§ 44.2     Timing and Form of Payment
Cite as:    Keith M. Lundin, Lundin On Chapter 13, § 44.2, at ¶ ____, LundinOnChapter13.com (last visited __________).
[1]

After amendments by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA),1 Chapter 13 debtors must commence making payments “not later than 30 days after the date of the filing of the plan or the order for relief, whichever is earlier.”2 The Code does not tell us when within that 30-day period the debtor should physically begin payments. A simple rule is best here: debtors should be told to start payments to the trustee with the first paycheck after filing the plan, without regard to when that pay period began. Any other rule invites confusion and delay in the commencement of payments and will complicate adequate protection and confirmation issues.

[2]

Without regard to when the plan is filed, the 30-day period is measured from the order for relief. Even if the plan is filed within the 15 days after the filing of the petition as permitted by Bankruptcy Rule 3015, the debtor has a maximum of 30 days after the filing of the petition in which to commence making payments.3

[3]

Prior to BAPCPA, § 1326(a)(1) required Chapter 13 debtors to commence making “the payments proposed by a plan within 30 days after the plan is filed.”4 After BAPCPA, the payments that must commence not later than 30 days after the petition include payments “proposed by the plan” and, additionally, payments with respect to adequate protection and leases of personal property.5 In other words, prior to BAPCPA, the commencement of payments was both timed from the filing of the plan and tied to the payments “proposed” by the plan. After BAPCPA, the commencement of payments is not later than 30 days after the petition, and the amount proposed by the plan is only one component of the payments that must commence.

[4]

The timing of confirmation of a plan6 is irrelevant to the requirement that the debtor commence payments consistent with § 1326. In jurisdictions that delay confirmation until after the claims bar date,7 a jump start on payments is particularly important because those payments may be an essential element of the adequate protection that the debtor must provide secured creditors to avoid relief from the stay and loss of property between filing and confirmation.8 A plan provision for payments “commencing with the confirmation of this plan” does not satisfy the requirement in § 1326(a) either before or after the 2005 amendments.9

[5]

Debtors should not wait until the end of the 30-day period to begin payments. Doing so puts the debtor a month behind from the beginning and may jeopardize confirmation. Especially when the debtor has a large continuing debt like a home mortgage to be paid through the plan, a delay of 30 days can put the plan fatally in arrears even before reaching confirmation. After BAPCPA, the new requirement to commence payments that provide adequate protection to some allowed secured claim holders and the requirement to commence payments with respect to the lease of personal property make it imperative that Chapter 13 debtors not delay the commencement of payments even within the 30 days after the petition.10

[6]

Problems may develop when the payments proposed by the plan would not ordinarily be available until later than 30 days after the petition. For example, if the debtor receives irregular commissions as income or if the debtor is a farmer and the plan proposes payment from the proceeds of an annual crop, the debtor may be unable to comply with the literal proscription of § 1326(a)(1). Under the pre-BAPCPA form of § 1326(a) it was held that a farm debtor who proposed to fund the plan from the proceeds of an annual crop was not required by § 1326(a)(1) to commence payments within 30 days after the plan was filed.11

[7]

If the debtor’s source of income will not permit the debtor to physically begin making payments within the 30-day deadline, the plan itself should specifically provide for a different time for the commencement of payments. For example, if the debtor receives quarterly commissions and intends to fund the Chapter 13 plan by quarterly payments to the Chapter 13 trustee, then the plan should specify that payments to the trustee shall be made quarterly. If a regular quarterly payment will not be available “within 30 days after the . . . order for relief,” a literal application of § 1326(a)(1) is either nonsense or impossible: the payments proposed by such a plan do not commence within the 30 days, and thus the proscription that the debtor “shall commence making payments not later than 30 days after the date of the filing of the plan or the order for relief, whichever is earlier,” either requires the debtor to do nothing or is internally inconsistent. 11 U.S.C. § 1326(a)(1) begins with the exception “unless the court orders otherwise,” suggesting that debtor’s counsel can resolve any impossibility of application of § 1326(a)(1) in situations in which the plan proposes payments that cannot commence within 30 days of the filing of the plan or the order for relief.12 A motion for relief from the 30-day requirement in § 1326(a)(1) should be filed with the plan to avoid immediate default by the debtor and an unnecessary round of motions to dismiss.

