§ 73.1 — Plan Must Provide Full Payment

Revised: May 10, 2010

[1]

Absent agreement to other treatment, the Chapter 13 plan must provide for full payment (with one exception),1 in deferred cash payments,2 of all claims that are entitled to priority under 11 U.S.C. § 507.3 Section 507 contains a long list of claims that have priority, including domestic support obligations,4 wage claims, and taxes.5 The order of the priority claims in § 507 is not relevant in a Chapter 13 case—all the priority claims listed are entitled to full payment in a Chapter 13 case without regard to where they appear in the list.6

[2]

The phrase “full payment” is not specifically defined in § 1322(a)(2) or anywhere else in the Code. Intuitively, it conveys that the plan must pay the entire amount of any priority claim. Discussed in detail elsewhere,7 the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA)8 amended § 1322(a)(4) to permit a plan to provide “less than full payment” of a domestic support obligation assigned to a governmental entity if assigned for purposes other than collection, but only if the debtor commits to the plan “all of the debtor’s projected disposable income for a 5-year period.”9 As demonstrated below,10 full payment does not necessarily mean payment according to contract or state law. Perhaps more importantly, there is no “present value” component to full payment—for the most part priority claims can be paid in full through a Chapter 13 plan without postpetition interest.11

[3]

The general rule of payment in full of priority claims without postpetition interest has important exceptions, two of which were added by BAPCPA. The largest exception is probably domestic support obligations in Chapter 13 cases filed on or after October 17, 2005. Detailed elsewhere,12 a domestic support obligation, as defined by BAPCPA in § 101(14A), includes “interest that accrues on that debt . . . under applicable nonbankruptcy law notwithstanding any other provision of this title.”13 After BAPCPA, domestic support obligations are a special class of claim that includes accruing postpetition interest. The full-payment mandate in § 1322(a)(2) could be interpreted to include any postpetition interest that accrues as part of a domestic support obligation.14

[4]

A second exception to the general rule that priority claims are paid in full without interest is the permissive power added by BAPCPA to § 1322(b)(10): the plan can provide for the payment of interest “accruing after the date of the filing of the petition on unsecured claims that are nondischargeable under section 1328(a), . . . only to the extent that the debtor has disposable income available to pay such interest after making provision for full payment of all allowed claims.”15 Unsecured claims that are nondischargeable and also entitled to priority would include domestic support obligations16 and some drunk driving claims.17 After BAPCPA, there are also some tax debts that would be both priority and nondischargeable—for example, withholding taxes entitled to priority under § 507(a)(8)(C) and unfiled, fraudulently filed or willfully evaded taxes described in § 523(a)(1)(B) and (C).18 Debts that are both priority and nondischargeable could be paid postpetition interest when there is available disposable income as described in new § 1322(b)(10). Because this power to pay postpetition interest is permissive only, it is not part of the mandate for payment of priority claims in full under § 1322(a)(2); but because these debts are nondischargeable, paying postpetition interest will be in the debtor’s best interest whenever there is sufficient income to do so.

[5]

Finally, there may be a class of administrative expenses that would be entitled to priority and postpetition interest. Administrative expense tax claims may fall in this category.19

[6]

Full payment may not be the same as the amount a priority claim holder will ultimately be entitled to collect from the debtor. For example, payment in full of a priority claim that is also nondischargeable may leave a balance due for accrued but unpaid postpetition interest that will be a nondischargeable obligation of the debtor after completion of payments through the plan.20 After BAPCPA, if the debtor is able to take advantage of the permissive payment of interest on nondischargeable unsecured debt, the nondischargeable obligation remaining after plan completion will be reduced or eliminated.

[7]

The priority for alimony, maintenance and support added to the Code in 1994 as § 507(a)(7)21 generates many reported decisions implicating the full-payment requirement in § 1322(a)(2). In 2005, BAPCPA renamed and expanded this priority, moving “domestic support obligations” from the seventh priority to the first in § 507(a)(1).22 Past-due child support, spousal support and typically the attorneys’ fees associated with domestic relations litigation often fall within the definition of domestic support obligation and are priority claims under § 507(a)(1) that must be paid in full to accomplish confirmation of a Chapter 13 plan over the objection of a former spouse.23 Mentioned above, a domestic support obligation priority claim includes interest that accrues postpetition.24

[8]

Prior to the restructuring of priorities by BAPCPA, the first priority was “administrative expenses allowed under section 503(b)” and “fees and charges” under Chapter 123 of Title 28.25 In 2005, administrative expenses and filing fees were moved to § 507(a)(2).26 Technically, only priority claims listed in § 507 are entitled to full payment (without interest)27 under § 1322(a)(2). Most Chapter 13 plans and many reported decisions28 treat expenses of administration the same as priority claims: payment in full without postpetition interest. Attorneys’ fees and filing fees typically are treated this way.

