Cite as: Keith M. Lundin, Lundin On Chapter 13, § 57.9, at ¶ ____, LundinOnChapter13.com (last visited __________).
The treatment of secured claims in Chapter 13 cases is almost always determined through negotiation rather than litigation.
If the debtor proposes to retain collateral, creditor’s counsel should attempt agreement on the value of the collateral, the amount and timing of payments through the plan and the interest rate that will compensate for the delay in payment of the secured claim.1 Skill at negotiating value, monthly payment and interest rate is more important to secured creditors in Chapter 13 practice than prowess as a litigator.
The ammunition in this negotiation is knowledge of prevailing interest rates on secured claims in the district;2 evidence of value in the form of trade publications, recent sale information or an appraisal; judgment of the likely outcome of a court hearing on valuation; and some facility with mathematical calculation.3 For example, if the court accepts the value of cars listed in a trade publication4 and if the method of determining the rate of interest on secured claims in Chapter 13 cases has been fixed in reported decisions,5 counsel can negotiate to approximate those outcomes before the confirmation hearing. A negotiated treatment through the plan will speed up confirmation, payments will begin sooner and creditors will receive their money sooner.
Secured claim holders sometimes insist that they are better off with a surrender of their collateral than with the payment of its value with interest over the life of the plan. Negotiating for a creditor may include offering to accept collateral from the debtor in exchange for the surrender of other rights. For example, especially when the debtor proposes less than 100 percent payment to unsecured claim holders, secured claim holders will often accept their collateral “in full satisfaction”—a return of the collateral in exchange for no unsecured deficiency claim by the creditor.
If the claim holder is oversecured, creditor’s counsel has statutory leverage to negotiate for interest, attorneys’ fees and other costs called for by the security instruments.6
To enhance negotiating position, counsel for a secured claim holder should file an early proof of claim asserting the creditor’s value of collateral. The proof of claim, if properly executed, constitutes prima facie evidence of the validity and amount of the claim7 and forces the debtor to negotiate or undertake the more expensive process of litigating an objection to the claim.
2 See § 112.1 [ Interest Rate Anarchy: Present Value Before Till ] § 77.2 Interest Rate Anarchy: Present Value before Till.
3 See § 114.1 [ Calculating Payments to Secured Claim Holders ] § 78.2 Calculating Payments to Secured Claim Holders. See also Apps. C and D.
4 See § 76.4 Valuation in Chapter 13 Cases before Rash, § 76.5 Rash and Valuation, a class="LOC13FootnoteToSectionLink" href="/Content/Section/76.6" target="_blank">§ 76.6 Valuation after Rash/a>, and § 76.7 Valuation after BAPCPA.
5 See §§ 111.1 [ “Value, As of the Effective Date of the Plan” Means Interest ] § 77.1 “Value, As of the Effective Date of the Plan” Means Interest and 112.1 [ Interest Rate Anarchy: Present Value Before Till ] § 77.2 Interest Rate Anarchy: Present Value before Till.
6 See § 116.1 [ Oversecured Claim Holders ] § 78.5 Oversecured Claim Holders.
7 Fed. R. Bankr. P. 3001(f).