[8]

And don’t forget that the payments that must commence within 30 days of the order for relief with respect to adequate protection and leases of personal property are not dependent on any provisions of the proposed plan.13 In other words, § 1326(a)(1)(B) and (C), as amended by BAPCPA, have specific requirements with respect to the commencement of adequate protection payments and personal property lease payments that must commence within 30 days of the petition without regard to when the proposed plan would otherwise commence payments. The conjunctive “and” in § 1326(a)(1) suggests that Chapter 13 debtors may not be able to modify the 30-day commencement of payments requirement with respect to adequate protection and payments of personal property leases merely by filing a proposed plan with different provisions for the commencement of payments. A motion for an “order[ ] otherwise” is also necessary.

[9]

A motion for relief from the 30-day requirement in § 1326(a)(1) may not be enough when the debtor is blameworthy for the inability to commence payments. For example, in In re Briskey,14 the debtor moved to extend the time to begin payments under § 1326(a)(1), citing as cause an ongoing wage garnishment. The bankruptcy court denied the motion, finding that the debtor failed to give notice to the garnishing creditor and failed to timely take steps to stop the garnishment and recover the garnished wages: “If the Court were to grant the Debtor’s motion to delay payments under the Chapter 13 Plan, it would reward the Debtor for his lack of diligence and undercut the Bankruptcy Code’s policy that Chapter 13 payments begin promptly.”15

[10]

It has been held that a default in the commencement of payments cannot be cured after the fact by amending the proposed plan.16 Consistent with this view, one reported decision holds that a § 1326(a) defect cannot be cured by amendment even when the debtor tenders a lump sum equal to the amount the debtor would have been required to pay had the amended plan been in effect from the petition.17 The message of these decisions is that a failure to commence payments under § 1326(a) can only be cured by making up the missed payment(s) consistent with the original plan; an amended plan is only effective for § 1326(a) purposes with respect to future payments.

[11]

The requirement that the debtor commence making payments under § 1326(a)(1) cannot be satisfied by an illusory proposal for payments in the plan itself. For example, in In re Nowak,18 the debtor proposed to remit $500 each month to the Chapter 13 trustee “if alleged creditor IRS can prove its claim without bribery, blackmail or extortion . . . .”19 The bankruptcy court held that this “conditional offer” violated § 1326(a)(1) because the plan indicated that the debtors had “no intention of paying the trustee” unless and until the debtor defeated the claims of the Internal Revenue Service. The court held that a Chapter 13 debtor cannot use a claims dispute with a creditor to avoid commencing payments within 30 days under § 1326(a)(1).

[12]

Counsel must know the mechanics of making payments to the Chapter 13 trustee, including the proper form of payment, and explain this to the debtor. Many debtors do not have a bank account and cannot simply mail a check to the trustee in the required amount. Moreover, in many jurisdictions, the Chapter 13 trustee will not accept a personal check from the debtor because a personal check is not a guarantee of funds for a significant time after deposit, and personal checks tend to generate problems with insufficient funds and closed accounts. In many jurisdictions, the income deduction order or local rule directs that payment from a debtor be by cashier’s check, money order or similar form of more certain funds.

