§ 72.6 — Model Plan (BAPCPA)
Revised: July 3, 2007
The Model Chapter 13 Plan that was first drafted by a group of bankruptcy professionals at the Advanced Consumer Bankruptcy Practice Institute in 2002 has been redrafted to address Code changes by BAPCPA. The Model Plan (BAPCPA) is printed in Appendix GG. It is available in electronic form from the publisher of this book at www.bankruptcypress.com.
Although much can be said in favor of an official form for the Chapter 13 plan, at this writing there is no such form and no consistency in the Chapter 13 plans across districts. Perhaps the Model Plan (BAPCPA) will suggest to practitioners, trustees and judges relatively simple and compact ways to deal with the new challenges of BAPCPA.
BAPCPA compels the Chapter 13 plan to become longer and more complicated. The pre-BAPCPA Model Chapter 13 Plan barely required two sides of one piece of paper. The trustees and lawyers who drafted the original Model Plan wanted a form that would be easily recognized and digested by creditors and that was hard to corrupt.
BAPCPA pushes these goals almost out of reach. The lobbyists who drafted the new protections for car lenders1 and who rewrote the disposable income test2 either didn’t understand or didn’t care about the economics of Chapter 13 plans. BAPCPA requires Chapter 13 debtors to satisfy new tests for confirmation that are not based on the realities of the value of collateral or the income available to fund a plan. Debtors and their counsel may have to offer options through the plan that won’t easily reduce to one line statements. The inevitable result is that Chapter 13 plans will get longer and more complicated. This is a challenge for the debtors’ attorneys who construct the plans and for creditors who will receive plans and summaries of plans that are unfamiliar and significantly more difficult to process.
Those of you who are familiar with the original Model Plan will notice two fundamental changes in the BAPCPA version. First, the Model Plan (BAPCPA) anticipates that Chapter 13 debtors will make greater use of the power to surrender collateral to deal with BAPCPA changes to the treatment of secured claims in the new hanging sentence at the end of § 1325(a).3 Oversimplified, the hanging run-on sentence prohibits application of § 506 to purchase money car loans incurred within 910 days of the petition, when the car was acquired for the personal use of the debtor.4 This new concept of a “secured” debt that is not valued under § 506 is inartfully worded and will be a source of much litigation. But the obvious dilemma for Chapter 13 debtors is that the plan must either provide for full payment of the debt without regard to value or surrender the collateral or the lienholder must accept some other treatment to satisfy the confirmation standard in § 1325(a)(5).5
Attorneys for Chapter 13 debtors will evaluate each car claim and advise their clients in many cases that paying the entire debt to keep a car that isn’t worth that debt is a bad deal. At that point, the options available to the debtor are either surrender the car or convince the lienholder to accept some other treatment.
The Model Plan (BAPCPA) deals with these problems of presentation by alternative provisions. Debtors are encouraged by the form to value cars (and other collateral subject to the new hanging sentence at the end of § 1325(a)) and to offer lienholders the option of accepting full payment of that value through the plan with interest. If the lienholder does not accept the proposed valuation and payment through the plan, then the Model Plan (BAPCPA) defaults to surrender of the collateral. This presents both debtors and creditors with clear, simple choices: accept the economic value of the collateral in periodic payments that include present value (interest) or come get the car. Creditors can make a rational decision based on the cost of repossession, etc.—the debtor’s proposed valuation and interest rates makes the lienholder better off or worse off than repossession and resale of the collateral.
The second basic change in the Model Plan (BAPCPA) is in the treatment of unsecured creditors. BAPCPA’s distortion of the disposable income test6 computes the entitlement of unsecured claim holders in a Chapter 13 case based on the debtor’s historical average income for six months before the filing of the petition.7 For debtors with “current monthly income” greater than applicable median family income,8 the amount that unsecured claim holders must be paid uses a mathematical formula that will reflect the actual financial circumstances of the debtor only by coincidence. As a result, the linear mathematics of the pre-BAPCPA Model Plan which required Chapter 13 debtors to exhaust their disposable income based on an actual budget is replaced in the Model Plan (BAPCPA) by a statement of the amount that falls out of the bottom of the new disposable income test, multiplied by the applicable commitment period.9 Because the reconfigured disposable income test is not reality-based, the amount calculated may have no relationship to the amount of money available for payment of creditors through the plan. The Model Plan (BAPCPA) attempts to accommodate these inconsistent conditions by disconnecting the amount of money available to make payments through the plan from the minimum amount that must be paid to unsecured creditors. The outcome is intellectually dishonest but is true to BAPCPA.