[9]

There is overlap and imprecision in the Code’s treatment of priority claims, administrative expenses and postpetition claims. Characterizing an expense of administration as a priority claim or as a postpetition claim has consequences for the method of asserting the debt, the timing of filing, the statutory conditions for allowance, the treatment required by the plan and whether the debt will be discharged.29

[10]

Although there is contrary authority,30 the consent or agreement necessary to treat a priority claim holder differently than full payment has generally been held to require something more than just the claim holder’s failure to object to confirmation of a plan.31 In other contexts, courts have interpreted a creditor’s failure to object to confirmation as consent to the treatment proposed by the plan if notice of the plan was adequate.32 But the reported cases suggest that debtor’s counsel should not rely on inaction by a priority claim holder to accomplish less than full payment through confirmation of the plan. If the plan proposes any other treatment—for example, payment of a priority claim by the surrender of property33 direct payment by the debtor not through the Chapter 13 trustee,34 or continuing payments after plan completion35—counsel should seek consent of the claim holder because no treatment other than full payment through the plan can be forced on a priority claim holder. With respect to a priority child support claim,36 it has been held that the consent required for treatment other than full payment under § 1322(a)(2) must be given personally by the ex-spouse and not by a child support collection agency or officer absent evidence that the claim has been assigned to the agency or officer.37 Failure to provide full payment or to get consent to a different treatment is fatal to confirmation38 or may lead to trouble after confirmation.

[11]

The U.S. Court of Appeals for the Seventh Circuit has held that the failure to provide for full payment of a priority claim has significant consequences for Chapter 13 debtors that aren’t avoided by confirmation. In In re Escobedo,39 the plan proposed to pay $25 per month to the Chapter 13 trustee for 36 months. Notice was given to all creditors, and no one objected to confirmation. After confirmation, priority claims were filed and allowed in the amount of $24,158. Obviously, the debtor could not pay priority claims in full in 36 months at the rate of $25 per month. However, the debtor never modified the plan, but simply continued to make $25-per-month payments.

[12]

After nearly five years of payments into the plan, the Chapter 13 trustee moved to dismiss the case. The Seventh Circuit held that dismissal was appropriate. This outcome would not be remarkable had the Seventh Circuit only found “cause” for dismissal under § 1307 that priority claims exceeded the amount that could be paid through the confirmed plan within the five-year time limit fixed by § 1322(d).40 Unfortunately, the Seventh Circuit explained the consequences of the plan’s failure to pay priority claims in full in much broader terms:

Any plan lacking the requirements of § 1322(a)(2) . . . cannot be confirmed without the claim holder’s consent. . . . A bankruptcy court lacks the authority to confirm any plan unless it “complies with the provision of this chapter and with the other applicable provisions of this title.” . . . Debtor’s proposed plan did not comply with § 1322(a)(2). As a result of this failure, any supposed confirmation was nugatory and properly dismissed. . . . Mandatory requirements such as § 1322(a)(2), by definition, cannot be absent from a confirmable Chapter 13 plan. . . . We conclude that this Plan was invalid for failing to include the mandatory provisions of § 1322(a)(2), and has no res judicata effect as to the omitted priority claims.41
[13]

“Nugatory” is not sweet news for debtors—it means “of no force; inoperative; ineffectual.”42 Discussed in detail elsewhere,43 confirmation of a Chapter 13 plan ordinarily is binding on all creditors and has res judicata effect with respect to all objections that could have been raised. That a proposed plan fails to provide the means for paying priority claims in full as required by § 1322(a)(2) would certainly be an effective objection to confirmation. Ordinarily, an objection to confirmation cannot be asserted as a collateral attack once the confirmation order becomes final. Escobedo unnecessarily impairs the binding effect of confirmation orders under § 1327 by concluding that the full payment requirement in § 1322(a)(2) renders confirmation “nugatory.” The problem in Escobedo was plan duration—$25 per month would not retire $24,158 within the five years tolerated by § 1322(d). Priority creditors should not misinterpret Escobedo as a broad invitation to collateral attack of confirmation orders under § 1322(a)(2).44 An objection before confirmation is the best way to ensure the full payment entitlement of a priority claim holder.

