If you are currently in an active Chapter 13 bankruptcy case, this announcement is EXTREMELY important to you! There have been new case law developments in Colorado that could have a huge impact on your ability to get a discharge in your Chapter 13 case. There are two recent legal theories that you should be aware of:
The first only applies to Chapter 13 debtors who have home mortgage loans. Historically, as long as you made all your Trustee payments you would get a discharge at the end of your Chapter 13 case. If you were behind on your mortgage loans you would still get a discharge and then you could attempt to work something out with your lender. However, several years ago there were some changes made to the Federal Rules of Bankruptcy Procedure that required the Chapter 13 Trustee to inquire whether the mortgage payments had all been made during the life of the plan. Ironically, these rule changes were intended to help the debtors (mortgage lenders were adding on BS fees during the life of the plan that the debtor was unaware of). Well, what eventually happened because of this rule change is a local Chapter 13 Trustee started contesting the discharge for a debtor who was not "substantially current" with their mortgage loan at the end of the Chapter 13 case. The Trustee's position was that the mortgage payments that were supposed to be made outside of the plan (after filing) were required payments of the plan and that the debtor did not honor all required terms of the plan when they fell behind on the mortgage payments. The Courts agreed. YOU CAN NO LONGER GET A DISCHARGE IN A CHAPTER 13 CASE IF YOU ARE NOT CURRENT WITH YOUR POST-PETITION MORTGAGE PAYMENT(S) AT THE END OF THE PLAN! If you are currently in a Chapter 13 and looking forward to that date "when this is all behind" you, you better make sure you are current with all your mortgage obligations when you get to the end of your plan! If you are not, no Chapter 13 discharge for you!
The second recent issue applies to ALL Chapter 13 debtors. A Chapter 13 plan can be no less than three years and no more than five years. In a recent opinion, one of our local judges refused to allow a final payment to complete a Chapter 13 plan that was to be made several months after the expiration of the five year period. As the debtor couldn't make this final payment to complete the plan, the debtor wasn't allowed a Chapter 13 discharge and had to convert to Chapter 7 (which can have numerous negative consequences). Practically speaking, it's fairly common for a debtor to make the final payment(s) outside of the five year period. Over the course of five years, a few payments can get missed and overlooked. It happens... Historically, nobody cared if the final payment was made a few months late or so since no creditors were harmed and nobody objected. That is no longer that case! This recent issue is just another example of how difficult it is getting to successfully complete a Chapter 13 plan. IF YOU ARE IN A CHAPTER 13 CASE, YOU BETTER STAY CURRENT WITH ALL PAYMENTS AND IF YOU ARE COMING TO THE END OF YOUR PLAN, YOU SHOULD CONTACT THE TRUSTEE TO MAKE SURE YOU ARE "ON SCHEDULE" TO COMPLETE YOUR PAYMENTS ON TIME!
Chapter 13 is complicated! If you are in an existing case, contact your attorney to make sure you are on the right path to discharge! If you are considering filing for Chapter 13, make sure you have competent legal counsel to help you navigate this mine field!