Under an amendment to the Bankruptcy Code triggered by the CARES Act, Chapter 13 debtors are permitted to extend their Chapter 13 plan terms from a maximum of five (5) years to seven (7) years, but only if their Chapter 13 plan was “confirmed” prior to the enactment of the CARES Act (March 27, 2020).
Many debtors have sought to avail themselves of this provision as it gives them more time and flexibility to fund their plans. For example, the CARES Act amendment affords debtors two (2) additional years to cure pre-bankruptcy mortgage arrears.
In the case of In re Roebuck, the issue was whether the local custom of an “interim confirmation order” counts as “confirmation” within the CARES Act amendment. While the exact payment mechanics for Chapter 13 cases vary from jurisdiction to jurisdiction, in the Western District of Pennsylvania, the debtor is required to make all Chapter 13 plan payments to the Chapter 13 Trustee, who is responsible for distributing those funds to creditors in accordance with a confirmed Chapter 13 plan. In most situations, however, a plan will not be confirmed for several months at minimum after the case is filed, and since the Chapter 13 Trustee cannot distribute funds until a plan is confirmed, there is often an unavoidable delay in transmitting payments, leaving creditors waiting for payment while money earmarked for them sits in a bank account.
In an attempt to address the above, the Bankruptcy Court for the Western District of Pennsylvania generally issues an “interim confirmation order” which authorizes the Chapter 13 Trustee to begin making payments to certain creditors pending the entry of a “final” confirmation order. This mechanism allows creditors to begin receiving payments much more quickly than they otherwise would.
In Roebuck, the debtor argued that an “interim confirmation order” was sufficient to trigger his right to extend his plan term under the CARES Act, even though no “final” confirmation order had been entered prior to March 27, 2020. The Chapter 13 Trustee supported the Debtor’s request. However, the Court ruled that “…interim confirmation in this district is simply not confirmation under section 1325 [of the Bankruptcy Code].” Among the reasons for the Court’s ruling was that objections to the plan were not due until after the interim confirmation order was entered, and that while referred to as an interim confirmation order, such orders are “merely a form of adequate protection.” The Court noted that “calling an elephant a giraffe does not make the animal any less of an elephant.”
While the Court recognized that its decision might seem inequitable, it concluded that Congress drew a bright line requiring that confirmation under Section 1325 of the Bankruptcy Code occur prior to March 27, 2020 in order to trigger the plan term extension provisions of the CARES Act, presumably to ensure that the extension provisions could only be used by debtors whose plans had been confirmed prior to the onset of the pandemic. The upshot of the Court’s ruling is that fewer Chapter 13 debtors will be able to extend their plan terms beyond five (5) years.