Cite as: Keith M. Lundin, Lundin On Chapter 13, § 86.3, at ¶ ____, LundinOnChapter13.com (last visited __________).
To the extent that there is no security or collateral for a debt and no right of setoff, it is an unsecured claim.1 Signature notes, most credit card debt, hospital bills, utility bills, deficiencies remaining after liquidation of collateral, church pledges, educational loans, damages upon rejection of a lease or executory contract and the portion of any claim that exceeds the value of collateral are common examples of unsecured claims. The claim that remains after a lien is stripped off of collateral is an unsecured claim. Some reported decisions allow an unsecured claim when a lien is stripped off real property in a Chapter 13 case notwithstanding that the debtor discharged personal liability in a prior Chapter 7 case.2
Priority claims such as prepetition taxes are unsecured claims with the possible (rare) exception of alimony or support secured by a lien in cases filed after October 22, 1994.3 Priority claims are often treated differently than other unsecured claims in Chapter 13 cases because of the requirement in 11 U.S.C. § 1322(a)(2) that priority claims be paid in full.4
Identifying unsecured claims in Chapter 13 cases often involves determining the portion of an undersecured claim that is in fact an unsecured claim. For example, a creditor with a $50,000 claim secured by real property worth $30,000 is actually the holder of two claims—a $30,000 secured claim and a $20,000 unsecured claim.5 For eligibility purposes, there is disagreement whether debts should be split into secured and unsecured claims.6 There is no dispute that at confirmation the debtor’s plan must differentiate between secured and unsecured portions of a claim.7 Neglect to split a partially secured claim may violate the prohibition against unfair discrimination by classification in § 1322(b)(1).8
Chapter 13 lawyers often forget to schedule the unsecured claims that result from the rejection of leases or executory contracts. If the debtor leased a car or an apartment and rejects the lease before or as part of the plan, the lessor or landlord will have an unsecured claim, subject to statutory limitations.9
Claims for alimony, maintenance or support are almost always unsecured claims but are usually afforded special treatment because they are nondischargeable and if not paid can land the debtor in jail.10 After the Bankruptcy Reform Act of 1994, claims for alimony, maintenance or support are usually priority claims entitled to full payment under 11 U.S.C. § 1322(a)(2).11
1 See 11 U.S.C. § 506(a), which defines an allowed secured claim as an allowed claim “secured by a lien on property . . . or that is subject to setoff.”
3 See §§ 99.1 [ What Claims Are Priority Claims? ] § 73.2 What Claims Are Priority Claims?, 100.3 [ Secured Priority Claims? ] § 73.7 Secured Priority Claims? and 291.1 [ Treatment of Priority Claims ] § 136.1 Treatment of Priority Claims–301.1 [ Alimony, Maintenance and Support in Cases Filed after October 22, 1994 ] § 136.20 Alimony, Maintenance and Support in Cases Filed after October 22, 1994.
4 See §§ 98.1 [ Plan Must Provide Full Payment ] § 73.1 Plan Must Provide Full Payment, 151.1 [ Priority Claims ] § 87.4 Priority Claims and 291.1 [ Treatment of Priority Claims ] § 136.1 Treatment of Priority Claims.
5 11 U.S.C. § 506(a).
6 See § 14.1 [ Are Claims Split under 11 U.S.C. § 506(a)? ] § 14.4 Are Claims Split under 11 U.S.C. § 506(a)?.
7 The ordinary application of § 506(a) to split undersecured debts into secured and unsecured claims at confirmation of a Chapter 13 plan was disrupted by the Supreme Court in Nobelman v. American Savings Bank, 508 U.S. 324, 113 S. Ct. 2106, 124 L. Ed. 2d 228 (1993). As detailed in § 118.1 [ Most Home Mortgages Cannot Be Modified: § 1322(b)(2) and Nobelman ] § 79.1 Most Home Mortgages Cannot Be Modified: § 1322(b)(2) and Nobelman, Nobelman interpreted § 1322(b)(2) to prohibit the splitting of an undersecured claim secured only by real property that is the debtor’s principal residence. Nobelman can be viewed as an exception to the general rule that the Chapter 13 plan must provide separately for the secured and unsecured portions of an undersecured claim.
8 See §§ 103.3 [ Partially Secured Claims ] § 74.10 Partially Secured Claims, 155.2 [ Long-Term Debts ] § 88.9 Long-Term Debts and 157.1 [ Direct Payments by Debtor ] § 89.1 Direct Payments by Debtor.
9 See 11 U.S.C. § 502(b)(6). See also § 174.2 [ Rejection Generates Unsecured Claim ] § 102.5 Rejection Generates Unsecured Claim.
10 See § 152.2 [ Alimony, Maintenance and Support ] § 88.4 Alimony, Maintenance and Support.
11 See 11 U.S.C. § 507(a)(7), as amended by Bankruptcy Reform Act of 1994, Pub. L. No. 103-394, § 304, 108 Stat. 4106 (1994), discussed in §§ 99.1 [ What Claims Are Priority Claims? ] § 73.2 What Claims Are Priority Claims?, 151.1 [ Priority Claims ] § 87.4 Priority Claims, 152.2 [ Alimony, Maintenance and Support ] § 88.4 Alimony, Maintenance and Support and 301.1 [ Alimony, Maintenance and Support in Cases Filed after October 22, 1994 ] § 136.20 Alimony, Maintenance and Support in Cases Filed after October 22, 1994.