CHAPTER 13 PLAN CONFIRMATION THE TRUSTEE’S ROLE
The Chapter 13 Trustee’s role in the confirmation procedure is to recommend confirmation of debtor’s plans where the debtors and their plan comply with all the applicable code provisions; or to seek dismissal in those cases where the debtors are not in compliance.
In most cases the Trustee first advises the debtor and their counsel of his (or her) objections to the plan at the §341 meeting; the trustee may also request amendments to schedules and forms at that time as well.
In routine cases, where the debtor has not made the required plan payments or the debtor has failed to amend their plan and or schedules the Trustee will simply seek dismissal for failure to pay or amend rather than file an objection to confirmation. In cases where the disagreement is over interpretation of the statute the Trustee will write a formal objection leading to a written opinion resolving the issue.
COMMON CONFIRMATION ISSUES
Best Interest of Creditors Test. Section 1325(a)(4) requires the debtor to propose a plan that pays unsecured creditors at least the amount they would be paid in a Chapter 7 liquidation. The most common assets that trigger this code provision are real estate and automobiles. The Chapter 13 Trustee always reviews the debtor’s schedules for assets and performs this calculation prior to the §341 meeting. If the best interest test applies the Trustee will look to section H of the debtor’s plan to see if the debtor’s is in
compliance. To be in compliance the debtor must pay an amount equal to the net (of transaction costs and Chapter 7 Trustee fees) non exempt equity in their property to the unsecured creditors. If the result of this test is that all unsecured creditors must be paid in full then the plan must pay interest to those creditors to compensate them for waiting up to sixty months to receive that payment.
Secured Creditors Object. Section 1325(a)(5) and the unnumbered paragraph after §1325(a)(9), (along with §1322(b)(2)(3)(5) and §1322(c)) govern what the debtor’s plan must provide to secured creditors for the plan to be confirmed. Because the model plan controls as the amount and timing of payments to secured creditors they frequently object to confirmation.
Mortgage companies often fail to properly document and itemize their calculation of the arrears amount on their proof of claim providing debtor attorneys an opportunity to attack the claim.
Automobile Lender Objections: See the materials on “The Hanging Paragraph”. Automobile lenders must object if they disagree with their treatment in section E 3 or section G of the plan. The binding effect of §1327 force them to accept the treatment provided under the confirmed plan so objections are routine, at least by those creditors that pay attention; the burden is on the creditor to read all of section E 3 and section G before confirmation.
§1325(a)(5)(B)(iii)(I)and (II) require that payments through the plan for creditors secured by personal property must be paid in equal monthly installments and those equal monthly installments must adequately protect the creditor.
This doesn’t mean you have to spread their payments our over 60 months. A 60 month term inflates the interest expense and paying secured and unsecured creditors
simultaneously can cause the trustee administrative problems.
Adequate protection has been defined many different ways. Judge Goldgar, in the matter of Thompson v. GMAC 08 A 182 (08 B 02560) defined adequate protection as the amount the value of the vehicle declines in value the first month post petition and used NADA as the source for the change in value.
Domestic support obligations: §1325(a)(8) requires a debtor with a DSO obligation to document that they have made all post petition payments as a condition of
confirmation. This documentation can take the form of a letter or fax from the DSO recipient or copies of post petition pay advices showing the periodic deductions. The Means Test: Pursuant to §1325(b)(3) disposable income is determined under §707(b)(2)(A)&(B) for debtors whose annualized current monthly income is above the applicable median income level. Above median income Debtor’s plans must pay general unsecured creditors a minimum of the monthly disposable income on Form B22C line 59 multiplied by 60. This requirement is independent of the §1325(a)(4) best interests tests and may require debtors with no net non exempt equity in property to pay their creditors in full. If the means test alone results in a 100% plan there is no requirement that the debtor pay interest to the unsecured creditors.
Applicable Commitment Period: Pursuant to §1325(b)(4)(A)(ii) debtors with income above the applicable median income level are required to propose a 60 month plan unless all creditors are paid in full over a shorter period.
confirmation. This is where payroll deduction come in handy, if the debtor is not current the trustee is much more likely to recommend confirmation if payments are coming in via payroll deduction than directly from the debtor.
