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Judge refuses to confirm Chapter 13 payment plan

Kentucky residents who file a Chapter 13 bankruptcy petition are expected to submit a proposal detailing how their income will be applied to their outstanding debts over a period of three to five years. These proposed payment plans do not go into effect until they have been reviewed and confirmed by the court, and bankruptcy judges sometimes raise questions even when creditors do not. This happened earlier in March when a judge in Louisiana refused to confirm the plan submitted by a married couple because he thought the amount being devoted to their retirement needs was excessive.

The judge's ruling suggests that the couple did not help their cause by amending their plan several times. The judge also revealed that questions about the couple's integrity were not adequately addressed by the testimony he heard. The couple's plan had withstood the scrutiny of a bankruptcy trustee, but the judge felt that the creditors involved were not getting enough.

He concluded that devoting 3 percent of income toward retirement needs was reasonable. The couple's plan had allocated six times this amount. When making his ruling, the judge acknowledged that saving for retirement was almost universally regarded as being a prudent financial strategy.

The nation's bankruptcy laws were written to provide debtors with second chances, but the process contains checks and balances to identify those seeking to take advantage of the system. Attorneys with debt relief experience may understand that judges expect Chapter 13 payment plans to be essentially fair to the creditors involved, and they could bear this in mind when drafting these documents.

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