Two debtors filed for Chapter 13 Bankruptcy a few months after purchasing two new cars. The debtors purchased the two cars on credit, and each had outstanding loans that would be due at the end of the 60-month bankruptcy plan. When creating their proposed repayment plan for their bankruptcy filing, the debtors included payments on the car loans that were significantly larger than what they were contractually required to pay each month. This meant that, under the debtors’ proposed plan, less funds would remain to pay any unsecured creditors over the course of the Chapter 13 plan. The Chapter 13 trustee objected to this payment plan, arguing that it improperly calculated monthly debts. The debtors argued that the cars had to be paid in full during the bankruptcy plan under the “910 Claims” rule; thus, the accelerated and higher payment schedule for the cars.
In In Re Page, 658 B.R. 178 (Bankr. E.D. Wash. 2024), the court not only rejected the debtors’ proposed repayment plan but also found bad faith on the debtors’ part, causing the entire Chapter 13 case to be dismissed. The court first examined the 910 Claim (known as the “Hanging Paragraph” to Bankruptcy Code § 1325(a)) to determine if it required that a loan with a repayment plan ending after the Chapter 13 plan must be re-amortized to be fully paid off within the plan’s timeline. The court examined the purpose of the Hanging Paragraph and determined that it was enacted to prevent the splitting of car loans into secured and unsecured portions; in other words, protecting creditors from only being able to recover the actual value of the car in lieu of the amount of the car loan. The court found that the Hanging Paragraph had nothing to do with causing a loan to be re-amortized and that the debtor’s plan should have included the contractual repayment amount for the car, not the higher re-amortized amount. The court reasoned that allowing the higher payment amount would harm the unsecured creditors while simultaneously granting a windfall to the car loan creditors by providing an earlier payoff. Next, the court mentioned the good faith requirement required by the debtors when creating their repayment plan. If it is found that a debtor “misrepresented facts in his plan, unfairly manipulated the Bankruptcy Code, or otherwise proposed his Chapter 13 plan in an inequitable manner,” a court can deny the plan or throw out the case entirely. Here, the court reasoned that the debtors had acted in bad faith by inappropriately adjusting the repayment amounts in their plan. Instead, the court reasoned that the debtors should have entered the regular repayment amounts into the plan and proposed adjustments in a later section of their plan, consistent with other Chapter 13 plans. Thus, because the plan was not confirmed and the case had been pending for too long (to the detriment of the creditors), the court dismissed the debtors’ Chapter 13 case.
By Maycee Redfearn [email protected]
Edited By Ashley Boyce [email protected]
Edited By Hayden Mariott [email protected]