The Model Plan (BAPCPA) incorporates several other new requirements for confirmation. It eliminates the option for early release of liens,10 requires equal installment payment of allowed secured claims,11 addresses the new tax12 and domestic support obligation13 requirements and contains new space for debtors to specify preconfirmation payments to lessors14 and allowed purchase money lienholders15 so that Chapter 13 trustees will know whom to pay and how much to pay between the petition and confirmation.
The Model Plan (BAPCPA) in Appendix GG does not pretend to be a comprehensive solution to all of the new challenges of BAPCPA. It is hoped that it offers some damage control suggestions for attorneys who must quickly transit into the unmapped world of BAPCPA.
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 discussion of projected disposable income test beginning at § 91.1 In General.
3 See 11 U.S.C. § 1325(a), discussed in §§ 451.1 [ In General: Modification Without § 506 ] § 75.1 In General: Modification Without § 506 and 462.1 [ 910-Day PMSI Car Claims: A Reprise ] § 87.7 910-Day PMSI Car Claims after BAPCPA: A Reprise.
4 The hanging run-on sentence also blocks use of § 506 for anything of value that is collateral for a purchase money debt incurred within one year of the petition. See § 451.1 [ In General: Modification Without § 506 ] § 75.1 In General: Modification Without § 506.
5 See §§ 445.1 [ Acceptance of Plan ] § 74.4 Acceptance of Plan after BAPCPA, 446.1 [ Surrender of Collateral ] § 74.6 Surrender, Sale, Vesting in Lienholder and Payment with Property after BAPCPA and 451.1 [ In General: Modification Without § 506 ] § 75.1 In General: Modification Without § 506.
6 See discussion of projected disposable income test beginning at § 92.1 In General.
7 See §§ 379.1 [ Form B22C: Statement of Current Monthly Income ] § 36.19 Form 122C-1: Statement of Current Monthly Income and 468.1 [ Current Monthly Income: The Baseline ] § 92.3 Current Monthly Income: The Baseline.
8 See § 469.1 [ Comparison of CMI to Applicable Median Family Income: § 1325(b)(3) ] § 92.4 Household Size and Comparison of CMI to Median Family Income: § 1325(b)(3).
9 See § 493.1 [ Applicable Commitment Period Calculation ] § 100.1 Applicable Commitment Period Calculation.
10 See 11 U.S.C. § 1325(a)(5)(B)(i)(I), discussed in § 447.1 [ Lien Retention, Including in No-Discharge Cases ] § 74.13 Lien Retention after BAPCPA, Including in No-Discharge Cases.
11 See 11 U.S.C. § 1325(a)(5)(B)(iii)(I), discussed in § 448.1 [ Equal Monthly Installments ] § 74.14 Equal Monthly Installments after BAPCPA.
12 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.
13 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.
14 See 11 U.S.C. § 1326(a)(1)(B), discussed in §§ 401.1 [ Preconfirmation Payments ] § 44.6 Preconfirmation Payments after BAPCPA and 427.1 [ Preconfirmation Rights of Landlords and Lessors ] § 57.4 Preconfirmation Rights of Landlords and Lessors after BAPCPA
15 See 11 U.S.C. § 1326(a)(1)(C), discussed in §§ 401.1 [ Preconfirmation Payments ] § 44.6 Preconfirmation Payments after BAPCPA and 426.1 [ Adequate Protection Rights before Confirmation ] § 57.3 Preconfirmation Adequate Protection Rights after BAPCPA. See, e.g., In re Brown, 348 B.R. 583 (Bankr. N.D. Ga. 2006) (Revised Model Chapter 13 Plan for the Northern District of Georgia provides option whether preconfirmation adequate protection payments will be made directly to an allowed secured claim holder or paid to the trustee and imposed with an “administrative lien” pending distribution; these options are consistent with § 1326(a).).