Fourth Circuit Limits Modifications To Chapter 13 Plans

Haynsworth Sinkler Boyd, P.A.

Haynsworth Sinkler Boyd, P.A.

The Fourth Circuit stands alone currently as the only circuit requiring unanticipated, changed circumstances in order to modify a confirmed Chapter 13 Plan.
The Eleventh Circuit just joined the majority on a circuit split, when, in the late August opinion, the Court of Appeals found that res judicata does not preclude modification of a confirmed Chapter 13 Plan.

The case at issue involved a post-petition attorney’s fee application that was filed post plan confirmation, which resulted in unsecured creditors receiving less money through the plan than they would have at the time of confirmation. The appeals court found that Section 1329 allows for a limited exception to the general rule as long as certain statutory requirements are satisfied and that there was no “reason to add gloss” to Section 1329 by imposing a condition to plan modification.

Lenders should be aware of this distinction because, as it stands now, the Fourth Circuit will not allow post-confirmation modifications unless there has been a change in circumstances, which means that debtors have a hurdle to cross if they seek to modify their confirmed plan and its payments to creditors. However, the majority of other circuits are now allowing debtors to modify confirmed plans without a change of circumstances in certain circumstances, so this will be an issue to watch in the Fourth Circuit.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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