Cite as: Keith M. Lundin, Lundin On Chapter 13, § 112.1, at ¶ ____, LundinOnChapter13.com (last visited __________).
The Code does not mandate that a Chapter 13 plan be any particular length. 11 U.S.C. § 1322(d)1 tells us that the plan may not provide for payments over a period that is “longer than three years, unless the court, for cause, approves a longer period, but the court may not approve a period that is longer than five years.”2 The 1984 amendments to the Code added the disposable income test,3 which provides that upon the objection of the trustee or the holder of an allowed unsecured claim, the court may not confirm a plan unless the debtor commits to pay all “projected disposable income to be received in the three year period beginning on the date that the first payment is due under the plan.”4 Reading these sections together, most Chapter 13 debtors propose plans that are 36 months long.
A plan shorter than 36 months will likely face an objection to confirmation unless the plan proposes to pay all claim holders in full.5 If the debtor is able to pay all claims in less than 36 months, there is no duration objection to confirmation of a shorter plan.6
There are many good-faith cases under 11 U.S.C. § 1325(a)(3) that include evaluation of the length of the plan.7 There are good-faith cases that bully the debtor to seek extension of the plan beyond three years to pay a larger percentage of unsecured claims, especially when there are claims that would be nondischargeable in a Chapter 7 case.8 There are other decisions holding that a Chapter 13 debtor cannot be forced to extend the plan beyond 36 months solely to accomplish confirmation or to overcome a good-faith objection from a creditor.9
Debtors often propose Chapter 13 plans that extend beyond 36 months to deflect objections to confirmation. When the debtor has large or numerous secured debts, unsecured claim holders may not receive distributions until late in the plan.10 An extension of the plan for even a few months beyond 36 months may dramatically increase the percentage payment of unsecured debt. In jurisdictions that look unfavorably upon deep composition plans,11 an extension beyond 36 months may be essential to accomplish confirmation.
The five-year maximum length of the plan in § 1322(d) has been described as a protection for Chapter 13 debtors.12 Under the former Act, in some jurisdictions Chapter XIII plans could extend for a decade or more, the debtors functioning in a sort of quasi-voluntary servitude to creditors.13 Under the Code, debtors must show cause for extension beyond three years and even on the debtor’s motion, a Chapter 13 plan cannot extend beyond the five years in § 1322(d).14
Although the plan as proposed cannot provide for payments over more than five years, it is not always cause for conversion or dismissal that the plan eventually extends beyond five years.15 It has been said that § 1322(d) “does not contain a ‘drop dead’ provision that mandates dismissal of the case after five years” when the debtor needs additional time to complete payments.16 When the original plan would complete payments in less than five years, but the debtor is unable to complete the plan as confirmed, some reported decisions allow the debtor to modify the plan at or near the end of the five-year period to keep the plan within the maximum term permitted by § 1322(d).17
1 Formerly 11 U.S.C. § 1322(c), redesignated as 11 U.S.C. § 1322(d) by the Bankruptcy Reform Act of 1994, Pub. L. No. 103-394, § 301, 108 Stat. 4106 (1994).
2 11 U.S.C. § 1322(d).
3 11 U.S.C. § 1325(b). See discussion of projected disposable income test beginning at § 91.1 In General.
4 11 U.S.C. § 1325(b)(1)(B). An objection under § 1325(b)(1) can also be resolved if the plan proposes to pay the objecting claim in full. 11 U.S.C. § 1325(b)(1)(A). See § 168.1 [ Payment-in-Full Option ] § 91.7 Payment-in-Full Option.
6 But see In re Rhein, 73 B.R. 285 (Bankr. E.D. Mich. 1987) (Section 1325(b)(1)(B) requires denial of confirmation of a 100% plan that omits to pay interest on unsecured claims when the plan does not provide that all the debtor’s disposable income is applied to make payments under the plan for three years.). Compare In re Smith, 196 B.R. 565 (Bankr. M.D. Fla. 1996) (Disposable income test does not require interest where debtor proposes to pay unsecured claims in full under § 1325(b)(1)(A) notwithstanding that the plan does not satisfy 36-month test in § 1325(b)(1)(B).). See §§ 163.1 [ In General ] § 91.1 In General, 166.1 [ Counting the Three-Year Period ] § 91.5 Counting the Three-Year Period and 168.1 [ Payment-in-Full Option ] § 91.7 Payment-in-Full Option.
9 See In re Vensel, 39 B.R. 866 (Bankr. E.D. Va. 1984) (Debtor “is under no obligation to propose a five-year plan.” Court rejects creditor’s argument that debtor should be required to pay a larger dividend by proposing a five-year plan.). Accord In re Porter, 102 B.R. 773 (B.A.P. 9th Cir. 1989); In re Winthurst, 97 B.R. 457 (Bankr. C.D. Ill. 1989); In re Gathright, 67 B.R. 384 (Bankr. E.D. Pa. 1986), aff’d, 71 B.R. 343 (E.D. Pa. 1987).
10 See § 204.2 [ Order of Payments to Creditors ] § 113.7 Order of Payments to Creditors before BAPCPA.
11 See § 195.1 [ Percentage of Payment ] § 108.3 Percentage of Payment.
12 See In re Eves, 67 B.R. 964 (Bankr. N.D. Ohio 1986).
13 See In re Black, 78 B.R. 840 (Bankr. S.D. Ohio 1987) (Cause for extension beyond three years under § 1322(c) [redesignated as 11 U.S.C. § 1322(d) by Pub. L. No. 103-394, § 301, 108 Stat. 4106 (1994)] requires case-by-case analysis. Congress was concerned that “debtors in some districts consider Chapter 13 as a way of life . . . for an unduly lengthy period . . . a form of involuntary servitude . . . at odds with ‘the relief and fresh start for the debtor that is the essence of modern bankruptcy law.’”).
14 See In re Cutillo, 181 B.R. 13, 16 (Bankr. N.D.N.Y. 1995) (In response to a trustee’s motion to dismiss, debtors were not permitted to extend payments beyond five years to pay the balance due under the plan. Confirmed plan required $400 per month for six months and then $600 per month for 54 months. The debtors made payments of $400 per month for more than five years. The trustee moved to dismiss. The court held that the trustee’s motion to dismiss was barred by laches. “In opposing the Trustee’s motion, the Debtors requested that they be permitted to continue making monthly payments of $400 to the Trustee for an additional 10–11 months in order to pay off the balance of $4,210.02 due under their plan. The Court must deny the Debtors’ request. Code § 1322(c) [redesignated as 11 U.S.C. § 1322(d) by the Bankruptcy Reform Act of 1994, Pub. L. No. 103-394, § 301, 108 Stat. 4106 (1994)] prohibits the Court from approving payments by Chapter 13 debtors which extend for a period of more than five years.”).
16 In re Harter, 279 B.R. 284, 288 (Bankr. S.D. Cal. 2002).
17 See §§ 256.1 [ Duration of Modified Plan ] § 126.4 Duration of Modified Plan and 268.1 [ To Extend or Reduce the Time for Payments ] § 127.11 To Extend or Reduce the Time for Payments. See, e.g., West v. Costen, 826 F.2d 1376 (4th Cir. 1987) (Chapter 13 debtor can cash out the balance due under confirmed plan by making a final payment from the refinancing of debtor’s residence when that final payment will be made within five years of the date the first payment was due under the original confirmed plan.); In re Eves, 67 B.R. 964 (Bankr. N.D. Ohio 1986) (Debtor is permitted to modify 70% plan to a 25% plan when, after five years of payments into the plan, payments have been sufficient to pay only 25% of the unsecured claims.).