PLAN DEVELOPMENT AND DRAFTING CONSIDERATIONS
The most important thing to keep in mind when drafting a plan is it’s all about the money. The real function of the plan is to dictate how the money flows. It is the job of the attorney to manage the flow of money to (1) keep the auto creditors happy (or at least avoid their objections); (2) make sure their own fees get paid; (3) try not to let any money flow to the GUC’s until the secured creditors have been paid.
The trustee disburses once a month, the dates are posted on their web sites. Before confirmation, adequate protection payments are made to secured creditors with PMSI claims provided for in Section E 3.1 Adequate protection payments are made to all E 3.1 creditors that are not specifically identified as Non-PMSI. If no monthly payment is provided the creditor is paid pro-rata.
After confirmation, at the disbursement date all money on hand is used to satisfy each level in order. If money is left over after satisfying the first level the remainder is applied to the next level. If that level is satisfied the remainder is applied to the next level, and so on.
You don’t have any control over the amount of the monthly payment to E 2 (continuing mortgage payments) creditors but you do have control over the fixed payments to secured creditors provided for in Section E 3. It is important to use that control to manage how much money is available each month to pay attorney fees and, after attorney fees are paid, mortgage arrears.
Section A Budget items
The entries in Section A 1 regarding household size must be consistent with Form B22C and Schedule I. The entries in A 1 and A 2 regarding total household monthly income and expenses and charitable contributions must be consistent with Schedules I and J. Section C Direct payment of mortgage claims by debtor
Section C is for mortgages only. The creditor name must be correct as must the
All other debts that will be paid directly by the debtor are to be provided for in Section G and or Schedule J. Current ongoing homeowner’s association dues don’t belong in the plan, only in Schedule J.
Automobile lease payments do not belong in Section C either. Leases are listed on Schedule G and payment is provided for in Schedule J. Leases are rejected at confirmation by operation of Section B 1 unless listed as assumed in Section G. Section D 1 Initial Plan Term
The initial plan term should be 36 months for debtors with below median income and 60 months for debtors with above median income. The term of a plan can never be less than 36 months unless all creditors are paid in full within the initial plan term.
If the initial plan term in D 1 is less than 36 months Section E 8 must specify unsecured creditors are paid in full or not less than 100%.
Sections E 8 and G are used to provide minimum percent or dollar amount dividends to unsecured creditors for below median income debtors.
Keep in mind that no matter what happens after confirmation the minimum amount that must be paid into the plan is the amount in the last field in section D 1.
If the plan payment will change more than one time during the term of the plan then the plan term must be detailed in Section G. The amount to be paid during the initial plan term is entered in D 1 and H 1; the terms are set out in Section G using the format set out in D 1.
Section D 2 Adjustments to initial term
For below median debtors D 2 incorporates E 8 and E 9 to extend the term of the plan until the minimum dividend specified in E 8 is reached. The plan term will only exceed 60 months if administrative, secured and priority debts are not paid within 60 months. The result will generally be a 0% dividend to general unsecured creditors regardless of the entry in E 8.
Section D 3 Plan completion
Section E Disbursements by the trustee Section E 1 Trustee’s fees
This is an estimate only and plays a part in determining the plan’s feasibility in Section H. Trustee fees are determined through the budgeting process between the Chapter 13 Trustee and the United States Trustee. Trustee fees do change from time to time and may increase. The best practice is to use a rate between the number used on Line 50 in Form B22C and the statutory maximum of 10.00%
Section E 2 Current mortgage payments
The school of thought that supports including current mortgage payments in E 2 is generally based on: (1) Payroll Order entered on day one; (2) Debtor has at least a half a plan payment to mail to the Trustee on day one; (3) All the debtor has to do for the plan to succeed is stay employed; (4) Trustee keeps perfect records regarding post-petition payments; (5) Fewer Motions to Lift Stay; (6) Trustee fees on current payments are ultimately paid by unsecured creditors and are probably less than late charges and creditor attorney fees on stay lift motions.
The school of thought that opposes paying current mortgage payments in E 2 is
generally based on: (1) The debtor says they’re really going to make the payments this time; (2) It is fun defending Motions to Modify the Stay every six months.
If the debtor elects to have the trustee disburse current mortgage payments, the creditor name in E 2 must match the creditor name in Schedule D (amended to match the POC if the POC is different than scheduled); the monthly payment amount must be correct, use the amount on the most recent statement from the lender amending before confirmation to match the amount on the proof of claim or notice of payment change. It is important from a feasibility standpoint that the monthly payment amount is correct. The trustee will change the amount paid in line with notice of payment changes filed with the court.