[14]

The Escobedo outcome has been rejected in an (unpublished) district court decision on very similar facts. In Meyer v. Pagano,45 the unambiguous “pot plan”46 confirmed without objection called for 36 monthly payments of $100. Priority claim holders filed proofs of claim totaling $157,910. Applying Great Lakes Higher Education Corp. v. Pardee (In re Pardee),47—a Ninth Circuit decision in which student loan creditors that failed to object were bound by confirmation of a plan that discharged student loans—the district court rejected Escobedo and held that the priority claim holders’ failure to object to confirmation forfeited their rights to full payment under § 1322(a). In the short run, this was a great outcome for the debtor, but this “gotcha” approach is not especially satisfying. Proposing a Chapter 13 plan that mathematically cannot pay priority claims in full is betting that priority claim holders (and the Chapter 13 trustee) are asleep.48

[15]

When the debtor is financially unable to pay priority claims in full, the debtor should first attempt to negotiate a compromise with the priority claim holders for payment of something less than the entire priority debt. If that negotiation fails, then the debtor might propose to pay part of the priority debt during the Chapter 13 case, with the balance to survive discharge at the completion of payments.49


 

1  In Chapter 13 cases filed on or after October 17, 2005, the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), Pub. L. No. 109-8, 119 Stat. 23 (2005), amended 11 U.S.C. § 1322(a)(4) to except from the full-payment requirement in § 1322(a)(2) claims entitled to priority under § 507(a)(1)(B)—domestic support obligations that have been assigned to a governmental entity for purposes other than collection. See below in this section, and see §§ 441.1 [ New and Changed Treatment of Priority Claims ] § 73.6  Treatment of Priority Claims Changed by BAPCPA, 458.1 [ Domestic Support Obligations Assigned or Payable to Government: § 1322(a)(4) ] § 88.5  Domestic Support Obligations Assigned or Payable to Government: § 1322(a)(4) after BAPCPA and 519.1 [ Domestic Support Obligations ] § 136.21  Domestic Support Obligations after BAPCPA.

 

2  See § 100.1 [ Deferred Payments Are Permitted ] § 73.4  Deferred Payments Are Permitted.

 

3  11 U.S.C. § 1322(a)(2) (“The plan shall—(2) provide for the full payment, in deferred cash payments, of all claims entitled to priority under section 507 of this title, unless the holder of a particular claim agrees to a different treatment of such claim”). See, e.g., In re Messinger, 241 B.R. 697 (Bankr. D. Idaho 1999) (Child support debt is a priority claim under § 507(a)(7) that must be paid in full under § 1322(a)(2).); In re King, 217 B.R. 623 (Bankr. S.D. Cal. 1998) (Claim for postpetition taxes allowed under § 502(b) was a priority claim under § 507(a)(8) that must be paid in full through the plan.); In re Burrell, 186 B.R. 230, 235 (Bankr. E.D. Tenn. 1995) (Tax protester’s proposal to pay $159.63 for 36 months to satisfy a priority claim of the IRS of at least $25,600 cannot be confirmed. “The plan does not comply with the provisions of § 1322(a)(2) and, therefore, does not meet the § 1325(a)(1) confirmation requirement.”). Accord United States v. Reynolds, 38 B.R. 725 (W.D. Va. 1984); National City Bank v. Purdy, 16 B.R. 847 (N.D. Ga. 1981); In re Driscoll, 57 B.R. 322 (Bankr. W.D. Wis. 1986); In re Healis, 49 B.R. 939 (Bankr. M.D. Pa. 1985); In re Miles, 39 B.R. 494 (Bankr. W.D.N.Y. 1984); In re Ferguson, 27 B.R. 672 (Bankr. S.D. Ohio 1982); In re Davis, 25 B.R. 177 (Bankr. N.D. Ga. 1982); In re Esser, 22 B.R. 814 (Bankr. E.D. Mich. 1982); In re Shebel, 22 B.R. 9 (Bankr. D. Vt. 1982); United States v. Hammett, 21 B.R. 923 (Bankr. E.D. Pa. 1982); In re Pearson, 10 B.R. 189 (Bankr. E.D.N.Y. 1981); In re Collister, 8 B.R. 510 (Bankr. M.D. Fla. 1981); In re Wilhelm, 6 B.R. 905 (Bankr. E.D.N.Y. 1980); Fishman v. Epps, 6 Bankr. Ct. Dec. (CRR) 379 (Bankr. S.D.N.Y. 1980).

 

4  In 2005, the former seventh priority for alimony, maintenance and support was folded into the broadened “domestic support obligation” in 11 U.S.C. § 101(14A) and redesignated as first priority in 11 U.S.C. § 507(a)(1). See § 73.2  What Claims Are Priority Claims?, § 73.3  Priority Claims Added or Changed by BAPCPA, § 73.5  Interest Not Required, with Exceptions, § 88.5  Domestic Support Obligations Assigned or Payable to Government: § 1322(a)(4) after BAPCPA,  § 136.17  Postpetition Interest on Priority Claims after BAPCPA and § 136.21  Domestic Support Obligations after BAPCPA.

 

5  See § 73.2  What Claims Are Priority Claims?, § 73.3  Priority Claims Added or Changed by BAPCPA§ 136.1  Treatment of Priority Claims and § 136.3  Taxes after BAPCPA.

