Bankruptcy Questions Answered

How To Modify Bankruptcy Plan When Debtor Acquires New Debt During Plan Term

In my office we learn something new every week. One of our Chapter 13 bankruptcy clients was paying a confirmed Chapter 13 plan. The plan included payments of the debtor’s car lease. Last month, the debtor called us to explain that his car lease was over the end of April, he wanted to turn the car in, and asked if he could buy an inexpensive replacement vehicle.

The general rule is that a Chapter 13 debtor cannot incur any new debts during a Chapter 13 plan without Trustee permission. We explained this debtor’s situation, and the Trustee told the Debtor he could buy a new car as long as the car loan payments were equal to or less than the current lease payments so that the unsecured creditors would receive no less money in the Chapter 13 plan. The debtor bought the new car.

We asked the Chapter 13 Trustee office what we needed to do with the Chapter 13 plan to show the new car payment.. They told us to file a motion to approve a modified plan with new car payment amount  being made through the modified plan. We prepared a modified plan, the debtor signed it, and we filed it with the bankruptcy court. Today, the same Chapter 13 trustee office told us that upon further review they had provided some misinformation.

Here is what the Chapter 13 debtor needs to do in situations like that of this client. Debts incurred during the Chapter 13 case with Trustee approval must be paid by the debtor outside the bankruptcy plan. This means that the debtor writes a separate monthly payment to the car lender. The debtor also would file a plan modification that removes the lease payment from the plan. Otherwise, the debtor would not have enough money to pay for the new car because he would be paying the bankruptcy trustee the old car lease payment as well.

Chapter 13 cases can be complicated. Each debtor has a somewhat unique situation, and the issues sometimes stump experienced attorneys as well as trustee office administering these bankuptcies.