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Supreme Court decision impacts Chapter 13 bankruptcy

A recent ruling by the U.S. Supreme Court could have a significant impact on the bankruptcy cases of many California residents. The unanimous ruling states that individuals who file for bankruptcy cannot make an immediate appeal of a court's rejection of a Chapter 13 debt repayment plan. For those in California who are planning to seek bankruptcy protection, the case should be taken into consideration when creating a repayment plan to present to the Bankruptcy Court.

Chapter 13 bankruptcy is a financial tool that allows consumers to restructure their existing debt into a more manageable form. Part of that process involves the creation of a repayment plan, through which consumers make regular installment payments toward outstanding debts. Having bankruptcy protection in place while the repayment period is in effect shields the debtor from collections efforts, foreclosures or repossession of property. In effect, it provides a measure of "breathing room" during which individuals can regain their financial footing.

In order for the Chapter 13 process to succeed, consumers must create a plan for repayment and have that plan approved by the bankruptcy court. In the case that recently made its way through appeals, the debtor in question was trying to gain approval for a repayment plan that would only repay a small fraction of the total amount owed to creditors. As such, the plan was denied, and the individual sought to appeal that decision. The high court, however, ruled that no immediate appeal can be made unless the a confirmed payment plan was in place.  

This means that consumers in California and elsewhere who are working to create a repayment plan should make every effort to present the court with a plan that demonstrates a desire to repay existing debts in a timely manner. Should the court deny one's Chapter 13 bankruptcy plan, a new plan would need to be drafted before the process could move forward. Because most people who file are eager to move forward with the debt repayment process, this ruling should be taken into consideration when devising a plan to meet that goal.

Source: The Wall Street Journal, "Supreme Court Rejects Homeowner's Bankruptcy Appeal", Patrick Fitzgerald, May 4, 2015

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