In a recent case, a federal appeals court determined that the Bankruptcy Code allows a bankruptcy court to grant a short grace period after the expiration of a Chapter 13 debtor’s payment plan to complete the payment of a debt. In the case, the debtors had filed a Chapter 13 bankruptcy petition, and the court approved their repayment plan. Their plan required payments of $2,485 every month for five years. Later, the monthly payment increased to $3,017 because of an increase in mortgage payments. They made all of the required payments, and at the end of the five-year period, they had paid $174,104, surpassing their original anticipated plan base of $174,059.24.
Despite this, the trustee alleged that they still owed another $1,123—but the trustee said that she would not object to the debtors paying off the remaining debt. The debtors paid the remaining debt within 16 days. However, after the payment, one creditor argued that the late payment was invalid because the Bankruptcy Code requires all payments to be made within five years.
The court held that bankruptcy courts can grant a reasonable grace period for debtors to cure an arrearage. The court identified a non-exhaustive list of factors to consider in deciding whether to grant a grace period. They were: 1) whether the debtor substantially complied with the payment plan; 2) the debtor’s ability to complete the plan; 3) whether an extension would prejudice any creditors; 4) whether the debtor was to blame; and 5) the availability of other remedies.