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Bankruptcy trustee joins in seeking Supreme Court review of Ch. 13 case

The bankruptcy trustee in a chapter 13 case that has been appealed to the United States Supreme Court recently joined the request for the high court to review the issue. Although the bankruptcy case arose in a neighboring state, the appellate court ruling has a direct bearing on Ohio residents, as the ruling at issue was rendered in the U.S Court of Appeals for the Sixth Circuit, which governs in Ohio.

The chapter 13 bankruptcy issue involves the duration of a chapter 13 payment plan. Generally, a chapter 13 plan runs between three and five years. A Michigan couple filed for bankruptcy in 2008 and after calculating the payment plan, the numbers show that the couple had a negative amount of monthly disposable income after taking out the allowable monthly household expenses available under the bankruptcy laws.

The bankruptcy court and the appellate court have ruled that despite the futility of requiring the couple to remain under the jurisdiction of the court, the debtors must continue to pay for five years because they have a monthly household income of more than $7,000.

The Sixth Circuit appellate decision creates a three way split among federal appellate courts. Generally, debtors who have a monthly income in excess of the median household income in their state must remain in a chapter 13 bankruptcy for 60 months, or five years. A number of federal jurisdictions, however, allow for an exception for debtors whose monthly disposable income after deducting allowable expenses falls into the negative category.

The exception is basically based upon the idea that the extra two years of bankruptcy court jurisdiction provides no benefit to the creditors. The Michigan couple argued to the federal appellate court that the bankruptcy laws do not require them to remain under the bankruptcy court jurisdiction for the full five years, and even if the law does impose a minimum five year term, it should not apply to debtors who have no projected disposable income.

The bankruptcy court originally ruled that the couple must remain in their chapter 13 plan for five years because the couple has a monthly household income in excess of the median income for the state. A federal district court reversed that ruling, which was reinstated on appeal to the Sixth Circuit.

The bankruptcy trustee overseeing the case that argued in favor of the five year plan has now joined in asking the Supreme Court to resolve a conflict between the findings of different circuit courts of appeal in the country, and bankruptcy judges in states that have not had a federal court of appeals decide the question in their circuit.

The bankruptcy trustee recently filed legal documents with the Supreme Court that reportedly states, "Where the courts of appeals disagree, generating a three-way circuit split, is whether above-median-income debtors ... must propose five-year plans where they have zero or negative disposable income."

Source: Thomson Reuters News and Insight, "Trustee asks Supreme Court to resolve payment-plan dispute," Dec. 5, 2011

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