In most Chapter 13 bankruptcies, the debtor makes payments to the trustee for three to five years, and upon completion of the plan, they receive a discharge. In a somewhat unusual case, because a debtor experienced an increase in her income, the trustee was allowed to ask that she amend her plan after completion.
The bankruptcy and district courts refused the trustee’s request, but the Seventh Circuit reversed, noting that the plan modification requiring increased payments would be retroactive to when the trustee filed their motion.
In this case, that was 2013. The appeals court reasoned that because that retroactive increase in the plan payments would mean she was in default at the end of the five years and the bankruptcy court could permit her to cure that default or allow a conversion to Chapter 7.
The trustee discovered the increased income of the debtor because they are authorized to review post-petition tax returns of debtors. This would presumably be for just this purpose, so the trustee could monitor the debtor’s income.
The case is not over, however, because the bankruptcy court also found the facts of the case did not support the trustee’s request. The district court did not consider this ground, it is being returned to that court to examine this issue.
So, if the facts are such that the bankruptcy court was correct, this woman may avoid the need to cure the putative default of her plan payments based on her higher income. For anyone filing a Chapter 13, it should serve as a reminder that your trustee may be reviewing your tax returns during the life of the plan and if you obtain a higher income, you will be obligated to increase your plan payment.
Source: bna.com, “Ch. 13 Trustee Can Amend Plan After Five Years of Payments,” Daniel Gill, June 28, 2016