Debtors Can Modify Chapter 13 Plan to Surrender Vehicle

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By Diane Davis

A couple in Chapter 13 can modify their plan by surrendering their vehicle to the creditor and treating any deficiency as an unsecured claim, the U.S. Bankruptcy Court for the Western District of Arkansas held ( In re Loden , 2017 BL 178334, Bankr. W.D. Ark., No. 6:15-bk-70159 Ch. 13, 5/26/17 ).

Modification of a Chapter 13 plan that has been approved by a bankruptcy court is allowed under Bankruptcy Code Section 1329(a)(1) and (a)(3) to reduce the amount of payments on claims of a particular class provided for by the plan, Judge Ben Barry wrote May 26.

Modifications are also allowed to a confirmed plan to alter the amount of the distribution to a creditor whose claim is provided for by the plan to take into account any payment other than under the plan, the court said.

Substantial Change Required?

Some courts have included an additional requirement of a “substantial change in circumstances” for a modification, the court said.

This court could only find two circuit courts that have ruled on the issue, and neither of them required a substantial change in the debtor’s financial condition as a requirement to modify a confirmed plan. Therefore, a substantial change requirement won’t be imposed on the debtors, the court said.

Donald and Stacey Loden’s Chapter 13 plan requires them to pay to the trustee $605 per month, and of that amount, $320 would be paid by the trustee to Arvest Bank for debt on their 2010 Chevrolet Equinox. The Loden’s unsecured creditors would be paid pro rata, so each unsecured creditor is paid the same percentage of its claim.

Chapter 13 allows individuals receiving regular income to obtain debt relief while retaining their property, but to do so they must propose a plan that uses future income to repay all or a portion of their debts over a three- to five-year period.

After their plan had been approved, the Lodens wanted to modify it by surrendering the Equinox and treating any remaining balance that Arvest has after liquidating the vehicle as an unsecured debt to be paid pro rata with the other unsecured creditors.

They also proposed to reduce their monthly payment from $605 to $260.

Arvest objected to the modifications as “not in the best interest of the debtors, creditors, and the bankruptcy estate.” The proposed new plan didn’t allow for the “fair and equitable treatment” of Arvest’s secured claim, it said.

A Feasible Plan

The court found the Loden’s new plan proposed in good faith and feasible. The debtors will be able to make their payments under the plan, the court said. The debtors aren’t significantly changing their current financial obligation under the confirmed plan, the court said.

The Lodens must submit a modified budget within 30 days that shows their obligations under the modified plan, the court said.

Mickel Law Firm, P.A., Little Rock, Ark., represented; Lax, Vaughan, Fortson, Rowe & Threet, PA, Little Rock, Ark., represented Arvest Bank; Center for Arkansas Legal Services, Little Rock, Ark., represented Donald and Stacey Loden; Trustee Jack W. Gooding, Little Rock, Ark., represented himself.

To contact the reporter on this story: Diane Davis in Washington at

To contact the editor responsible for this story: Jay Horowitz at

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