Cite as: Keith M. Lundin, Lundin On Chapter 13, § 72.2, at ¶ ____, LundinOnChapter13.com (last visited __________).
In several fundamental and many more subtle ways, BAPCPA changed the drafting and confirmation of Chapter 13 plans. The fundamental changes focus on new preferred treatments of some kinds of secured debts1 and a reconstituted disposable income test that perversely distorts the original intent that Chapter 13 debtors make their “best effort” to pay creditors.2 These fundamental changes suggest complicated new plan-drafting strategies that are likely to result in less distribution to unsecured creditors in Chapter 13 cases. There is now partially secured debt that cannot be crammed down, and Chapter 13 debtors are likely to make greater use of surrendering collateral than before BAPCPA.3
Secured lenders are advantaged by a new prohibition against the early release of liens through Chapter 13 plans.4 Debtors are forced by BAPCPA to draft plans that provide equal monthly payments to each allowed secured claim holder—even when equal monthly payments make no economic sense.5 There is a new “adequate protection” requirement applicable to claims secured by personal property that will change the mathematics of Chapter 13 plans and complicate the payment of administrative and priority claims.6
Preconfirmation payments to lessors of personal property and to allowed purchase-money-secured claim holders will impede confirmation and disorder the timing and drafting of plans.7 BAPCPA dramatically increased the number and kinds of debts that are nondischargeable in Chapter 13 cases—multiplying the classification issues at confirmation.8
There are new duration rules for Chapter 13 plans that are not based on the imperatives of repaying debt but instead are derived from a mathematical calculation whether the debtor’s current monthly income is over or under applicable median family income.9 There is a new good-faith filing requirement for confirmation.10 There are new conditions for confirmation that all required tax returns must have been filed11 and all domestic support obligations must be current.12
It is likely that the many changes to Chapter 13 by BAPCPA will require longer Chapter 13 plans with more provisions and contingencies.13 Chapter 13 debtors will need more flexibility in the proposals they make to creditors in the plan. Some of the new provisions enacted by BAPCPA lack economic reality, and debtors will use the Chapter 13 plan to provide alternative treatments that can be accepted (or not) by creditors—more in the style of some Chapter 11 plans.
In the short run, debtors’ attorneys will have to expand and modify pre-BAPCPA plan forms to make room for the new requirements of BAPCPA and to manage the new rights of secured creditors within the bounds of reasonable financial risks for debtors. BAPCPA demands more resourcefulness and imagination in the drafting of plans.
Creditors are likely to be presented with more options and will be forced by BAPCPA to develop greater sophistication in the management of Chapter 13 cases. It cannot be said with any certainty that BAPCPA will produce greater returns to creditors in Chapter 13 cases. Early indications are that the expense of preparing and confirming a Chapter 13 plan has risen for debtors and for creditors because of BAPCPA.14
The sections that follow discuss the changes by BAPCPA to the drafting and confirmation of Chapter 13 plans starting with priority claims,15 then turning to secured claims16 and finally to the new rules for providing for unsecured claims.17 There are a few changes to the treatment of leases and executory contracts that bear on confirmation of a plan.18 Finally, there are sections on the new good-faith requirement19 and the new duration rules for Chapter 13 plans.20
1 See 11 U.S.C. § 1325(a), discussed in § 451.1 [ In General: Modification Without § 506 ] § 75.1 In General: Modification Without § 506.
2 See 11 U.S.C. § 1325(b), discussed beginning at § 92.1 In General.
3 See § 446.1 [ Surrender of Collateral ] § 74.6 Surrender, Sale, Vesting in Lienholder and Payment with Property after BAPCPA.
4 11 U.S.C. § 1325(a)(5)(B)(i), discussed in § 447.1 [ Lien Retention, Including in No-Discharge Cases ] § 74.13 Lien Retention after BAPCPA, Including in No-Discharge Cases.
5 11 U.S.C. § 1325(a)(5)(B)(iii)(II), discussed in § 448.1 [ Equal Monthly Installments ] § 74.14 Equal Monthly Installments after BAPCPA.
6 11 U.S.C. § 1325(a)(5)(B)(ii)(II), discussed in § 449.1 [ “Adequate Protection” after Confirmation ] § 74.15 “Adequate Protection” after Confirmation after BAPCPA.
7 See 11 U.S.C. § 1326(a)(1), discussed in § 401.1 [ Preconfirmation Payments ] § 44.6 Preconfirmation Payments after BAPCPA.
9 See 11 U.S.C. §§ 1322(d) and 1325(b)(4), discussed in §§ 493.1 [ Applicable Commitment Period Calculation ] § 100.1 Applicable Commitment Period Calculation and 500.1 [ Length of Plan ] § 112.2 Length of Plan after BAPCPA.
10 See 11 U.S.C. § 1325(a)(7), discussed in § 496.1 [ Good-Faith Filing Requirement ] § 110.1 Good-Faith Filing Requirement after BAPCPA.
11 See 11 U.S.C. § 1325(a)(9), discussed in § 499.1 [ All Tax Returns Must Be Filed ] § 113.4 All Tax Returns Must Be Filed.
12 See 11 U.S.C. § 1325(a)(8), discussed in § 498.1 [ Domestic Support Obligations Must Be Current ] § 113.3 Domestic Support Obligations Must Be Current.
13 See § 439.1 [ Model Plan (BAPCPA) ] § 72.6 Model Plan (BAPCPA) for discussion of Model Plan (BAPCPA).
14 See § 515.1 [ Debtors’ Attorneys’ Fees ] § 136.7 Debtors’ Attorneys’ Fees after BAPCPA.
15 See discussion of priority claims beginning at § 73.1 Plan Must Provide Full Payment.
16 See discussion of secured claims beginning at § 74.1 General Rules before BAPCPA.
17 See discussion of unsecured claims beginning at § 86.1 In General.
18 See § 495.1 [ Leases and Executory Contracts after BAPCPA ] § 102.3 Leases and Executory Contracts after BAPCPA.
19 See § 496.1 [ Good-Faith Filing Requirement ] § 110.1 Good-Faith Filing Requirement after BAPCPA.
20 See § 500.1 [ Length of Plan ] § 112.2 Length of Plan after BAPCPA.