The best day of the month to file a case with the mortgage in E 2 is the second day of the month so that the plan payment due date is approximately the same as the first post-petition mortgage payment due date.
Section E 3.1 Other claims secured by value in collateral
Verify that the name of the creditor in E 3.1 matches the name on the proof of claim before plan confirmation.
§1325(a)(9) “the hanging paragraph” requires that a creditor with a PMSI claim secured by a motor vehicle purchased within the 910 days pre-petition, or a creditor with a PMSI claim secured by other personal property purchased within one year pre-petition be paid the full balance owed them at the petition date.
The amount a creditor will be paid as secured is determined by the amount provided in Section E 3.1 but is subject to reduction with the consent of the creditor.
Secured claims filed for amounts greater than the amount provided for in Section E 3.1 will be bifurcated.
Secured claims filed for amounts less than the amount provided for in the plan will be paid the lower amount.
Claims filed as unsecured will be paid as unsecured even if provided for as secured in the plan.
The plan must provide interest on automobile loans as required under Till (Supreme Court, May 17, 2004). Till controls as to interest rate for all such claims.
Fixed payments must adequately protect the creditor after confirmation to satisfy §1325(a)(5)(B)(iii)(II).
Section E 3.1 and pre confirmation adequate protection payments
Unless an E 3.1 creditor is specifically identified as “non-PMSI” they will receive pre confirmation adequate protection payments. Not all secured creditors are entitled to adequate protection, if the lender did not finance the purchase of the property they aren’t entitled to pre-confirmation adequate protection payments.
The trustee will make pre confirmation payments unless the non-PMSI box is checked. If the monthly payment amount is blank the creditor will be paid pro rata.
Section E 3.1 Fixed payments on secured claims
receiving their minimum dividend well before the secured claim is paid in full unnecessarily extending the term of the plan.
Section E3.2 Secured claims treated as unsecured
Any creditor, typically a junior mortgage, that is to be paid as unsecured because they are secured by collateral that either has no value or that is fully encumbered by liens with higher priority must be provided for in Plan Section E 3.2.
Provide the name of the creditor (verify that it matches the POC if one is filed) and provide the address of the collateral.
To the extent their claim (filed as secured or unsecured) is allowed, the claim will be paid as unsecured pursuant to Paragraphs E 6 and E 8.
Making sure money is available for E 4 (attorney fees)
We all agree it is very important that the attorney be paid; you may be required to do a little math to make this happen.
Attorney fees are paid pro rata at level E 4 so they will always paid in full before any money is paid toward mortgage arrears or any lower level claims.
If there are no E 3.1 creditors no special provisions are required.
If E 3.1 fixed payments aren’t large relative to the plan payment (example, large mortgage arrears) no special provisions are required.
If E 3.1 fixed payments are large relative to the plan payment special provisions may be required to get paid early in the case.
Pre confirmation adequate protection payments can be less than the post confirmation fixed payments. Sections E 3.1 and G may provide a lower initial adequate protection payment, followed by a higher fixed monthly payment beginning at confirmation or some future date certain. Remember, fixed payments must adequately protect the creditor after confirmation to satisfy §1325(a)(5)(B)(iii)(II).
Section E 5 Mortgage Arrears
The amount a creditor will be paid for pre-petition arrears is controlled by the amount listed as arrears in Section E 5, subject to reduction consented to by the mortgagee for example by filing a claim for a lesser amount.
Arrears are only paid interest if the mortgage originated on or before October 22, 1994. Verify that the creditor name in Section E 5 is correct before confirmation and amend if necessary.
Section E 6 Allowed priority claims other than those of the debtor’s attorney The most common priority creditor is IRS. §1322(a)(2) requires that the plan must provide for full payment of all claims entitled to priority under section 507 unless the creditor agrees to a different treatment. In my experience the IRS has never agreed to any other treatment. The IRS generally files claims before the original confirmation hearing so getting the number correct should not be a problem. Student loans are not priority debt.
Note that the E 6 entry is an estimate. If a non priority debt is included in E 6 and the claim is filed as unsecured it is paid as unsecured.
Section E 7 Specially classified unsecured claim
Special class treatment may be provided for co-signed debt. You must name the creditor and state the reason for the special class. Student loans are not entitled to special class treatment by virtue of their non-dischargeable status.