 

6  See §§ 204.2 [ Order of Payments to Creditors ] § 113.7  Order of Payments to Creditors before BAPCPA, 441.1 [ New and Changed Treatment of Priority Claims ] § 73.6  Treatment of Priority Claims Changed by BAPCPA and 501.1 [ Order of Payments to Creditors ] § 113.8  Order of Payments to Creditors after BAPCPA for discussion of order of payments.

 

7  See §§ 441.1 [ New and Changed Treatment of Priority Claims ] § 73.6  Treatment of Priority Claims Changed by BAPCPA, 458.1 [ Domestic Support Obligations Assigned or Payable to Government: § 1322(a)(4) ] § 88.5  Domestic Support Obligations Assigned or Payable to Government: § 1322(a)(4) after BAPCPA and 519.1 [ Domestic Support Obligations ] § 136.21  Domestic Support Obligations after BAPCPA.

 

8  Pub. L. No. 109-8, 119 Stat. 23 (2005).

 

9  11 U.S.C. § 1322(a)(4), discussed in §§ 441.1 [ New and Changed Treatment of Priority Claims ] § 73.6  Treatment of Priority Claims Changed by BAPCPA, 458.1 [ Domestic Support Obligations Assigned or Payable to Government: § 1322(a)(4) ] § 88.5  Domestic Support Obligations Assigned or Payable to Government: § 1322(a)(4) after BAPCPA and 519.1 [ Domestic Support Obligations ] § 136.21  Domestic Support Obligations after BAPCPA.

 

10  See §§ 100.1 [ Deferred Payments Are Permitted ] § 73.4  Deferred Payments Are Permitted, 100.2 [ Interest Not Required, with Exceptions ] § 73.5  Interest Not Required, with Exceptions and 441.1 [ New and Changed Treatment of Priority Claims ] § 73.6  Treatment of Priority Claims Changed by BAPCPA.

 

11  See § 100.2 [ Interest Not Required, with Exceptions ] § 73.5  Interest Not Required, with Exceptions.

 

12  See §§ 440.1 [ New and Changed Priority Claims ] § 73.3  Priority Claims Added or Changed by BAPCPA, 441.1 [ New and Changed Treatment of Priority Claims ] § 73.6  Treatment of Priority Claims Changed by BAPCPA, 458.1 [ Domestic Support Obligations Assigned or Payable to Government: § 1322(a)(4) ] § 88.5  Domestic Support Obligations Assigned or Payable to Government: § 1322(a)(4) after BAPCPA and 519.1 [ Domestic Support Obligations ] § 136.21  Domestic Support Obligations after BAPCPA.

 

13  11 U.S.C. § 101(14A), as amended by Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), Pub. L. No. 109-8, 119 Stat. 23 (2005).

 

14  See §§ 299.1 [ Postpetition Interest on Priority Claims ] § 136.16  Postpetition Interest on Priority Claims before BAPCPA, 441.1 [ New and Changed Treatment of Priority Claims ] § 73.6  Treatment of Priority Claims Changed by BAPCPA and 519.1 [ Domestic Support Obligations ] § 136.21  Domestic Support Obligations after BAPCPA.

 

15  11 U.S.C. § 1322(b)(10), as amended by Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), Pub. L. No. 109-8, 119 Stat. 23 (2005), discussed in §§ 441.1 [ New and Changed Treatment of Priority Claims ] § 73.6  Treatment of Priority Claims Changed by BAPCPA, 459.1 [ Postpetition Interest on Nondischargeable Claims: § 1322(b)(10) ] § 88.3  Postpetition Interest on Nondischargeable Claims after BAPCPA: § 1322(b)(10) and 520.1 [ Postpetition Interest on Priority Claims ] § 136.17  Postpetition Interest on Priority Claims after BAPCPA.

 

16  See §§ 440.1 [ New and Changed Priority Claims ] § 73.3  Priority Claims Added or Changed by BAPCPA, 519.1 [ Domestic Support Obligations ] § 136.21  Domestic Support Obligations after BAPCPA and 552.1 [ Domestic Support Obligations: § 523(a)(5) ] § 159.5  Domestic Support Obligations: § 523(a)(5).

 

17  See §§ 440.1 [ New and Changed Priority Claims ] § 73.3  Priority Claims Added or Changed by BAPCPA, 522.1 [ The New DWI Priority ] § 136.22  The Driving or Boating while Intoxicated Priority after BAPCPA and 555.1 [ Boating or Flying while Intoxicated: § 523(a)(9) ] § 159.8  Boating or Flying while Intoxicated: § 523(a)(9).

