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Court Denies "Unconscionable" Chapter 13 Bankruptcy Plan

Posted By admin || 30-Apr-2010

Court Decision on Bankruptcy PlanIn the Chapter 13 bankruptcy case of Grafton, Thomas W. and Patricia M.; In re, the bankruptcy court sustained an objection to confirmation of the debtors' plan saying the plan was not proposed in good faith and that it was unconscionable.

The details of the bankruptcy case:

When the debtor-husband divorced his previous wife, he agreed that any obligations he owed in the couple's property settlement agreement could not be discharged in bankruptcy. When he filed for bankruptcy two years later, the court determined that his obligation to his former wife was nondischargeable pursuant to Section 523(a)(5). The debtor and his current wife subsequently filed for Chapter 13 relief. The debtor listed a $233,400 unsecured, nonpriority obligation to his former wife. The couple's plan recognized that the claim was excepted from discharge, but proposed to pay only 2 percent of it over 60 months. The debtor's former wife, who was 74 years old, objected to confirmation. The court sustained the objec­tion because Section 1322(a)(2) requires full payment of all claims entitled to a priority under Section 507 unless the priority creditor accepts different treatment of its claim. Because the unsecured claim enjoyed priority status as the result of the ruling in the previous case, the plan could not be confirmed over the former spouse's objection.

The bankruptcy court also noted that the debtor-husband had six secured creditors and had very little income available to pay unsecured creditors due to his high level of secured debt.  The bankruptcy court stated that they suspected that his secured debt was purposely structured in this way to avoid paying creditors that he did not want to pay.  Because of this, the bankruptcy court ruled that the bankruptcy repayment plan was not proposed in good faith and that it could even be considered unconscionable.

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