Section E 8 General unsecured claims
A percentage dividend in E 8 is a minimum, if the initial term in section D 1 is less than 60 months, sections D2 and E 8 work together to extend the term of the plan until the minimum dividend is reached, or up to 60 months.
Section E 9 Interest
If §1325(a)(4) requires that all unsecured creditors be paid in full then they must be provided interest on their claims. Calculate the amount of interest to be paid to
Section G Special terms
The box at the top of page one must be checked if special provisions are to be made. None of the text anywhere in the model plan can be altered, but special, non standard provisions may be made using plan Section G. Common section G provisions and suggested language include the following:
Regarding late filed claims
Unsecured claims filed after the bar date shall not be paid by the Trustee. You may include this language in Section G unless you enjoy filing objections to late filed claims. Regarding direct payment of loans secured by personal property
The debtor will make current monthly payments, as listed in debtor’s Schedule J
directly to the following creditors holding claims secured by a perfected lien on debtor’s personal property:
Creditor: Collateral:
Final payment due date: Fixed monthly payment:
Regarding direct payment of student loans
The debtor will make current monthly payments, as listed in debtor’s Schedule J directly to the following creditors for student loans that mature after 60 months from the date of filing:
Creditor:
Regarding direct payment of sold or delinquent Property Taxes
The debtor will redeem sold real estate taxes by reserving the amount listed in debtor’s Schedule J each month for the plans first ________ months. Debtor’s plan payment increases as shown in section D 1 upon redemption.
Redemption amount:
The debtor will pay past due real estate taxes directly by reserving the amount listed in debtor’s Schedule J each month for the plans first ________ months. Debtor’s plan payment increases as shown in section D 1 upon payment.
Past due amount:
Increasing E 3.1 set payments after attorney fees have been paid
Beginning with the Month, Year disbursement, the set payment to Creditor Name in Section E 3.1 (a) shall increase to $xxx per month and the set payment to Creditor Name in Section E 3.1 (b) shall increase to $xxx per month.
Paying attorney fees at level E 2 or E 3.
Allowed Debtor’s attorney fees will be paid at an E__ disbursement level; after
confirmation upon entry of an order awarding fees, $_____ monthly until paid in full. The payment must allow enough money to flow to E3.1 creditors to adequately protect them as required by §1325(a)(5)(B)(iii)(II). If there are no E3.1 creditors it is best to leave attorney fees at level E4 pro rata.
Regarding surrender of personal property that secures a debt
Debtor hereby surrenders Description of Asset to Creditor Name. The trustee shall make no payment on any secured claim filed by Creditor Name secured by Description of Asset. You must identify the asset and name the creditor.
Regarding multiple step payments, increasing the plan payments when 401(k) and (or) other direct pay obligations complete
1. Initial plan term. The debtor will pay to the trustee $ monthly for ___months and $___________monthly for an additional ______months,
Section H
Section H is used to verify that the plan is mathematically feasible. All the lines must be completed.
If the initial term is less than 60 months the number in H(5)(c) must equal or exceed the number in H(4)(g).
If the initial term is 60 the number in H(4)(g) must be zero or negative.
If interest is provided for in Section E 9 you must calculate interest to be paid and enter the amount in Line H(4)(d).
Section I
A check in this box indicates that the debtor consents to entry of a payroll deduction order and the Trustee will immediately prepare an order, forward it to Chambers for entry and send it to the employer for execution. The attorney need not prepare a payroll order if Section I is used.
General Statement about Secured Creditors
TREATMENT OF REAL ESTATE TAXES IN A CHAPTER 13 PLAN
All of the courts in this district as well as the United States Supreme Court believe that an amount owed for county real estate taxes constitutes a bankruptcy claim and
therefore is subject to the bankruptcy laws and to the jurisdiction of the bankruptcy court. As such, the state law rights of the county can be affected, modified, reduced, or eliminated under the federal bankruptcy laws. The bankruptcy laws are generally applied in the broadest sense to try to protect the orderly distribution of the debtor’s property once a bankruptcy case is filed. In deciding federal bankruptcy law, the
bankruptcy courts, while using state law for guidance on some issues, hold that federal law supersedes state law.
Unpaid Real Estate Taxes are a claim in Bankruptcy.
