Debtors attempt to cram-down secured loan to “unsecured” status after debtor’s Chapter 13 Confirmation Hearing was denied by Court.

Here, debtor owed a loan to creditor secured by one Mercury automobile.

Debtor’s Chapter 13 repayment plan proposed to cram-down the obligation to the fair market value of the vehicle and repay creditor only $1,125, plus interest, and another ten percent that was scheduled for all unsecured creditors.

After debtor’s repayment plan was confirmed by the court, the vehicle’s engine began to emit excessive smoke, which would require repairs estimated at $1,500.

Debtor filed a motion with the bankruptcy court to modify the plan, surrender the collateral to creditor and treat any deficiency as an unsecured debt.

The court noted that a Chapter 13 plan may be modified after confirmation for limited purposes.

A plan may be modified under Title 11 U.S.C. Section 1329 to permit the debtor to:

(1) increase or decrease the amount of payments on claims of a particular class of creditors; (2) extend or reduce the time for such payments; or (3) to alter the amount of distribution to a creditor whose claim is provided for by the plan, to the extent necessary to take account of any payment of such claim made outside the plan.

The Bankruptcy Code does not provide that a debtor may modify the plan if the value of the collateral securing a debt is diminished after confirmation of the repayment plan.

This court held that once a repayment plan is confirmed to repay a secured creditor, debtor cannot later modify the plan and propose a lesser repayment to the secured creditor simply because the value of the collateral becomes diminished. In re Banks, 161 B.R. 375.

EDITOR’S COMMENT

The case above disallowing debtor to modify a confirmed Chapter 13 case could also be extended to prevent a debtor from post confirmation modification to decrease payment to a secured creditor where the collateral has been stolen or destroyed.

Author:  Charles R. Harroun, Attorney at Law