors’ estimated that their monthly income would exceed their household expenses by $726.56. On June 13, 2014, this Court confirmed the Debtors’ proposed Chapter 13 plan.

Under their original plan, the Debtors agreed to pay $725 to the Chapter 13 Trustee over forty-eight months, realizing a “plan base” of $34,800. The plan provided for the payment of a mortgage arrearage and two secured claims from the installments paid to the trustee. Current mortgage and student loan payments, however, would be paid outside the plan. While the plan did not commit to minimum distribution to general unsecured creditors,[2] it estimated that $8,020.88 may be available to be paid to them upon completion.

Non-governmental creditors had until August 19, 2017 to file proof of claims. See FED. R. BANKR. P. 3002(c). The general unsecured claims filed by then amounted to $29,568.84, somewhat less than the amount estimated in the plan. Of this amount, $5,246 involved the student loans to be paid outside the plan. The Debtors moved to modify their confirmed plan in October 2015 to address the plan payments they had missed when their household income dropped following the wife’s retirement. The Debtors proposed reducing their monthly payment to $540 beginning November 2016 and deferring payment of the $3,335 arrearage, approximately 4.6 months of payments, “until the end of the plan.” The Chapter 13 Trustee did not object to the proposed modification and withdrew her motion to dismiss. On November 11, 2016, this Court granted the Debtors’ motion.

Later, the husband became ill. As the Debtors incurred mounting out-of-pocket expenses for his treatment, therapy and medications, they again fell behind in their plan payments and, on June 6, 2017, the Chapter 13 Trustee renewed her §1307(c) motion to dismiss. The Debtors responded with this second motion to modify the plan. As initially filed, the Motion vaguely proposed another “deferral” of their arrearage “to the end of the plan” that would now complete within sixty months, instead of the original four year term. The modification did not propose to change either the plan “base,” the total amount to be paid over the course of the plan or—at least initially—the amount of the monthly installments.

On May 26, 2017, the Social Security Administration notified the wife that it had approved her application for benefits. According to the notice she would begin receiving $940 per month beginning August 16, 2017.

The Debtors contend that the medical expenses they have incurred as a result of the husband’s recent illness has “prevented them from making payments to the trustee.” In her written response, the Chapter 13 Trustee objects to the proposed plan modification principally because it results in an additional “deferral” of plan payments. The trustee stands on her motion to dismiss.

On July 28, 2017, the Court held a hearing on the competing motions. Both Debtors testified and were questioned by the standing trustee. The husband confirmed that he continues to receive monthly disability payments of $1,820 and is not employed. According to him, a payment deferral is needed at this time “due to [his] medical issues.” In recent months he has been undergoing outpatient treatment at a hospital. He continues to receive therapy and does not know how long it will continue. He further testified about difficulties with medical bills for his treatment and how the cost of his prescription medicine had “kicked up.” The wife also explained that they were not able to make some of their payments to the trustee because of the medical expenses they incurred as a result of the condition the husband developed. In addition, she explained that she and her spouse will be able to complete their plan with additional Social Security benefits she expected to receive beginning August of this year. At the conclusion of the hearing the standing trustee maintained her objection to further deferral of plan payments. She also questioned the feasibility of the proposed modifications, whether the plan could be completed within sixty months and whether the modification would decrease the distribution for unsecured claims.

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