 

18  See §§ 513.1 [ Taxes ] § 136.3  Taxes after BAPCPA and 548.1 [ Taxes ] § 159.1  Taxes.

 

19  See §§ 100.2 [ Interest Not Required, with Exceptions ] § 73.5  Interest Not Required, with Exceptions, 292.1 [ Taxes ] § 136.2  Taxes before BAPCPA, 299.1 [ Postpetition Interest on Priority Claims ] § 136.16  Postpetition Interest on Priority Claims before BAPCPA, 513.1 [ Taxes ] § 136.3  Taxes after BAPCPA, 520.1 [ Postpetition Interest on Priority Claims ] § 136.17  Postpetition Interest on Priority Claims after BAPCPA and 523.1 [ Miscellaneous Administrative Expenses and Priority Claims ] § 136.15  Miscellaneous Administrative Expenses and Priority Claims after BAPCPA. See, e.g., United States v. Fowler (In re Fowler), 394 F.3d 1208, 1212 (9th Cir. Jan. 12, 2005) (Rymer, Tallman, Bea) (Tax debt incurred during a Chapter 11 case before conversion to Chapter 13 can be an administrative expense that must be paid in full with interest as a priority claim; if the tax debt is treated as a prepetition unsecured claim, it has eighth priority and is entitled to payment in full under § 1322(a)(2) but without interest. “[T]he most important distinction between administrative expense tax claims and unsecured priority tax claims in Chapter 13 is that the IRS cannot recover interest on prepetition unsecured priority tax claims.” The court does not explain the statutory source for the right to interest on administrative expenses other than to note that administrative expenses entitled to priority include the penalties and interest that accrued during the Chapter 11 case prior to conversion.).

 

20  See, e.g., In re Messinger, 241 B.R. 697 (Bankr. D. Idaho 1999) (Child support debt is a priority claim under § 507(a)(7) that must be paid in full under § 1322(a)(2); however, full payment does not require the payment of postpetition interest. Unpaid postpetition interest is nondischargeable at the completion of payments under the plan.); In re Pitt, 240 B.R. 908, 911 (Bankr. N.D. Cal. 1999) (Sustains objections to confirmation of Chapter 13 plans that paid nondischargeable support claims in full without interest and purported to discharge the unpaid postpetition interest upon completion of payments. Debtors argued that the “full payment” requirement in § 1322(a)(2) permitted the payment of nondischargeable support through the plan at the amount owing on the date of the petition without postpetition interest and that completion of such a plan would discharge the postpetition interest. “Just as with priority tax debts, support debts bear interest under non-bankruptcy law but § 1322(a)(2) does not require that such interest be paid through the plan and a claim for post-petition interest on unsecured debt is not allowable against a bankruptcy estate under § 502 and [Bruning v. United States, 376 U.S. 358, 84 S. Ct. 906, 11 L. Ed. 2d 772 (1964)]. Unlike priority tax debts, however, support debts are not dischargeable in Chapter 13—therefore, any part of the debt that is not paid during the term of the plan and remains outstanding post-discharge (e.g., post-petition interest) is not rendered unenforceable against the bankruptcy debtor by virtue of the Chapter 13 discharge.”).

 

21  See § 99.1 [ What Claims Are Priority Claims? ] § 73.2  What Claims Are Priority Claims?.

 

22  See § 73.3  Priority Claims Added or Changed by BAPCPA§ 73.6  Treatment of Priority Claims Changed by BAPCPA§ 88.5  Domestic Support Obligations Assigned or Payable to Government: § 1322(a)(4) after BAPCPA§ 136.17  Postpetition Interest on Priority Claims after BAPCPA and § 136.21  Domestic Support Obligations after BAPCPA.

 

23  See §§ 99.1 [ What Claims Are Priority Claims? ] § 73.2  What Claims Are Priority Claims?, 152.2 [ Alimony, Maintenance and Support ] § 88.4  Alimony, Maintenance and Support and 303.1 [ Alimony, Maintenance and Support in Cases Filed before October 22, 1994 ] § 138.1  Alimony, Maintenance and Support in Cases Filed before October 22, 1994. See, e.g., In re Burnett, No. 1:01-BK-90019M, 2002 WL 32114472 (Bankr. W.D. Ark. Oct. 25, 2002) (unpublished) (Bureau for Child Support Enforcement’s objection to confirmation is sustained because plan fails to provide full payment of child support as required by § 1322(a)(2).); In re Dupree, 285 B.R. 759 (Bankr. M.D. Ga. 2002) (Confirmation denied because plan fails to provide full payment of priority claim for attorneys fees and child support ordered by state domestic relations court.); In re Eades, No. 02-10859, 2002 WL 31802477 (Bankr. N.D. Cal. Aug. 23, 2002) (unpublished) (Plan violates § 1322(a)(2) because it does not propose to pay in full a spousal support debt that would be entitled to priority under § 507(a)(7).).

 

24  See §§ 100.2 [ Interest Not Required, with Exceptions ] § 73.5  Interest Not Required, with Exceptions, 291.1 [ Treatment of Priority Claims ] § 136.1  Treatment of Priority Claims, 440.1 [ New and Changed Priority Claims ] § 73.3  Priority Claims Added or Changed by BAPCPA and 441.1 [ New and Changed Treatment of Priority Claims ] § 73.6  Treatment of Priority Claims Changed by BAPCPA.

