NJ Law Changes For Modified Plans in Bankruptcy Explained
The explanation below relates to the handling of certain debt related to a New Jersey chapter 13 modified bankruptcy plan. The specific type of debt effected by the new law is connected to collateral, which includes auto financing, auto lease, house mortgage, and residential lease. The explanation below refers to all types of the above listed debt as “certain debt”. Also, the explanation below works the same for all types of collateral related to “certain debt”.
A chapter 13 plan may surrender an auto or house and eliminate the mortgage and/or auto finance and/or lease debt. Also, a chapter 13 plan can reject a residential lease and eliminate the lease debt. All of the above may be accomplished by way of an original plan that has never been modified. Until recently, a debtor could file a modified plan and eliminate “certain debt” by filing a modified plan, without issue. However, recently, a New Jersey bankruptcy judge determined that if a prior confirmed plan reflected that a debtor is keeping property associated with “certain debt”, and then files a modified plan to surrender the collateral, the debtor may be required to pay some money to the creditor.
For example, a debtor filed a plan which reflects that he is keeping his auto by paying the regular monthly payments to the auto lease company. The plan is confirmed by a bankruptcy court order. Thereafter, he wishes to surrender the auto through a modified plan. Previously, any auto payment arrears after the confirmed plan would not affect the debtor’s ability to file a modified plan and eliminate all of the debt.
However, recently, a New Jersey bankruptcy judge determined that, under certain circumstances, the subsequent modified plan would require the debtor to pay the total amount of the default to the creditor though the subsequent modified plan. The total amount that must be paid is the amount of the payment default after the confirmation of the first plan, through the date of the vehicle return /repossession, or confirmation date of the subsequent plan. Also, the above explained amount must be paid through the modified plan only if the creditor files the appropriate documents with the court after the debtor provides the proper notice to the creditor. Although this law, in theory, applies to mortgages, it is very unlikely that the law will apply to mortgages, as the mortgage company will be unable to file the proper documents with the court.
The analysis below explains why a determination of one New Jersey bankruptcy judge may not apply to any other bankruptcy judges. A New Jersey bankruptcy court published or non published decision is not binding on any other bankruptcy court judge. This means that if a bankruptcy court judge makes a determination based on his interpretation of the bankruptcy code, no other bankruptcy judge is required to comply with such a determination. Each bankruptcy judge is permitted to interpret the bankruptcy code differently, with a different result, unless the same law and legal application had been decided by a higher court. An example is when the same situation had been decided by an appellate court in the same federal circuit.
Robert Manchel, the bankruptcy attorney in New Jersey, may be contacted at (866) 503-5655.