New Court Decision Aids Creditors of Chapter 13 Bankruptcy Debtors

There is good news in a recent court decision for creditors of Chapter 13 debtors.  The U.S. Court of Appeals for the Fourth Circuit ruled late last month that creditors must maintain their repayment plan for 5 years if their household income exceeds their state's median income for comparably-sized households.  In re Pliler, 2014 U.S. App. LEXIS 5746 (March 28, 2014).  In Pliler, the debtors' household income exceeded the North Carolina median for like households, but their Chapter 13 plan nonetheless originally provided for no distribution to their unsecured creditors and would have terminated after 55 months.  The Fourth Circuit agreed with the bankruptcy court that the repayment plan had to last for 5 years because of the higher-than-median income, even though the Debtors' projected disposable income was negative (i.e., their projected future expenses exceeded their projected future income).  The Court based its decision on the plain language of the Bankruptcy Code, but it also made a practical observation: just because the Debtors project that they will not have any money to repay creditors in the future doesn't mean that they won't.  The Court noted that "Chapter 13 debtors can and do benefit from windfalls such as inheritances or other unforeseeable income after plan confirmation but before their Chapter 13 proceedings are closed."  An exception to the Court's ruling would be the rare scenario in which unsecured creditors are to be paid in full before the 5-year mark.  The decision is a victory for plain-meaning interpretation of statutes and closes an avenue that debtors might have used to get a Chapter 13 discharge while not acting in good faith toward their creditors.

Spotts Fain publications are provided as an educational service and are not meant to be and should not be construed as legal advice. Readers with particular needs on specific issues should retain the services of competent counsel.


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