 

25  11 U.S.C. § 507(a)(1) (emphasis added), prior to amendment by BAPCPA.

 

26  11 U.S.C. § 507(a)(2), as amended by BAPCPA.

 

27  See §§ 99.1 [ What Claims Are Priority Claims? ] § 73.2  What Claims Are Priority Claims?, 100.2 [ Interest Not Required, with Exceptions ] § 73.5  Interest Not Required, with Exceptions and 299.1 [ Postpetition Interest on Priority Claims ] § 136.16  Postpetition Interest on Priority Claims before BAPCPA.

 

28  See discussion of priority claims beginning at ">§ 136.1  Treatment of Priority Claims.

 

29  See § 73.2  What Claims Are Priority Claims?§ 73.3  Priority Claims Added or Changed by BAPCPA, § 73.10  Filing Fees, § 73.11  Filing Fees after BAPCPA§ 136.1  Treatment of Priority Claims§ 136.3  Taxes after BAPCPA§ 136.15  Miscellaneous Administrative Expenses and Priority Claims after BAPCPA§ 137.1  Postpetition Claims before BAPCPA§ 137.2  Postpetition Claims after BAPCPA and § 158.6  Postpetition Claims.

 

30  See Illinois Dep’t of Revenue v. Ayre (In re Ayre), 360 B.R. 880, 886 (C.D. Ill. Jan. 16, 2007) (Scott) (Although § 1322(a) provides priority claims must be paid in full, plan confirmed without objection bound Illinois Department of Revenue to amount fixed in plan for its priority claim because plan process litigated the disputed amount. Department was properly noticed and filed its proof of claim for $104,000, which was disputed in plan. Department did not object to confirmation of plan that proposed to pay claim “in full” at $10,500. Trustee objected to proof of claim based on binding effect of confirmation. District court concluded that “the confirmation process and the claims adjudication process are alternative methods to resolve a disputed claim. Since both result in litigation as contested matters, due process is met through the use of either method.”); Foltz v. United States (In re Foltz), 324 B.R. 250 (Bankr. M.D. Pa. Mar. 3, 2005) (France) (Plan stating that debtor would pay one-third of corporate liability for which he was personally responsible was confirmed without objection from IRS; postdischarge assessment by IRS of additional responsible person taxes and penalties was discharged because IRS failed to file timely claim for those prepetition obligations.); Meyer v. Pagano, No. C 01-0848 MMC, 2002 WL 31159110 (N.D. Cal. Sept. 25, 2002) (unpublished) (Priority claim holders are bound by confirmation of unambiguous “pot plan” that called for 36 monthly payments of $100; failure to object to confirmation forfeits full-payment rights of priority claim holders that filed proofs of claim for $157,910.); In re Hebert, 61 B.R. 44 (Bankr. W.D. La. 1986) (IRS’s failure to object to plan that proposed to pay tax claim in full but without interest constitutes an “agreement” to such treatment under § 1322(a)(2).).

 

31  Wolff v. Johnson (In re Johnson), 344 B.R. 104, 107–08 (B.A.P. 9th Cir. May 1, 2006) (Montali, Pappas, Bufford) (Provision that attorney’s fees remaining unpaid at completion of Chapter 13 case would not be discharged and would be paid directly by debtor was not inconsistent with Bankruptcy Code and constituted an agreement to less than full payment for purposes of § 1322(a)(2). “Debtor and Attorney agreed to a treatment of Attorney’s priority claim whereby Attorney waived his right to full payment under the plan as long as full payment was made directly by debtor after completion of the plan. This enabled Debtor to complete his plan payments without reducing or stretching out payments to other creditors. The Bankruptcy Code contemplates such arrangements, and the court confirmed a plan that explicitly provided such an arrangement.”); In re Glazier, No. 06-20116-D-13L, 2008 WL 2148555, at *4 (Bankr. E.D. Cal. May 20, 2008) (unpublished) (Bardwil) (Failure to object to confirmation of plan proposing to pay priority claims 60%, with balance to be paid after plan completion, was not an agreement to such treatment within the meaning of 11 U.S.C. § 1322(a)(2).); In re Northrup, 141 B.R. 171 (N.D. Iowa 1991) (Waiver of full payment priority under § 1322(a)(2) requires an express affirmation, not merely the failure to object to confirmation. Bankruptcy court “expressed its view” at the confirmation hearing that the plan was inadequate because it did not provide for full payment of priority claims. This was sufficient to protect the priority claimants from the binding effect of confirmation under § 1327(a) notwithstanding that no objection to confirmation was made by the priority claim holders.); In re Smith, 212 B.R. 830, 831 (Bankr. E.D. Va. 1997) (Failure to object to confirmation is not consent by taxing authority to a treatment other than full payment under § 1322(a)(2). Plan proposed to pay 20% of priority taxes to state of Virginia and to waive discharge with respect to the balance. On the Chapter 13 trustee’s objection to confirmation, debtor argued that Virginia’s failure to object was consent. “[T]his plan cannot be confirmed unless the state ‘consents’ to the plan provision as plainly required by § 1322(a)(2) . . . . The state’s failure to object to confirmation does not satisfy the consent requirement.”).

