Cite as: Keith M. Lundin, Lundin On Chapter 13, § 57.11, at ¶ ____, LundinOnChapter13.com (last visited __________).
During the preconfirmation period, unsecured claim holders must either find a way to stop the case entirely by dismissal1 or develop the facts and arguments that will maximize what the debtor must pay unsecured claim holders at confirmation. At confirmation unsecured claim holders have two key statutory rights: (1) they must receive at least what would be paid upon a hypothetical liquidation under Chapter 7;2 and (2) upon objection by an allowed unsecured claim holder, the debtor must commit all projected disposable income to the plan for at least three years.3
The time between filing and the deadline for objections to confirmation is the only time an unsecured claim holder will have in which to determine the hypothetical liquidation value of the estate and to discover the debtor’s income and expenses. Counsel for an unsecured claim holder who is suspicious of the debtor should pay special attention to the debtor’s exemption claims, to the values the debtor has assigned to property in the schedules and to the reasonableness of the debtor’s budget. A modest change in a budget item in response to pressure from an unsecured claim holder, when multiplied by the (minimum) 36 months of a plan, can make a substantial difference in the percentage paid to unsecured claim holders. In a jurisdiction where the percentage of repayment is an element of good faith for confirmation purposes,4 counsel for an unsecured creditor in a deep composition case should use the preconfirmation period to develop evidence bearing on the good-faith factors.5
2 The best-interests-of-creditors test in 11 U.S.C. § 1325(a)(4). See discussion beginning at § 90.1 In General: Plan Payments vs. Hypothetical Liquidation.
3 The disposable income test in 11 U.S.C. § 1325(b). See discussion beginning at § 91.1 In General.
4 See § 195.1 [ Percentage of Payment ] § 108.3 Percentage of Payment.
5 See discussion of good faith factors beginning at § 104.1 In General.