[13]

Some Chapter 13 trustees permit the debtor to appear in person at the trustee’s office and make plan payments in cash. Other trustees’ offices decline to handle cash for bonding and security reasons; thus, the specific forms of funds acceptable to the trustee may be limited. Some trustees’ offices will cash a debtor’s paycheck and remit the balance in excess of the plan payment by check or cash to the debtor. Most will not. In some jurisdictions, the trustee receives whole paychecks directly from employers, splits the check and mails or gives the debtor’s portion to the debtor. The requirement in § 1326(a) that the debtor commence making payments is not satisfied by payments to the debtor’s attorney; payments to the debtor’s attorney instead of to the Chapter 13 trustee can create ethical problems for debtor’s counsel and administrative problems for the Chapter 13 case.20

[14]

Counsel should explain to the debtor the precise forms of funds that are acceptable, the exact timing for payments and exactly where payments are to be made to the trustee. If the debtor’s plan proposes weekly payments of $100, the debtor may have to get a cashier’s check or money order for $100 every week and make delivery by mail or in person to the Chapter 13 trustee. This is a discipline that the debtor must learn at the commencement of the case.

[15]

Even in an enlightened district that issues income deduction orders to debtors’ employers at the commencement of every Chapter 13 case,21 there will be a brief period before the debtor’s employer digests the deduction order. If the payments due the trustee are not yet being taken from the debtor’s pay, the debtor is personally responsible to commence making the payments required by the proposed plan directly to the Chapter 13 trustee. Until the deductions actually show on the debtor’s pay stub, the debtor must personally pay the trustee in a manner acceptable in the district. To do so, the debtor has to understand how much is required by the plan, how often, where payments are to be made and in what form.

[16]

Biweekly and semimonthly are not the same frequency of payment. In some months, a biweekly payment to the trustee may require three payments. Semimonthly, on the other hand, will always be twice monthly. Debtors do not always understand such subtleties, and yet the difference can be an immediate problem for the debtor (two full payments per year into the plan).

[17]

Section 1326(a)(1) requires the debtor to commence making payments but does not require that a debtor make equal payments under a plan.22 For example, if the debtor’s work is seasonal, the debtor can propose to make higher payments during the periods of higher income. Teachers who work on nine-month contracts often propose higher payments during the school year and lower payments or no payments during the summer months. Whatever arrangement matches the debtor’s income, it must be precisely stated in the plan, well understood by the debtor and carefully followed, or a motion to dismiss for failure to comply with § 1326 will be forthcoming from the trustee or a creditor. BAPCPA added a requirement in § 1325(a)(5) that periodic payments to allowed secured claim holders “shall be in equal monthly amounts.”23 It is possible that this new “equal payment” requirement with respect to secured claim holders will reduce the discretion of Chapter 13 debtors to make unequal payments under a plan.24

[18]

Counsel must give precise advice to Chapter 13 debtors with respect to the amount of the payments that must commence within 30 days of the petition. Prior to BAPCPA, that amount was the amount specified in the proposed plan. After BAPCPA, there are other components to the amount that must commence within 30 days of the petition—including payments of adequate protection to certain allowed secured claim holders and lease payments with respect to personal property leases.25 Adding up the amounts that commence and being very precise with instructions to the debtor are especially important and more difficult after BAPCPA. Because adequate protection payments before confirmation may be substantially less than the amount that must be paid on account of an allowed secured claim after confirmation,26 preconfirmation payments that must commence within 30 days of the petition are likely to be significantly different than the payments required from the debtor after confirmation. There will be more numbers to keep track of, and the amount that must be paid by the debtor will change quickly between the pre- and postconfirmation periods given the accelerated schedule for confirmation after BAPCPA.27 These factors conspire to make it more difficult for Chapter 13 debtors and their attorneys to commence payments in the right amount and on the right schedule.


 

1  Pub. L. No. 109-8, 119 Stat. 23 (2005).

 

2  11 U.S.C. § 1326(a)(1), as amended by Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, Pub. L. No. 109-8, 119 Stat. 23 (2005). See § 401.1 [ Preconfirmation Payments ] § 44.6  Preconfirmation Payments after BAPCPA.

 

3  Baxter v. Evans (In re Evans), 183 B.R. 331, 332 (Bankr. S.D. Ga. 1995) (Former § 1326(a)(1) typically required that payments commence no later than 45 days after the petition. “The plan is generally filed simultaneously with the petition . . . but if it is not then filed the petitioner must file a plan fifteen (15) days from the date of the petition filing. . . . Under the mandate of 11 U.S.C. § 1326(a)(1) . . . payments under the plan must commence no later than 45 days after filing the Chapter 13 petition.”).