 

32  See discussion of acceptance of plans by failure to object in §§ 101.2 [ Acceptance of Plan ] § 74.3  Acceptance of Plan before BAPCPA and 445.1 [ Acceptance of Plan ] § 74.4  Acceptance of Plan after BAPCPA. See also discussion of binding effect of confirmation in § 229.1 [ 11 U.S.C. § 1327(a): Binding Effect on Creditors and Debtors ] § 120.2  11 U.S.C. § 1327(a): Binding Effect on Creditors and Debtors.

 

33  See In re Stockwell, 33 B.R. 303 (Bankr. D. Or. 1983).

 

34  See Florida v. Talley, No. 3:07-cv-510-J16, 2008 WL 1711410 (M.D. Fla. Apr. 10, 2008) (unpublished) (Moore) (Provision for payment of support obligation “outside” the plan does not satisfy Code requirement in § 1322(a)(2) that plan must propose to pay priority domestic support obligation in full.); In re Lybrand, 338 B.R. 402 (Bankr. W.D. Ark. Mar. 9, 2006) (Mixon) (Debtors must pay priority tax claim in full through plan and cannot use plan to require IRS to allocate setoff in favor of priority portion of its debt.); In re Evans, 66 B.R. 506 (Bankr. E.D. Pa. 1986).

 

35  See In re Griffin, No. 08-10033-DHW, 2008 WL 2278414, at *2 (Bankr. M.D. Ala. May 30, 2008) (unpublished) (Williams) (Absent consent, claim for domestic support obligation entitled to priority must be paid in full. “Although § 1322(a)(2) is clear that a priority claim must be paid in full, it is silent as to whether that claim must be paid in full during the term of the plan. Such treatment, however, is implied.”).

 

36  See §§ 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, 440.1 [ New and Changed Priority Claims ] § 73.3  Priority Claims Added or Changed by BAPCPA and 519.1 [ Domestic Support Obligations ] § 136.21  Domestic Support Obligations after BAPCPA.

 

37  See In re Camacho, 211 B.R. 744, 745–46 (Bankr. D. Nev. 1997) (Plan that references $100 per month child support payment pursuant to stipulation with District Attorney fails to satisfy § 1322(a)(2) requirement that the plan provide for full payment of all claims entitled to priority under § 507(a)(7); District Attorney cannot consent to satisfy § 1322(a)(2) absent evidence that the D.A. rather than the ex-spouse is the holder of the claim for child support arrears. “Section 1322(a)(2) provides that a plan shall provide for full payment of all claims entitled to priority under § 507 unless the holder of the claim agrees to a different treatment. . . . Since [Pacana v. Pacana-Siler (In re Pacana), 125 B.R. 19 (B.A.P. 9th Cir. 1991),] . . . § 507 has been amended to include child support obligations as a priority debt. Through this amendment, Congress has announced its intent to allow bankruptcy courts to include payment of child support obligations in chapter 13 plans. . . . [C]hild support obligations must be afforded priority status in a plan. . . . Here . . . it was the D.A., not the state court, who defined the debt as payable in monthly installments rather than payment in full. Thus, the plan is violative of § 1322(a)(2) unless the holder of the claim agrees to different treatment. . . . Although the D.A. filed the claim and consents to the stipulation, the debtor must also obtain the consent of his ex-spouse if she retains an interest in the claim.”). See also § 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 for discussion of “child support representative.”

 

38  See, e.g., Carlisle v. United States Dep’t of Justice (In re Carlisle), 320 B.R. 796 (M.D. Pa. Dec. 15, 2004) (Caldwell) (Bankruptcy court properly denied confirmation of a plan that failed to provide full payment under § 1322(a)(2) for taxes entitled to priority under § 507.); In re Mitrano, No. 08-12890-SSM, 2008 WL 4280391 (Bankr. E.D. Va. Sept. 11, 2008) (unpublished) (Mitchell) (IRS objection to confirmation is sustained because plan failed to provide full payment of priority claim.); In re Mendez, No. 05-46727, 2006 WL 2808161 (Bankr. S.D. Tex. Aug. 4, 2006) (unpublished) (Isgur) (Responsible person liability under 26 U.S.C. § 6672 is priority claim that must be paid in full to confirm plan, with § 6672 liability estimated.); In re Winter, No. 01-02995, 2002 WL 33939744 (Bankr. D. Idaho June 17, 2002) (unpublished) (Myers) (Plan is not confirmable because priority claims substantially exceed money available.).

