13 Plan-The Confirmation Process
Feasibility of plan.
One of the key threshold issues for every debtor in proposing a Chapter
13 is to provide the court some convincing evidence or proof that the
plan is "feasible" and that the plan is proposed in good faith.
Feasibility and good faith are extremely
important components of the adjudication of a Chapter 13 plan. For
example: if the debtor does not have sufficient regular income in order
to meet his or her own regular ordinary living expenses and to make the
payments that are called for under the plan, there is a serious problem;
that plan is not feasible unless it is to be funded from the sale of
certain property.
Evidence of regular income.
There is no reason why the court should delay the creditors any longer
from taking possession of collateral when the debtor has no ability to
fund the plan that is being proposed. The debtor is required to present
the court with copies of pay stubs and other documents to establish
current regular income for the 60 day period prior to the bankruptcy
filing, along with copies of tax returns for the past 4 years. This is
to prove that the debtor has regular income.
Other funding sources.
Sometimes a debtor will propose funding the plan with
sources of income that come from third parties, for example the income
of roommates, domestic life partners, other individuals or family
members who perhaps live with the debtor and contribute to the expenses
of the common household. In situations such as this the court will
usually require that the debtor present some sort of evidence, usually
in the form of a declaration signed by the third party attesting to the
fact that they do intend to make the financial contributions that are
called for in the plan and also, typically requiring that they too
present some evidence of current regular income so that the court will
be certain that there is every reasonable prospect that the payments
being proposed are actually going to be paid by the debtor.
Eligibility.
Another key requirement of every Chapter 13 plan is that the debtor is
eligible for the relief available under Chapter 13. Section 109(e) of
the bankruptcy code establishes the criteria for debtor eligibility.
Debtor eligibility under Chapter 13 is limited to individuals with
regular income who have non contingent liquidated unsecured debts which
total less than $307,675, and non contingent liquidated secured debt not
exceeding $922,975.
Chapter 13 – The Discharge of Debt
Basic discharge.
When the debtor completes a Chapter 13 case, the
discharge eliminates all of the remaining balances owed on all general
unsecured debts without priority that were provided for in the Plan.
Those unsecured debts will by then already have received payment based
on what the debtor could reasonably afford, provided they are paid at
least as much as the creditors would have received if the debtors non
exempt assets had instead been liquidated
under chapter 7. Sometimes this will be payment in full, sometimes it
will be a percentage of the claims, sometimes it may even be nothing
(under the right circumstances).
Distinction in discharge between Chapter
7 and Chapter 13. The discharge of debts
provided for under Chapter 13 is still broader than the discharge under
chapter 7, but the BAPCPA amendments of 2005 have narrowed the
differences considerably. With minor exceptions, debts that are
nondischargeable under Chapter 7 have now been made nondischargeable
under Chapter 13. The main exceptions to this are that Chapter 13 will
discharge debts (other than debts in the nature of support),
arising from a divorce or separation agreement, and debts arising from
committing a willful or malicious injury, (unless there has
already been restitution or damages awarded in a civil
action against the debtor).
10. Creditor’s Rights - Protecting the
Chapter 13 Creditor
A) Secured creditor
Lien protection.
Secured creditors are protected by the value of their interest in
the debtor’s collateral, and the plan must provide for payment of the
secured portion of the creditor’s claim, plus interest on value
of the secured claim during the duration of plan. Secured creditors in
Chapter 13 cases are usually going to be the mortgage holder on the
debtor’s real property and the creditor’s remedy is going to depend on
what stage the Chapter 13 case happens to be at. Upon commencement of a
case, the creditor should promptly file a proof of claim and a
request for notice.
Post-petition delinquency.
In the period of time immediately after the commencement of the case but
prior to confirmation of the plan, if the debtor has defaulted in making
mortgage payments the secured creditor might bring a motion for relief
from the automatic stay, although it is usually more productive to
simply file an objection to the confirmation of the plan on the grounds
that the debtor is now post-petition delinquent.
Monitoring the process.
The courts in this district are not going to confirm a
plan when the debtor is delinquent on
mortgage payments post-petition. Such a
case is usually dismissed at the time when the Meeting of Creditors
is held. At the confirmation hearing the case is usually dismissed
by the court if the post-petition mortgage payments or the Plan payment
is delinquent. Sometimes it will be dismissed with prejudice where some
egregious conduct has been committed by the debtor. Circumstances can be
shown such as where there have been a series of repetitive Chapter 13 or
other bankruptcy filings or where multiple bankruptcy cases concern the
same real property such as multiple bankruptcies filed by co-owners or
perhaps where fractional transfers of the property have occurred.
Remedy for post-petition default.
After a plan is confirmed a secured creditor needs to
monitor the debtor’s tender of the regular monthly mortgage payment and
if a default occurs after confirmation, the creditor’s best remedy is to
file a motion for relief from automatic stay. The courts in the 9th
Circuit make it very clear that the post-petition default of payments is
a material breach of the debtor’s plan and constitutes "cause" under
Bankruptcy Code Section 362(d) for relief from the automatic stay.
Proof of claim. All creditors should file
a proof of claim. The bankruptcy code and the bankruptcy rules of
procedure provide that most claims must be filed within 3 months after
the debtor’s 341(a) meeting of creditors. A creditor that neglects to
file a proof of claim should not expect to receive payment in the case.
The 9th Circuit Court of Appeals in the
case of Firemans Fund vs. Hobdy said that where a secured creditor
neglects to file a proof of claim the debtor’s property is still
encumbered by the lien. Even the arrearages that were provided for in
the debtor’s plan do not go away just because the creditor overlooked or
neglected to file a proof of claim and participate in the case. The lien
securing all sums due, including the arrearages will survive the
discharge.
B) Unsecured Creditors
Filing proof of claim. It is extremely
important for an unsecured creditor to file a proof of claim. An
unsecured creditor that neglects to file its proof of claim not only
will not participate in the Chapter 13 payment process but if the debtor
completes the plan and receives a discharge, the unsecured creditor will
have received nothing even though the plan might have provided to pay
all or part of unsecured claims. If there is some type of post-petition
default on plan payments an unsecured creditor might choose to file a
motion seeking dismissal of the Chapter 13 case although this is a
procedure that is really more in the province of the Chapter 13 trustee
who is monitoring the debtor’s payment status.
Next Page >>>>>
Related Articles:
Bankruptcy Q&A
Bankruptcy Test
Bankruptcy Still
Works
BAYER, WISHMAN & LEOTTA
Attorneys at Law
888 S. Figueroa Street, Suite 1970
Los Angeles, CA 90017
213-629-8801
www.debt-relief-bankruptcy.com
email at:
info@debt-relief-bankruptcy.com
Reprinted with permission.