 

4  11 U.S.C. § 1326(a)(1) before amendment by BAPCPA.

 

5  See § 401.1 [ Preconfirmation Payments ] § 44.6  Preconfirmation Payments after BAPCPA.

 

6  See §§ 216.1 [ Timing of Hearing on Confirmation ] § 115.1  Timing of Hearing on Confirmation before BAPCPA and 502.1 [ Timing of Hearing on Confirmation ] § 115.2  Timing of Hearing on Confirmation after BAPCPA.

 

7  See §§ 216.1 [ Timing of Hearing on Confirmation ] § 115.1  Timing of Hearing on Confirmation before BAPCPA and 502.1 [ Timing of Hearing on Confirmation ] § 115.2  Timing of Hearing on Confirmation after BAPCPA.

 

8  See §§ 48.1 [ Adequate Protection of Lienholders prior to Confirmation ] § 47.1  Adequate Protection of Lienholders before Confirmation, 401.1 [ Preconfirmation Payments ] § 44.6  Preconfirmation Payments after BAPCPA and 402.1 [ Disposition of Preconfirmation Payments ] § 44.7  Disposition of Preconfirmation Payments after BAPCPA. See, e.g., In re Cason, 190 B.R. 917 (Bankr. N.D. Ala. 1995) (In a jurisdiction that delays confirmation until after the claims bar date, debtors are required to commence making payments before confirmation in part to provide adequate protection to secured claim holders. Adequate protection requirement applies once a creditor with depreciating collateral moves for adequate protection or for relief from the stay. Debtors typically supply adequate protection by making periodic payments to the trustee before confirmation sufficient to cover depreciation. The trustee is required by § 1326 to accumulate all adequate protection payments and cannot distribute those payments until confirmation. After confirmation, accumulated payments are distributed contemporaneously to creditors entitled to adequate protection and to the holders of administrative expenses. If the accumulated funds are insufficient to pay adequate protection and administrative expense in full, the trustee will distribute the money pro rata. If confirmation is denied, a creditor entitled to adequate protection payments has the superpriority in § 507(b) and will receive the money accumulated by the trustee in advance of the payment of administrative expenses or the return of any funds to the debtor under § 1326.).

 

9  In re Vincente, 257 B.R. 168 (Bankr. E.D. Pa. 2001).

 

10  See §§ 401.1 [ Preconfirmation Payments ] § 44.6  Preconfirmation Payments after BAPCPA, 426.1 [ Adequate Protection Rights before Confirmation ] § 57.3  Preconfirmation Adequate Protection Rights after BAPCPA and 427.1 [ Preconfirmation Rights of Landlords and Lessors ] § 57.4  Preconfirmation Rights of Landlords and Lessors after BAPCPA.

 

11  In re Fiegi, 61 B.R. 994 (Bankr. D. Or. 1986).

 

12  See In re Smith, 85 B.R. 729 (E.D. Va. 1988) (Bankruptcy judge has discretion under § 1307(c) to excuse late payment under § 1326(a).).

 

13  See §§ 401.1 [ Preconfirmation Payments ] § 44.6  Preconfirmation Payments after BAPCPA, 402.1 [ Disposition of Preconfirmation Payments ] § 44.7  Disposition of Preconfirmation Payments after BAPCPA, 426.1 [ Adequate Protection Rights before Confirmation ] § 57.3  Preconfirmation Adequate Protection Rights after BAPCPA and 427.1 [ Preconfirmation Rights of Landlords and Lessors ] § 57.4  Preconfirmation Rights of Landlords and Lessors after BAPCPA.

 

14  258 B.R. 473 (Bankr. M.D. Ala. 2001).

 

15  258 B.R. at 479.

 

16  In re Walters, 223 B.R. 710 (Bankr. W.D. Mo. 1998). See § 211.1 [ To Reflect Changed Circumstances ] § 114.3  To Reflect Changed Circumstances.

