A new case, In re Flores, was decided just recently here in the 9th Circuit Court of Appeals (the federal courts for the furthest west states) that makes Chapter 13 much better for debtors who make more money than the median income in their state under some circumstances. That’s the court just below the U.S. Supreme Court.
The issue started with the Chapter 13 Means Test. Some over the median income debtors (for example — a single person making more than $49,000, a household of 2 making more than $63,000 etc.) had to pledge five (5) years of repayment to get a discharge even if the Means Test did not show they had to repay general unsecured creditors anything. This is sometimes called a “negative disposable monthly income.”
This negative DMI doesn’t happen in every case, but it happens frequently enough.
Those higher income and negative DMI Chapter 13 Debtors have to pay just what their own budget shows is left over at the end of the month, not what the Means Test forces them to pay to general unsecured creditors.
However, the issue Flores decided was whether these folks have to propose a five year plan or whether 3 years or something in between was OK.
The law for over-the-median income debtors used to be somewhat fuzzy, but now it is crystal clear: Over the median Chapter 13 Debtors are no longer forced to go the full five year route and can propose as little as a three year plan.
This creates a huge amount of flexibility for a very significant number of Chapter 13 Debtors.
Nancy Clark argued it (she’s a local hero at the cdcbaa, a local professional group here that I belong to) and an attorney at NACBA wrote the brief. I applaud their effort.
Make sure if you’re considering a Chapter 13 that your lawyer knows about this case. If you’re a negative DMI case, the difference could mean thousands if not tens of thousands of dollars to you.