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Chapter 13 Bankruptcy Plan Mistakes Can Be Costly

Posted By admin || 18-Mar-2009

There was an interesting case In re Delp, No. 08-31466 (Bankr. S.D. Ill. 02/09/09) in which debtors' Chapter 13 Bankruptcy plan was rejected by the bankruptcy court because it was determined that the proposed plan was made in bad faith. Basically the debtors' initial Chapter 13 bankruptcy plan proposed $1,492.43 in monthly payments.

Afterwards, when the debtors' bankruptcy attorney realized that the debtors' were not required by law to pay that much into the plan the attorney attempted to change the plan, reducing it by $472.

The bankruptcy court rejected the changes to the proposed Chapter 13 repayment plan because of the following:

Precedent in the 7th Circuit says that "bad faith" should rest on something more than just the debtors' ability to pay more to their unsecured creditors. "But a court may - indeed, should - look at whether the debtor's plan constitutes an attempt to unfairly manipulate the Bank¬ruptcy Code," Judge Pepper said.

Having demonstrated an ability to pay $1,492 per month, the debtors needed a better reason to reduce those payments by $472 than that they "forgot" that there was a court decision allowing them to pay less. "The debtors' proposal to make smaller plan payments than they are capable of making does not indicate a fundamental fair¬ness in dealing with their creditors," Judge Pepper said. Accordingly, it was indicative of bad faith.

This is why it is critical that debtors filing for bankruptcy seek counsel from an experienced bankruptcy attorney who will not make these types of simple mistakes. An experienced bankruptcy attorney will work with you during pre-bankruptcy planning to figure out exactly what you can pay and what the law will allow you to pay during a Chapter 13 bankruptcy. Fumbling around with Chapter 13 bankruptcy plans during a bankruptcy case can place a debtor's financial future at stake. Don't take any risks by working with amateurs.

Categories: Chapter 13 Bankruptcy
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