In section 101(5) of the Bankruptcy Code, a claim is defined as a “right to payment”. The United States Supreme Court, in Johnson v. Home State Bank, 501 U.S. 78, 111 S.Ct. 2150, 111L.Ed.2d 66 (1991), decided that the right to payment can be can be solely against the debtor’s property, even if it can’t be enforced against the debtor personally. So even though a real estate tax can’t be collected against the debtor personally, the ability of the county to collect the tax against the real property is sufficient to bring that amount under the bankruptcy laws. Under the case law from this district, a real estate tax claim is generally said to be a secured claim since the county asserts its claim against the debtor’s real estate.
There are limitations what a county can do after a bankruptcy filing. First, it can no longer assess interest and penalties as to all outstanding taxes that are due and owing at the time the bankruptcy case is filed. Second, it cannot conduct a tax sale for any due and owing taxes as of the filing date.
Sold Real Estate Taxes.
The 7th Circuit’s LaMont decision eliminates the controversy over treatment of sold
taxes in Chapter 13 Plans. Key points in LaMont:
1. The tax purchaser's interest is a secured claim that is modifiable in a debtor's Chapter 13 plan.
2. The bankruptcy code definition of "claim" is very broad, it is a right to payment or right to an equitable remedy for breach of performance if such breach gives rise to a right to payment.
taxpayer, but rather the property tax code sets up an indirect right to payment mediated by the county. The procedure set forth in the code establishes a debtor / creditor
relationship between the county and the landowner.
Therefore it is proper to redeem sold taxes by paying the County Clerk through the plan.
Sold taxes may be redeemed by payment to the County Clerk through a Chapter 13 plan as long as the case is filed before the end of the state law redemption period. It is important to give notice to the tax buyer and include a provision in Section G stating that sold taxes are redeemed by payments to the County Clerk in Section E 3.1 and that no payment shall be made to Tax Buyer Inc. related to any claim for sold taxes related to Parcel Number xx-xx-xxx-xxx.
Confirmed Plan is binding on the County.
Section 1327 of the bankruptcy code states that upon confirmation, the plan becomes binding upon the debtor, the creditors, and the trustee. As long as the County was given proper notice they are bound by the treatment under the confirmed plan. Contact information for all Collar County Treasurers and County Clerks including links to web sites with tax payment status can be found at www.lisle13.com under the link: Real Estate Taxes in Chapter 13.
TOP TEN KEYS TO DEALING WITH PROPERTY TAXES IN CHAPTER 13.
1. The Treasurer’s office deals with property taxes until they have been sold. After the sale date the Clerk’s office is responsible.
2. Always ask the debtor if there is an escrow for property taxes.
3. Always assume the taxes are in default if there is no escrow and give notice to the County Treasurer on Schedule D if there is no escrow. The taxes won’t be sold if the county has notice.
4. Always give notice to the Treasurer, the Clerk and the Tax Buyer on Schedule D if there are sold taxes. The Clerk can give you the name and address of the Tax Buyer in less than a minute.
5. Check the status your self if there is no escrow. It takes one minute via internet or phone.
7. Delinquent taxes must be provided for in the Plan. If the taxes are to be paid through the plan, do so in Section E 3.1, be sure to reference the tax year and the PIN. If direct by the debtor do so in both Plan section G and Schedule J.
8. Whether the taxes are paid through Plan Section E 3.1 or G, give them a high fixed payment and get them paid as soon as practical.
9. If the plan provides for payment of taxes that have been sold as well as taxes that have not been sold, provide for them separately in Plan section E 3.1 and make sure they are each clearly labeled.
10. If you don’t have a tax bill you can search the Treasurer’s web site by address. NDIL Decisions of interest regarding property taxes:
Lyubomir Alexandrow v. Todd LaMont, et al; 7th Circuit Court of Appeals 13-1187,
decided January 7, 2014. Sold taxes may be redeemed by payment to the appropriate taxing authority through the Chapter 13 plan.
In Re Kasco 378 B.R. 207, 211, 212-213 (2007) Tax purchaser is a creditor and its claim may be modified without regard to redemption under state law.
In Re Commings 02 B 42477 Judge Goldgar. Tax purchaser is a creditor and is bound by the terms of the confirmed plan that pays them as a secured creditor.
In Re Barton, 359 B.R. 681 (Bankr. N.D.Ill 2006) Automatic stay applies to a county, specifically in the assessment of interest and scheduling a tax sale. County is bound by the terms of the confirmed plan. County is subject to sanctions under section 362(k). CDIL Decision of interest regarding property taxes:
