Regarding chapter 13, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) in part allows chapter 13 debtors experiencing a material financial hardship as a result of the COVID-19 pandemic to modify the length of their bankruptcy plan to a maximum of 84 months [1], up to an additional 24 months if the plan was initially set at 60 months, or up to 48 months for those debtors in previously confirmed 36-month plans. One of the caveats to this Code amendment by the Act provides that a plan sought to be modified must have been confirmed before March 27, 2020, the date that the CARES Act was enacted. Most plans in the Western District of Tennessee’s Western Division in Memphis are set at 60 months.
Memphis has a large consumer case load. Together, the courts, trustees and counsel for both creditors and debtors are working hard to assist debtors during these unprecedented times. The fact that these professionals truly “care” is demonstrated by examining the high percentage of extension plan modifications granted in favor of chapter 13 debtors in the Western District of Tennessee’s Western Division in Memphis.
To qualify for the CARES Act modification, the debtor must demonstrate some material financial hardship suffered as a direct or indirect result of COVID-19. [2] In practice, this is a very subjective standard and relatively simple to meet. Generally, these motions come in the form of the debtor filing a pleading for relief, stating a material hardship related directly or indirectly to COVID-19. This assertion is typically evidenced by a lack of plan payments or verification of job loss. It remains unclear what a majority of courts consider to be a material financial hardship when evaluating these modification requests; however, there has been little opposition by the trustee and creditors in the Western District of Tennessee. Creditors or any party of interest are permitted to file a response or objection to any modification sought. Without opposition, the courts grant these motions to extend debtors’ repayment plans up to a maximum of seven years.
As previously mentioned, the major limitation of this CARES Act amendment is that CARES Act § 1113(d)(1) requires that the plan must have been confirmed prior to the enactment of the CARES Act. Consequently, this amendment only provides relief to chapter 13 debtors operating under a confirmed plan as of March 27, 2020, and does not address cases filed after that date. [3] For any case filed before the enactment of the CARES Act but not confirmed until after March 27, 2020, § 1329 as unamended by the Act is still applicable, barring an extension past the regular 60-month term.
To date, my office has received approximately 147 extension modification requests filed by debtors. The court granted approximately 81 of those with no trustee or creditor opposition. Twenty extension plan-modification requests have been denied by the court to date that resulted in the debtor converting to chapter 7. The remaining 45 extension modification requests that were not granted resulted in chapter 13 plans that were eventually dismissed, either voluntarily by the debtor or upon the trustee's motion, with only one such modification being withdrawn by the debtor. In that particular case, the debtors were not able to sufficiently demonstrate that a material financial hardship had occurred in their pleading and were perceived simply as seeking a lower payment over an extended term.
In reaching the determination in that case, our office objected to the modification upon seeing no evidence produced by the debtors claiming the hardship. Although it is conceivable that a financial hardship could have existed, the debtors failed to demonstrate such, and their third-party payment order plan payments were current. Debtors’ counsel in that matter withdrew the motion before a contested hearing in front of the bankruptcy judge. Therefore, although meeting the subjective standard of demonstrating some material financial hardship suffered seems relatively easy, debtors are encouraged to present factual documentation to support the inferences in modifications requesting plan term extensions under this section of the CARES Act.