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New court case may limit Chapter 13 options

A recent appeal by a Massachusetts homeowner failed to garner a sympathetic ear from the Justices on the United States Supreme Court. The High Court held, like the intermediate appellate court, that the laws of the United States did not give the Court the right to hear the case.

The man filed a Chapter 13 bankruptcy and, as required, proposed a repayment plan. The man was behind on his mortgage, and the value of his house had declined. The man therefore proposed in his plan to pay back some of a mortgage as if it were both a secured and unsecured debt. A secured debt is much like a house or car loan in which a debtor puts up collateral. The debtor also offered to pay the balance of his loan as if it were unsecured, that is, like a credit card or medical bill.

The man's bank, quite naturally, objected because the man's proposed arrangement would likely leave the bank with a huge shortfall with respect to payments. The judge agreed with the bank, and the man appealed. However, because disapproval of Chapter 13 bankruptcy plans are not considered final decisions, the appeals court declined to hear the appeal. The Supreme Court agreed with this result.

As it stands right now, the law is that if a debtor fails to get his or her Chapter 13 plan approved, then he or she can either try again or simply forget about filing a Chapter 13 bankruptcy. This means that the local bankruptcy judge has a great deal of power to decide what sort of Chapter 13 repayment plans he or she will approve.

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