Enacted on March 27, the CARES Act amended Section 1329 by allowing chapter 13 debtors to extend their plans for up to seven years if they have experienced “material and financial hardship” as a consequence of the pandemic.
But if the debtors were already behind in their plan payments on March 27, may they amend their plans under the CARES Act?
In her October 6 opinion, Bankruptcy Judge Meredith S. Grabill of New Orleans said the answer is “yes.” She held that “the CARES Act allows modification of a confirmed plan if a debtor is experiencing or has experienced a material financial hardship due to the coronavirus pandemic, regardless of whether the debtor was current in his or her payments prior to the pandemic or whether the material financial hardship is solely caused by the pandemic.”
The CARES Act Adds Section 1129(d)
Section 1113(b)(1)(C) of the CARES Act, Pub. L. No. 116-136, amended Section 1329 of the Bankruptcy Code by adding subsection (d). “[F]or a plan confirmed prior to the date of enactment of this subsection,” it allows someone experiencing “a material financial hardship due, directly or indirectly to the . . . pandemic,” to modify a chapter 13 plan to provide for payments up to a period of no more “than 7 years after the time that the first payment under the original confirmed plan was due.”
In several cases before Judge Grabill, the debtors were in default on their chapter 13 plan payments before March 27. They filed motions to amend their plans under Section 1329(d).
The chapter 13 trustee objected, because they were in default before March 27.
Judge Grabill said that Section 1329(d) contains two requirements: (1) The debtors must have confirmed a plan before March 27; and (2) the debtors must be experiencing financial hardship directly or indirectly due to the pandemic.
She said the trustee wanted to add a third requirement: The debtors “must have been current on their plan payments prior to March 27.”
‘13’ Is Already Difficult
Before answering the question directly, Judge Grabill observed that two-thirds of chapter 13 debtors default on their plans and never receive discharges. She quoted Chief Bankruptcy Judge David R. Jones of Houston for saying that debtors succeed in chapter 13 only if they have steady or increasing income and encounter no significant, unanticipated financial setbacks.
Judge Grabill also observed that the Fifth Circuit does not require chapter 13 debtors to show hardship or substantial change to modify a confirmed plan under Section 1329(a). In re Meza, 467 F.3d 874 (5th Cir. 2006).
Focusing on Section 1329(d), Judge Grabill asked “whether the statutory language of the Cares Act requires debtors to have been current in their plan payments as of March 27, 2020, as a prerequisite to obtaining a plan modification under this subsection.”
Judge Grabill said that Section 1329(d) is “unambiguous” and requires debtors to show “a material financial hardship,” unlike Section 1329(a). Otherwise, “nothing in the text of the Cares Act forecloses the relief available under Section 1329(d) to those Debtors simply because they were behind in plan payments prior to March 27, 2020.”
Judge Grabill overruled the trustee’s objections and said she would approve the debtors’ plan amendments unless the trustee files objections to other aspects of the plans.
Enacted on March 27, the CARES Act amended Section 1329 by allowing chapter 13 debtors to extend their plans for up to seven years if they have experienced “material and financial hardship” as a consequence of the pandemic.
But if the debtors were already behind in their plan payments on March 27, may they amend their plans under the CARES Act?
In her October 6 opinion, Bankruptcy Judge Meredith S. Grabill of New Orleans said the answer is “yes.” She held that “the CARES Act allows modification of a confirmed plan if a debtor is experiencing or has experienced a material financial hardship due to the coronavirus pandemic, regardless of whether the debtor was current in his or her payments prior to the pandemic or whether the material financial hardship is solely caused by the pandemic.”
The CARES Act Adds Section 1129(d)
Section 1113(b)(1)(C) of the CARES Act, Pub. L. No. 116-136, amended Section 1329 of the Bankruptcy Code by adding subsection (d). “[F]or a plan confirmed prior to the date of enactment of this subsection,” it allows someone experiencing “a material financial hardship due, directly or indirectly to the . . . pandemic,” to modify a chapter 13 plan to provide for payments up to a period of no more “than 7 years after the time that the first payment under the original confirmed plan was due.”
In several cases before Judge Grabill, the debtors were in default on their chapter 13 plan payments before March 27. They filed motions to amend their plans under Section 1329(d).
The chapter 13 trustee objected, because they were in default before March 27.