New Massachusetts Bankruptcy Means Test Decision

18 Jun New Massachusetts Bankruptcy Means Test Decision

Judge Feeney, Massachusetts Bankruptcy Judge, days ago issued an important decision on an issue of whether a Chapter 13 debtor would be allowed a means test deduction for a payment of a secured debt when the payment was not being paid due to lien avoidance. See In re Marshall, 2009 WL 1652471 (Bkrtcy.D.Mass. 2009). There is local case law allowing such a deduction in the Chapter 7 context, but the Chapter 13 trustee argued in Marshall that a debtor should not be permitted a “phantom” deduction in Chapter 13. The Court agreed with the Rhode Island Bankruptcy Court, which held that the deduction was permissible. See In re Burbank, 401 B.R. 67 (Bkrtcy.D.R.I. 2009) (on appeal). Most importantly, perhaps, the Court provided some new clues on the borders of bad faith, which is one way that a trustee can force a higher payment than is required by the means test. The Court found, without an evidentiary hearing, that about $100 difference between the debtors’ means test and schedules did not constitute the extraordinary circumstances leading to bad faith. This is useful guidance.

The court also made reference to another avenue available to the trustee to get a larger payment than what is required by the means test. The Court in Burbank stated:

“In his objection, the Trustee states that in the event we reach the result announced herein, he may move for plan modification under Section 1329(a) to reflect the actual financial situation of the Debtors. We will cross that bridge when we reach it. The issue is not before us today.” Id. at 75.

The Court in Marshall stated:

“The Debtors, however, may claim a deduction for ‘contractually due’ payments to Chase, although, as the court in Burbank recognized, a motion for plan modification under 11 U.S.C. § 1329 may be filed to reflect the Debtors’ actual financial situation.” Id. at 6.

A Section 1329 modification can only happen after plan confirmation. It would be strange indeed if a Court confirmed a plan and then allowed a motion to modify based on the same underlying facts that existed at the time of confirmation. In my opinion, this would twist Section 1329 well beyond its purpose and strain our collective logic. However, the reference to 1329 in Marshall is very interesting and may portend another method of avoiding the statute’s result, which can at times be unfavorable to unsecured creditors.

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Nicholas Ortiz, Boston Bankruptcy Attorney

From Attorney Ortiz: We have been helping consumers and small businesses in Massachusetts successfully navigate through the bankruptcy process since 2002. We offer free initial consultations and payment plans. Call us at 617-716-0282 to discuss your debt relief options. Mention the Bankruptcy Law Network when you call!
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