Too often the changes in our clients’ circumstances are negative and we are looking at cratered cases, conversions or hardship discharges. But this week, changes with a negative tinge held a happier outcome.
It played out in my office this way: debtor calls up to ask if court permission was necessary to short-sell the former family home. The family had long since moved out and moved on when no loan modification was forthcoming. The house was vacant and the mortgage unpaid. Several years remained on the confirmed plan with payments of some $750 a month.
When I revisited why the plan payments were so high for a family with ever changing employment, I found that the liquidation test drove the train. On the numbers in 2008, the home had a fistful of equity. It certainly didn’t have equity now.
So, I set out to amend the claims of exemption, abandoning our efforts to shelter the home and using the available exemptions elsewhere. With the house going to sale or foreclosure, it did not need to be protected in the hypothetical liquidation analysis any longer.
With the amount of the dividend to unsecured creditors in the hypothetical Chapter 7 reduced, the amount of money the clients had paid to the plan already satisfies the liquidation test.
I expect to modify the plan, reduce the plan pot to the amount already paid, and get the clients a discharge now rather than in two years.
Attitudes of decision makers in the Chapter 13 system vary and I can’t guarantee that what works here works elsewhere. But honor the power of § 1328 which provides for modification of confirmed plans. The statute, unchanged by BAPCPA, allows for the reduction of payments on claims, lengthening or shortening of the plan duration, or even lowering plan payments by the cost of health insurance.
Let change prompt a round of fresh thinking about the client’s options.
Image courtesy of Felix Burton and Wikimedia.org.