Cite as: Keith M. Lundin, Lundin On Chapter 13, § 120.5, at ¶ ____, LundinOnChapter13.com (last visited __________).
BAPCPA did not change the binding,1 vesting2 or free and clear3 effects of confirmation under § 1327. Confirmation of a plan remains the backstop and dividing line that it always has been in Chapter 13 practice. Creditors that fail to assert their rights before confirmation face the same difficult barriers of statutory and equitable preclusion as before BAPCPA.
What BAPCPA did change that could significantly impact the effects of confirmation in Chapter 13 cases is the platform upon which § 1327 rests: the adequacy of notice to creditors. Detailed elsewhere,4 BAPCPA amended § 342 to define many important aspects of “effective notice” in bankruptcy cases. In Chapter 13 cases, the efficacy of notice is often tested after confirmation when a provision of the confirmed plan collides with some action by a creditor. A great many pre-BAPCPA reported decisions recognize that the predicate for the binding effect of confirmation of a Chapter 13 plan is adequate notice to creditors.5 Before BAPCPA, many of these cases cited the Bankruptcy Rules and sometimes the due process clause of the Constitution as the source of law with respect to whether notice of the content of the plan was adequate to support the effects of confirmation in § 1327.6 After BAPCPA, perhaps the first place to look for a source of law with respect to whether notice of the plan was effective in a Chapter 13 case will be § 342 of the Code.
Typically, notice of the content of the Chapter 13 plan is conveyed to creditors either by the clerk’s office or by a designee such as the Chapter 13 trustee. Several of the new notice requirements in § 342 apply directly to notices by the bankruptcy court.7 When the bankruptcy court delegates to a Chapter 13 trustee responsibility to give notice to creditors of the content of the plan, it is arguable that those same provisions of § 342 apply to notice by the trustee.
New § 342(g)(1) is explicit that notice provided to a creditor by the debtor or by the court “other than in accordance with this section . . . shall not be effective notice until such notice is brought to the attention of such creditor.”8 Section 342(g) does not define when notice is “brought to the attention” of a creditor except to say that notice is not brought to the attention of a creditor that has designated a person or organizational subdivision to be responsible for receiving bankruptcy notices unless and until notice is received by that person or subdivision if the creditor establishes reasonable procedures so that bankruptcy notices receivable are delivered to that person or subdivision.9
Courts may conclude that notice of the content of a Chapter 13 plan is “not . . . effective notice” unless it is either provided to the creditor in accordance with § 342(c), (e) or (f) or brought to the attention of the creditor under § 342(g)(1). If the creditor has designated a person or organizational subdivision to receive bankruptcy notices and if the creditor has established reasonable procedures for delivery of bankruptcy notices to that person or subdivision, then notice of the content of the Chapter 13 plan must be actually received by that person or subdivision to be effective if provided in a manner other than as specified elsewhere in new § 342. The “actual notice or knowledge” test that appears elsewhere in the Bankruptcy Code with respect to matters of statutory notice10 is absent from new § 342.
The message here is clear: after BAPCPA, creditors have firm ground to argue that notice of the content of a Chapter 13 plan was not effective unless provided in accordance with § 342(c), (e) or (f) or brought to the attention of the creditor consistent with § 342(g)(1). These are now the statutory requirements for effective notice of the content of a Chapter 13 plan. Without effective notice of the content of the plan and of the opportunity to object to confirmation, debtors will be hard pressed to win the argument that the creditor is bound by confirmation.
Debtors typically are the source of information for addressing notices in Chapter 13 cases. Debtors and their attorneys will have to work much harder after BAPCPA to provide the court and Chapter 13 trustees with addresses that will support effective notices under new § 342.
There is also a message for the bankruptcy courts: because new § 342(f) permits any entity to file with any bankruptcy court a notice of address to be used by all bankruptcy courts or by particular courts as specified by the entity to provide notice in cases under Chapter 13,11 it is incumbent on the bankruptcy system to build an information technology infrastructure robust enough to capture address information filed by creditors and to deliver that information to bankruptcy courts everywhere. Debtors and debtors’ attorneys have no reasonable method for collecting notices of addresses filed by creditors in bankruptcy courts across the country. The bankruptcy court system has to provide an accessible and easy-to-use noticing system that will be effective under new § 342(f) in Chapter 13 cases.
