09 Aug Chapter 13: No Minimum Time Length For The Ninth Circuit: Part 1 of 2.
When the Bankruptcy Laws changed in October, 2005, little did Congress know that they actually made Chapter 13 repayment plans quicker, cheaper, and easier in many cases. At least this has now been determined the law of the land in the Ninth Circuit (Alaska, Arizona, California, Hawaii, Idaho, Montana, Oregon, Nevada, Washington, Guam, and Northern Marianna Islands) because of a landmark case, Maney v. Kagenveama (In re Kagenveama), 2008 U.S. App. LEXIS 13299 (9th Cir. Ariz. June 23, 2008)
When the new Bankruptcy Laws were created (BAPCPA), Congress also created an artificial test to determine Chapter 13 monthly payments called the “means test,” to be filled out on Official Form B22C. This test in most cases has nothing to do with any of the realities of a debtor’s current budget since it relies on past income and subtracts artificial expenses.
Nevertheless, so long as the end result of this artificial test results in $0.00 or a negative number, then there is no need for ANY PLAN LENGTH nor ANY PAYMENTS TO UNSECURED CREDITORS FROM PROJECTED DISPOSABLE INCOME.
Huh? No Plan Length? No payments? How could this possibly be? Under the Old Laws, Chapter 13 plans typically went from 3 to 5 years in most cases and were funded by subtracting the debtor’s actual expenses from actual income. They were actually based upon reality.
Under the new laws, the wording of the statute concerning the funding of a chapter 13 plan in 11 USC 1325 drastically changed, whereby plan funding and length only arises if there is Projected Disposable Income (PDI). Precisely because of this new language, the highest Court in the Ninth Circuit has now eliminated the 3 and 5 year plan length requirements and Disposable Income funding requirements for debtors with no PDI.
In other words, if there is no PDI, then there is no longer any minimum time length requirements to stay in Chapter 13, nor any requirements to pay any unsecured creditors from disposable income. So does that mean 1 year plans are possible? 1 week plans? Plans with payments to be made from other sources? Plans where only the car or house gets paid?
Yes! The dissent in the Ninth Circuit Opinion of In re Kagenveama specifically addressed this issue: “The majority lays down a rule: So long as the debtor can calculate no “disposable income” at the time his creditor plan is confirmed, he can rest easy. The debtor can propose as short a time period as he wants: a day, a week or a month.
So what does this really mean? In simple terms, as long as you pass this artificial test, and as long as you meet the other requirements of Chapter 13 (file in good faith, have income, complete your credit counseling courses, etc) then you can restructure your home, car, and other debts without ANY MINIMUM PLAN LENGTH REQUIREMENT and DO NOT NEED TO PAY ANY UNSECURED CREDITORS like credit cards, loans, medical bills etc., and you can FUND THE PLAN WITH OTHER SOURCES OF MONIES.
To read more about how the new Means Test works and calculations of PDI and expenses, please click my next Blog.
Written by Michael G. Doan
Bankruptcy Law Network (BLN)
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