Bloomberg Law’s® Bankruptcy Law News publishes case summaries of the most recent important bankruptcy law decisions, tracks major commercial bankruptcies, and reports on developments in bankruptcy...
Bankruptcy courts aren’t compelled to dismiss a Chapter 13 case if debtors fall short of meeting the deadline for paying creditors under a court-approved plan, a federal appeals court ruled ( In re Klaas , 2017 BL 183952, 3d Cir., No. 16-3482, 6/1/17 ).
Bankruptcy courts have the discretion to allow debtors to cure, or remedy, any default in their repayment plan, which usually gives them between three and five years to wipe out their debts, the U.S. Appeals Court for the Third Circuit held June 1.
It ruled on a question previously not considered at the appellate level—whether the maximum five-year plan period imposes a drop dead date for making payments.
In this case, the bankruptcy court was well within its authority to grant a brief grace period after the payment plan expiration in order to get things wrapped up if debtors were willing and able to do so and the extension didn’t harm creditors, the appeals court said.
In Chapter 13, a debtor’s plan to resolve outstanding debts uses future earnings to cover claims against the estate.
Here, the debtors failed to remit sufficient funds over five years because of an increase in fees paid to the bankruptcy trustee. They were informed of the shortfall after the plan term expired, but were granted a grace period to cure the shortfall, which they did.
When all payments were completed, the debtors were discharged of their debts.
But a creditor argued that the debtors had no right to extend their payments. Their case should have been dismissed because the maximum five-year term under the plan imposed a firm date to complete payments.
The Third Circuit went out of its way to say that a debtor has no absolute right under the bankruptcy law to cure a shortfall after the time limit for paying up has passed. But, again, noted that bankruptcy courts do have discretion.
The appeals court drew a distinction between the Bankruptcy Code’s prohibitive and permissive language. The court “may not” confirm a plan or changes in a plan that propose a payment term greater than five years. But once a plan is in place, the court “may” but is not required to dismiss a case for cause under Section 1307 of the Bankruptcy Code.
The criteria for plan confirmation differs from the criteria for dismissal.
Paul E. and Beth Ann Klaas were represented by Phillip S. Simon, Pittsburgh. Aurelius P. Robleto, Pittsburgh, represented creditor Elizabeth Shovlin.
To contact the reporter on this story: Deborah Swann in Washington at email@example.com
To contact the editor responsible for this story: Jay Horowitz at JHorowitz@bna.com
Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to firstname.lastname@example.org.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to email@example.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)