The adequacy of notice will be especially important when the Chapter 13 plan includes optional treatments that are selected by creditors or “accepted” as part of the confirmation process. Several provisions of Chapter 13 added by BAPCPA are likely to inspire debtors to propose plans that contain optional treatments.12 For example, the new 910-day PMSI car claim in the hanging sentence at the end of § 1325(a) creates dilemmas for Chapter 13 debtors who may choose to surrender a car when a creditor insists on an unrealistic “fully secured” treatment of its claim.13 Chapter 13 plans may become more common that contain alternatives for the secured claim holder to select—perhaps one option for treatment as a partially secured creditor and another for surrender of the collateral. Such plans may include that the creditor is “presumed” to have made one or the other choice if no action is taken by a specified deadline.
Optional treatments and presumptions with deadlines are effective only if adequate notice and opportunity to elect or object is provided. Any debtor aiming to make a plan with options or presumptions stick through the effects of confirmation under § 1327 will have to win the argument that notice was effective under § 342.
Debtors can’t expect notice of complicated plan provisions to be effective unless the words are clear and the fonts are billboard sized. Creditors addresses must be collected meticulously and absolutely accurate under the new subparagraphs of § 342. There has to be both time and opportunity for the creditor to adequately protect its rights in the Chapter 13 case. More so than ever, the wording and organization of Chapter 13 plans must be simple, straightforward, accurate and understandable.
In so many other ways, BAPCPA has deflated the powers and options of Chapter 13 debtors—especially during the preconfirmation period.14 BAPCPA did not change the effects of confirmation under § 1327, leaving in place the principle that a confirmed Chapter 13 plan defines the rights of debtors and creditors. To make the plan stick after BAPCPA, debtors and their attorneys will have to do their homework under new § 342.
1 See 11 U.S.C. § 1327(a), discussed in § 229.1 [ 11 U.S.C. § 1327(a): Binding Effect on Creditors and Debtors ] § 120.2 11 U.S.C. § 1327(a): Binding Effect on Creditors and Debtors.
2 See 11 U.S.C. § 1327(b), discussed in § 230.1 [ 11 U.S.C. § 1327(b): Vesting Effect on Property of Estate ] § 120.3 11 U.S.C. § 1327(b): Vesting Effect on Property of Estate.
3 See 11 U.S.C. § 1327(c), discussed in § 231.1 [ 11 U.S.C. § 1327(c): Free and Clear Effect on Liens ] § 120.4 11 U.S.C. § 1327(c): Free and Clear Effect on Liens.
4 See § 365.1 [ Section 342: Notice in Chapter 13 Cases after BAPCPA ] § 4.3 Section 342: Notice What Didn’t Happen.
5 See § 233.1 [ Notice and Due Process Considerations, Including Claims Allowance and Valuation ] § 121.2 Notice and Due Process Considerations, Including Claims Allowance and Valuation.
7 See 11 U.S.C. § 342(e) and (f), discussed in § 365.1 [ Section 342: Notice in Chapter 13 Cases after BAPCPA ] § 4.3 Section 342: Notice What Didn’t Happen.
8 11 U.S.C. § 342(g)(1), discussed in § 365.1 [ Section 342: Notice in Chapter 13 Cases after BAPCPA ] § 4.3 Section 342: Notice What Didn’t Happen.
10 See, e.g., 11 U.S.C. § 523(a)(3).
11 See 11 U.S.C. § 342(f)(1), discussed in § 365.1 [ Section 342: Notice in Chapter 13 Cases after BAPCPA ] § 4.3 Section 342: Notice What Didn’t Happen.
13 See 11 U.S.C. § 1325(a)(5), discussed in § 451.1 [ In General: Modification Without § 506 ] § 75.1 In General: Modification Without § 506.
14 See, e.g., new exceptions and termination provisions for the automatic stay discussion beginning at § 58.2 BAPCPA Shrank Stay.