§ 113.1 — Plan Complies with Bankruptcy Code

Revised: June 7, 2004

[1]

The first test for confirmation of a Chapter 13 plan in § 1325(a)(1) states that the court shall confirm a plan if “the plan complies with the provisions of this chapter and with the other applicable provisions of this title.”1 This catchall condition for confirmation is logically difficult to prove. In a jurisdiction that assigns to the debtor the burden of proving the § 1325(a) requirements,2 the debtor cannot be expected to address each of the sections of the Code that might be applicable to a Chapter 13 plan. Instead, courts focus on the more specific requirements for confirmation in §§ 1325(a) and 1322 that are asserted as objections to confirmation.

[2]

Another way to look at § 1325(a)(1) is that it is encompassing of all of the tests for confirmation: whenever the plan violates any provision of Chapter 13 or of the Bankruptcy Code generally, § 1325(a)(1) can also be cited as a section of the Code that bars confirmation.3 Creditors are rarely advantaged to assert § 1325(a)(1) as a ground for objection to confirmation. Section 1325(a)(1) is likely to be interpreted as a sign of weakness of position: when the only thing a creditor has to say in opposition to confirmation is that the plan doesn’t comply with Chapter 13, chances are the creditor has an unloaded gun (or is unfamiliar with Chapter 13 practice).

[3]

Almost every aspect of a Chapter 13 plan is directly addressed by a more specific provision of § 1322 or § 1325, and a creditor’s objection to confirmation should be specific to the subsection that is really at issue. For example, if the plan assumes an executory contract in a manner that is not consistent with § 365 of the Code, the objecting landlord or lessor might argue that the plan fails to satisfy the condition in § 1325(a)(1). But § 1322(b)(7) quite specifically defines the Chapter 13 debtor’s power to assume an executory contract “subject to § 365 of this title.”4 A generic reference to § 1325(a)(1) is not likely to focus the court or the debtor on the real issue—whether the plan complies with §§ 1322(b)(7) and 365.

[4]

The U.S. Court of Appeals for the Ninth Circuit found some dubious vitality for § 1325(a)(1). In Andrews v. Loheit (In re Andrews),5 the trustee objected to confirmation on the ground that the plan failed to satisfy the rights of secured claim holders. No creditor objected to confirmation. The debtors argued that the trustee lacked standing to challenge confirmation on behalf of secured claim holders. The bankruptcy court and bankruptcy appellate panel found standing under § 1325(a)(5)—the Code section that defines the rights of secured claim holders at confirmation.6 On further appeal, the Ninth Circuit upheld the trustee’s standing, but based on § 1325(a)(1).

[5]

The Ninth Circuit explained that § 1325(a)(5) was not a source of standing because the failure of all secured claim holders to object to confirmation “translates into acceptance of the plan by the secured creditor[s]” for purposes of § 1325(a)(5)(A).7 However, all was not lost for the trustee: “Because we find it problematic to confer standing in this instance under § 1325(a)(5), we affirm on the basis that the Chapter 13 trustee has standing to object under § 1325(a)(1).”8

[6]

The logic of Andrews is obscure. Acceptance of the plan by all secured claim holders fully satisfies § 1325(a)(5).9 The generic requirement in § 1325(a)(1) that the plan comply with the Code supplies neither a separate basis for objection to confirmation nor a source of standing for the trustee to object on behalf of creditors that accepted the plan. Andrews reasons backward from its result. Andrews would make sense if the objection to confirmation was prompted by too favorable treatment of an accepting secured claim holder. Then the trustee would object to confirmation on the ground that exceeding the confirmation standard in § 1325(a)(5) reduces the distribution to unsecured claim holders in violation of the disposable income test in § 1325(b).10 In that circumstance, standing to object to confirmation is conferred on the trustee by § 1325(b) and need not be searched for in § 1325(a)(1).

[7]

A more plausible use of the generic test for confirmation in § 1325(a)(1) is In re Robinson.11 In Robinson, the plan proposed to pay in full with administrative priority a debt that was not allowable under either § 503(b)(1) or § 507 of the Code. The bankruptcy court denied confirmation because the plan failed to comply with § 1325(a)(1): “A plan which proposes to pay a disallowed claim does not comply with the operative provisions of the Bankruptcy Code and may not be confirmed.”12


 

1  11 U.S.C. § 1325(a)(1).

 

2  See § 217.1 [ Burden of Proof ] § 115.3  Burden of Proof.

 

3  See, e.g., In re Damron, 275 B.R. 266 (Bankr. E.D. Tenn. 2002) (Plan that treated truck lease as a secured claim failed the confirmation requirement in § 1325(a)(1) because contract was a true lease and plan did not provide for assumption as required by § 1322(b)(7).); In re Nosker, 267 B.R. 555, 560 (Bankr. S.D. Ohio 2001) (Plan fails § 1325(a)(1) because “Debtor’s total failure to provide credible information” precluded the bankruptcy court from determining whether the debtor had regular income, whether the debtor was submitting sufficient income to fund the plan and whether the plan satisfied the disposable income test.); In re Vincente, 257 B.R. 168 (Bankr. E.D. Pa. 2001) (Requirement in § 1325(a)(1) is not satisfied because plan provision for commencement of direct payments to a mortgage holder at confirmation does not satisfy the 30-day requirement in § 1326(a).); In re Burrell, 186 B.R. 230 (Bankr. E.D. Tenn. 1995) (Requirement in § 1325(a)(1) that the plan comply with all of the provisions of Chapter 13 is violated by a tax protester’s proposal to pay only $159.63 per month for 36 months toward a priority claim of at least $25,600. The failure to satisfy the mandatory full-payment requirement in § 1322(a)(2) means that the plan cannot be confirmed under § 1325(a)(1).).

 

4  11 U.S.C. § 1322(b)(7). See § 51.3  Assume, Reject or Assign Leases, Rental Agreements and Executory Contracts and discussion beginning at § 102.1  Debtor Can Assume, Assign or Reject Executory Contracts.

 

5  49 F.3d 1404 (9th Cir. 1995).

 

6  See § 101.1 [ General Rules ] § 74.1  General Rules before BAPCPA.

 

7  49 F.3d at 1409.

 

8  49 F.3d at 1409.

 

9  See 11 U.S.C. § 1325(a)(5)(A), discussed in § 101.2 [ Acceptance of Plan ] § 74.3  Acceptance of Plan before BAPCPA.

 

10  See In re Dingley, 189 B.R. 264 (Bankr. N.D.N.Y. 1995) (Chapter 13 trustee has standing under § 1302(b)(2)(B) and duty to object to confirmation on the ground that proposed interest rate exceeds the appropriate “present value” rate under § 1325(a)(5). Duty arises because overpayment of interest to one secured claim holder reduces the funds available for distribution to all creditors.). See also discussion of projected disposable income test beginning at § 91.1  In General.

 

11  225 B.R. 228 (Bankr. N.D. Okla. 1998).

 

12  225 B.R. at 234.