Early Completion Of A Chapter 13 Bankruptcy Plan

In what can only be described as an unusual move, the six judges of the Bankruptcy Court for the Northern District of Texas have jointly released an opinion on when a debtor can pay off a chapter 13 plan prior to its scheduled completion date under BAPCPA. In re Howard L. McCarthy, Jr., No. 06-40127-DML-13 (Bankr. N.D. Tex. – en banc – 6/11/08). The judges ruled that absent modification of the plan to increase the payments or bad faith by the debtor, that the court must enter a discharge once payments are completed.

In this case, the Debtor had above median income and was required to file a 60 month plan. The Court confirmed a plan providing for payments of $49,260. This payment would pay about 60% of the unsecured claims. The Debtor had to pay more than the amount of his disposable income in order to satisfy the chapter 7 liquidation test. After six months, the Debtor sold his non-exempt real estate pursuant to court order and paid the proceeds to the Trustee. The Debtor continued to make his regular monthly payments. After 21 months, he had paid $49,260 into the plan and the Trustee filed a notice of completion of payments. The Debtor then filed a motion for entry of discharge, which the Trustee opposed.

The Court found that the case did not turn on the definition of “applicable commitment period” under 11 U.S.C. § 1325(b). Instead, the Court found that the result was dictated by 11 U.S.C. § 1328(a). As stated by the Judges, “Much of the focus of the Parties and the Amici in their briefs and at oral argument was on the question of whether the ‘applicable commitment period’ provided for in section 1325(b) of the Code, in Debtor’s case 60 months, serves as a temporal requirement for the duration of a chapter 13 case or is simply a multiplier to be used to determine a minimum amount a debtor’s plan must provide for unsecured creditors. A number of courts have struggled with this question arriving at diverse conclusions. . . . In the case at bar, however, we are not required to reach or decide that issue. Rather, the Motion poses the easier question of whether Debtor is entitled to a discharge under section 1328(a) of the Code.