 

17  In re Vincente, 257 B.R. 168, 177–78 (Bankr. E.D. Pa. 2001) (Plan provision that the debtor pay $547 per month directly to mortgage holder “commencing with the confirmation of this plan” does not satisfy the 30-day requirement in § 1326(a); amended plan filed 14 months later that required the debtor to immediately pay 14 monthly payments to the trustee could not cure the § 1326(a) defect. Original plan filed in October 1999 required the debtor to pay $5 per month to the trustee and $547 per month directly to a mortgage holder commencing with confirmation. “The Amended Plan provides for monthly payments reduced from $5 to the Trustee and $547 to Advanta ‘outside the plan’ to $450 to the Trustee for payment of Advanta under the plan commencing on November 13, 2000, not within 30 days of the commencement of the case. The fact that the initial payment is, by Debtor’s calculation, the equivalent of 14 months of payments at the new amount, does not cure the defect in the Plan which provided no payment until confirmation.” Citing In re Walters, 223 B.R. 710 (Bankr. W.D. Mo. 1998), “[d]ebtor’s belated attempt to cure the § 1326(a) violation is too little, too late. Accepting Debtor’s resolution, without any recognition of his duty to commence payments within 30 days of the filing of the petition unless the court orders otherwise, renders the § 1326(a) requirement meaningless.”).

 

18  143 B.R. 154 (Bankr. N.D. Ill. 1992).

 

19  143 B.R. at 159.

 

20  See In re Beckham, No. 01-31745, 2002 WL 32139306 (Bankr. W.D.N.C. Jan. 23, 2002) (unpublished) (Second counsel is sanctioned with payment of $750 in attorney fees for misrepresenting that debtor satisfied § 1326(a)(1) by tendering payments to former counsel.); In re Vincente, 257 B.R. 168, 178 n.18 (Bankr. E.D. Pa. 2001) (In a footnote, “the practice acknowledged by Debtor’s counsel of escrowing the contemplated payments until confirmation or the resolution of some adversary proceeding or claim objection is an unacceptable substitute for the duty to commence plan payments as required under § 1326(a).”); In re Barbee, 82 B.R. 470 (Bankr. N.D. Ill. 1988).

 

21  See § 248.1 [ Order to Debtor’s Employer ] § 125.1  Order to Debtor’s Employer.

 

22  In re Ridgley, 81 B.R. 65 (Bankr. D. Or. 1987) (Section 1326(a)(1) does not require that debtor make equal monthly payments under a plan.).

 

23  11 U.S.C. § 1325(a)(5)(B)(iii)(I), discussed in § 448.1 [ Equal Monthly Installments ] § 74.14  Equal Monthly Installments after BAPCPA.

 

24  See § 448.1 [ Equal Monthly Installments ] § 74.14  Equal Monthly Installments after BAPCPA.

 

25  See §§ 401.1 [ Preconfirmation Payments ] § 44.6  Preconfirmation Payments after BAPCPA, 402.1 [ Disposition of Preconfirmation Payments ] § 44.7  Disposition of Preconfirmation Payments after BAPCPA, 426.1 [ Adequate Protection Rights before Confirmation ] § 57.3  Preconfirmation Adequate Protection Rights after BAPCPA and 427.1 [ Preconfirmation Rights of Landlords and Lessors ] § 57.4  Preconfirmation Rights of Landlords and Lessors after BAPCPA.

 

26  See §§ 404.1 [ Adequate Protection before Confirmation ] § 47.2  Preconfirmation Adequate Protection after BAPCPA, 426.1 [ Adequate Protection Rights before Confirmation ] § 57.3  Preconfirmation Adequate Protection Rights after BAPCPA and 449.1 [ “Adequate Protection” after Confirmation ] § 74.15  “Adequate Protection” after Confirmation after BAPCPA.

 

27  See § 502.1 [ Timing of Hearing on Confirmation ] § 115.2  Timing of Hearing on Confirmation after BAPCPA.