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Judge rules trustee cannot retroactively change payment plan

Based on a case that occurred in another state, a bankruptcy trustee in Florida is unlikely to be allowed to retroactively change a Chapter 13 payment plan so that it matches an allowed creditor's claim. A judge for the U.S. Bankruptcy Court for the Southern District of Texas ruled that a trustee did not have the right to make these changes in 25 cases. In some cases, the changes put the debtors in arrears with their mortgage.

A Chapter 13 plan allows debtors to use their income to pay back creditors over three or five years and keep their assets. The plan is approved by the bankruptcy court, and the trustee supervises the payments. For home mortgage payments, a trustee must distribute the amount shown in the approved claim and not in the payment plan. However, this adjustment is supposed to be forward looking, and there is not supposed to be a change in the original payment plan.

In these cases, the lenders filed claims after the plan was approved, and there were no objections to their claims. The court agreed that the trustee was required to pay the amount in the claims and not the payment plan but ordered the trustee to restore the plans to their original form.

A person who is struggling with debt but who has a regular source of income might qualify for a Chapter 7 bankruptcy. Unlike Chapter 7, this type of consumer bankruptcy does not require a liquidation of non-exempt assets, and as part of the plan it could allow homeowners to catch up on their mortgage delinquencies. An attorney can describe some of the other benefits of this form of debt relief.

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