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Retroactive alteration of confirmed plan payments disallowed

The bankruptcy processes in Michigan and across the country are governed by federal law. With some important exceptions, Chapter 13 is basically a uniform code for all of the United States. A bankruptcy trustee in Texas retroactively adjusted confirmed Chapter 13 plan payments in 25 cases. In an opinion issued in April, a U.S. bankruptcy court judge called the actions disturbing and shocking.

The Texas trustee’s retroactive adjustments violated the rules for Chapter 13 bankruptcy, according to the judge. Chapter 13 debtors are required to agree to a plan to make payments to creditors from future income, and the plan must be approved by the court. A typical plan will provide that, if there is a difference between the amount of an allowed claim and the amount listed in the plan, the allowed claim is adjusted to meet the terms of the plan.

The trustee applied the amounts of the creditors’ allowed claims rather than the amounts listed in the debtors’ plans, and applied them prospectively and retroactively. Many of the debtors in the 25 cases affected were knocked into delinquency.

It would have been correct for the trustee to pay the amount listed in a proof of claim, but the court said it was impermissible to retroactively make changes to payment arrangements of approved plans. The plans are designed largely to protect the debtors. An attorney with experience in bankruptcy law may be able to help interested parties choose between the different debt relief avenues available. Chapter 13 bankruptcy can provide protection from creditors for those who have sufficient, reliable income. An attorney may be able to help by drafting and filing the documentation necessary to begin a bankruptcy action or by representing a debtor during proceedings with creditors and the trustee.