 

39  28 F.3d 34 (7th Cir. 1994).

 

40  See In re King, 217 B.R. 623 (Bankr. S.D. Cal. 1998) (Claim for postpetition taxes was allowed under § 502(b) and was priority claim under § 507(a)(8) that must be paid in full through plan; dismissal was warranted when postpetition tax claim of $33,534.14 was filed after debtor completed payments on prepetition claims under a 55-month plan and debtor could not pay priority postpetition tax claim in full in few months remaining in 60-month limit.). Dismissal for cause under § 1307 is discussed beginning at § 152.1  Procedure, Timing and Form. The five-year maximum duration of a Chapter 13 plan under 11 U.S.C. § 1322(d) is discussed beginning at § 112.1  General Rule: Three Years, More or Less. BAPCPA amendments to § 1322(d) and the impact on plan length of the applicable commitment period in 11 U.S.C. § 1325(b)(4) are discussed in § 100.1  Applicable Commitment Period Calculation and § 112.2  Length of Plan after BAPCPA.

 

41  In re Escobedo, 28 F.3d at 35.

 

42  Webster’s New Twentieth Century Dictionary of the English Language 1227 (2d ed. 1983).

 

43  See §§ 229.1 [ 11 U.S.C. § 1327(a): Binding Effect on Creditors and Debtors ] § 120.2  11 U.S.C. § 1327(a): Binding Effect on Creditors and Debtors and 233.1 [ Notice and Due Process Considerations, Including Claims Allowance and Valuation ] § 121.2  Notice and Due Process Considerations, Including Claims Allowance and Valuation.

 

44  The vitality of Escobedo is questionable after the Supreme Court’s decision in United Student Aid Funds, Inc. v. Espinosa, No. 08-1134, 2010 WL 1027825 (U.S. Mar. 23, 2010). See § 233.1 [ Notice and Due Process Considerations, Including Claims Allowance and Valuation ] § 121.2  Notice and Due Process Considerations, Including Claims Allowance and Valuation. See also Illinois Dep’t of Revenue v. Ayre (In re Ayre), 360 B.R. 880, 886 (C.D. Ill. Jan. 16, 2007) (Scott) (Although § 1322(a) provides priority claims must be paid in full, plan confirmed without objection bound Illinois Department of Revenue to amount fixed in plan for its priority claim, because plan process litigated disputed amount. Department was properly noticed and filed its proof of claim for $104,000. Department did not object to confirmation of plan that proposed to pay claim “in full” at $10,500. Trustee objected to proof of claim based on binding effect of confirmation. District court concluded that “the confirmation process and the claims adjudication process are alternative methods to resolve a disputed claim. Since both result in litigation as contested matters, due process is met through the use of either method.”).

 

45  No. C 01-0848 MMC, 2002 WL 31159110 (N.D. Cal. Sept. 25, 2002) (unpublished).

 

46  See § 170.1 [ Methods of Paying Unsecured Claims ] § 101.3  Methods of Paying Unsecured Claims.

 

47  193 F.3d 1083 (9th Cir. 1999). See §§ 229.1 [ 11 U.S.C. § 1327(a): Binding Effect on Creditors and Debtors ] § 120.2  11 U.S.C. § 1327(a): Binding Effect on Creditors and Debtors, 233.1 [ Notice and Due Process Considerations, Including Claims Allowance and Valuation ] § 121.2  Notice and Due Process Considerations, Including Claims Allowance and Valuation and 346.1 [ Student Loans ] § 158.2  Student Loans for discussion of Pardee. Pardee was reaffirmed by the Ninth Circuit and validated by the Supreme Court in Espinosa. See § 233.1 [ Notice and Due Process Considerations, Including Claims Allowance and Valuation ] § 121.2  Notice and Due Process Considerations, Including Claims Allowance and Valuation.

 

48  The inclusion in a proposed Chapter 13 plan of provisions that are inconsistent with the Code—in hopes that sleeping creditors won’t object—was strongly criticized by the Supreme Court in Espinosa. See § 233.1 [ Notice and Due Process Considerations, Including Claims Allowance and Valuation ] § 121.2  Notice and Due Process Considerations, Including Claims Allowance and Valuation.

 

49  Payments to continue after plan completion do not necessarily equate to creditor consent to less than full payment in the plan. See In re Griffin, No. 08-10033-DHW, 2008 WL 2278414, at *2 (Bankr. M.D. Ala. May 30, 2008) (unpublished) (Williams) (“Although § 1322(a)(2) is clear that a priority claim must be paid in full, it is silent as to whether that claim must be paid in full during the term of the plan. Such treatment, however, is implied.”).