Modifying the Chapter 13 Plan — A Western District of Pennsylvania Case Law Update

12 Aug Modifying the Chapter 13 Plan — A Western District of Pennsylvania Case Law Update

On July 26, 2007, Judge Jeffery A. Deller of the United States Bankruptcy Court for the Western District of Pennsylvania issued an opinion that may have some impact on the ability of Debtors to change the terms of a confirmed Chapter 13 Plan.

The case name is Coastal Credit LLC v. Mellors, et al., and is docketed at 06-24245-JAD. While the opinion text may be accessed by clicking on any of the links I have sprinkled throughout this post, the full case docket may be accessed over the internet using the the federal court’s electronic access system, Public Access to Court Electronic Records (PACER).

In this case, the Debtors had proposed a plan which modified their car loan. [Please click here for a further explanation regarding modifying and/or “cramming down” car loans while in Chapter 13.] The Debtors, through their attorney, entered into a “stipulation” with the car lender, Coastal Credit, LLC, which finalized the modification of the car loan.

Approximately one month later, the Debtors discovered that their vehicle had frame damage which had not been disclosed to them at the time of the original purchase. Facing a repair bill of approximately $2,000, the Debtors realized that they would not be able to afford to both pay for the both the car loan and the car repairs. Therefore, the Debtors opted to modify their Chapter 13 Plan pursuant to 11 U.S.C. Section 1329. The Amended Plan now treated the damaged car as “surrendered”.

The car lender promptly objected to the Amended Chapter 13 Plan and to the change in the treatment of their claim. They argued that the Debtors were precluded from changing the treatment of their claim because they were bound by the Confirmation Order which essentially “cemented” the treatment of their claim as a modified secured claim.

Judge Jeffery Deller wrote an excellent opinion which permitted the Debtors to modify their Plan in this instance. Judge Deller reminded the car lender that the Bankruptcy Court has broad discretion in granting “reconsideration of claims” in cases like this. The Court may exercise discretion to reach a result which is fair and equitable to Debtors. In this case, it was fair and equitable to permit the Debtors to amend their Plan and surrender their vehicle due to the fact that the severe damage which the Debtors discovered subsequent to the confirmation of their original plan was not known at the time that the stipulation with the car lender was entered into.

The decision is balanced and fair, and a reminder to honest debtors that justice can be found within the United States Bankruptcy Court.

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