National Plan Form – Q & A

By Judge Eugene Wedoff, Trustee John Gustafson and Trustee Henry Hildebrand

1. Q: What do the judges think of the idea of a uniform plan form?

A: They appear generally to support the idea. A survey of chief bankruptcy judges taken at the outset of the Rules Committee’s work on a national form reflected strong support for the idea. One major reason is concern over the impact that the Espinosa decision. With a variety of forms, it can be difficult to determine whether a proposed plan contains provisions that are improper (such as a provision that student loans will be discharged at the end of the payments under the plan). With a uniform form it can be easier to identify such provisions. Additionally, several bankruptcy judges—Arthur I. Harris, N.D. Ohio; Hon. Judith H. Wizmur, D.N.J.: and Elizabeth L. Parris, D. Or— have served on the “Working Group” that drafted the form plan now under discussion and the proposed amendments to the Federal Rules of Bankruptcy Procedure that would accompany the form.

2. Q: What impact would the new deadlines have on districts where confirmation occurs right at the meeting of creditors?

A: No necessary impact. Under current law, confirmation is often initiated before the last date for creditors to file proofs of claim. One goal of the Working Group was to set the bar date for filing claims early enough that the court could consider confirmation of a plan after the bar date. The proposed rule amendments and plan form would make it easier for a court to have the initial confirmation hearing at a time when all of the claims could be considered. These changes may cause courts that now hold confirmation hearings before the claims bar date to consider a slightly later hearing. The new rules, however, would not prevent a court from confirming a chapter 13 plan prior to the bar date—even as early as the 341 meeting.. Such an early confirmation might be in order if any secured proofs of claim were filed before the 341 meeting, if there are no provisions for dealing with secured claims in the plan, or if a court simply decided to continue a current practice.

3. Q: Will the plan form bind all creditors even if they do not file proofs of claim ever?

A: Yes, consistent with current law. Under current law, section 1327 (untouched by BAPCPA) makes the provisions of a plan binding on all creditors, whether or not those creditors file claims. The Espinosa court reinforced this effect in holding that student loan creditors were bound by the plan even where the plan contained a provision that could not have been confirmed if a timely objection had been raised. The goal of the new uniform form is to provide more effective notice to all creditors, making it far more equitable for a court to enforce the binding nature of a Chapter 13 plan.

4. Q: In order to allow each district to have its own unique plan provisions, but still provide the uniformity that the Working Group was seeking, why not have a national form for the plan summary rather than a national form for the plan itself?

A: Two reasons. First, while the current rules permit the sending of the plan or a summary of the plan (See Fed. R. Bankr. P. 3015(d)), in many districts this option is not used, and so the requirement of using a national form for plan summaries would impose additional costs. Second, if a summary of the plan, rather than a plan itself, would provide the only notice of plan contents, new questions would arise: What plan provisions should or should not be in the summary? Can the summary be modified locally? Using a national summary form would add another procedural layer that could obscure or alter the provisions that the plan proposes.

5. Q: How can a rule change trump existing case law in a jurisdiction?

A: Rules can only change case law that is based on non-statutory grounds. Under 28 U.S.C. § 2075, bankruptcy rules may not alter statutory rights, and the Working Group appears to have carefully avoided including any provisions that are contrary to the Bankruptcy Code. After any bankruptcy rule become effective, subsequent court decisions will interpret the statute and the rules together. Thus, where a decision is based upon something other than the statute—for example, a now superseded rule—the amended rule can be applied and the decision may be different.

6. Q: In my jurisdiction, the debtors’ bar has fought hard to be able to include in our plans provisions that implement section 524(i). Shouldn’t the form include some provision that makes applicable the provisions of section 524(i) so that no additional fees or costs can be applied by a mortgage servicer using payments in a plan that are intended for another purpose?

A: The Working Group has not considered this issue, perhaps because it did not believe that it was necessary for the plan to implement § 524(i). The Rules Committee intended to deal with problems arising from the payment of mortgages in chapter 13 plans by implementing Rules 3001(c) and 3002.1. If practitioners see a need for additional plan provisions, they should point that out to the Working Group, and proposed additional language would be particularly helpful. Let your views be heard by the Working Group.

7. Q: Would the lien stripping language in the form trump the various court holdings that a chapter 13 debtor cannot strip a lien in a plan if the debtor is not entitled to a discharge (chapter 20)?

A: No. The proposed form is just that – a form. The form is intended to be a vehicle through which the plan provisions that a debtor proposes can be articulated in a uniform manner and communicated to creditors consistently. Whether a proposed plan can be confirmed is a totally different matter. In those jurisdictions where the release of a lien in dependent on the debtor receiving a discharge, the inclusion of such a provision on the form does not require a bankruptcy judge to confirm a plan with that proposes to strip a junior mortgage in a “Chapter 20” case. And in those jurisdictions where a lien could be stripped off even where the debtor does not receive a discharge, inclusion of such a provision would not be a bar to confirmation of the plan.

8. Q: Why does the proposed form include the reference to “monthly” as the plan payment because in many places, the payments are not equal each month where payments fluctuate (biweekly, weekly, etc.)?

A: The Working Group did not consider the question of the intervals for debtor payments to the trustee. There is no apparent reason why weekly or biweekly payments could not be included in the form as an alternative to monthly payments, even though the total length of the plan would probably still be stated in months, consistent with the requirements of § 1325(b)(4). This is something that might again be suggested to the Working Group.

9. Q: How would the model plan impact the various programs imposed by local rules that establish a mortgage mediation program or jurisdictions that have a practice or rule that deal with tax refunds in a particular way?

A: The proposed rule amendments and the plan form would have no effect on these programs. They do not preclude local rules that impose as a condition to confirmation that there be some process for mediation or implement such a program. Similarly, the amended rules and plan form do not limit or preclude a local rule or case law compelling the debtor to contribute some or all of the debtor’s tax refunds to fund the plan. Special provisions like these could be added to the form in Part 10. In jurisdictions where a particular formula exists for the commitment of tax refunds, a plan failing to include a provision requiring such a commitment would be subject to objection and likely would not be confirmed by the court.

10. Q: Did I hear you correctly that the idea behind the rule changes and the plan form is to resolve the issue on how to effectively value collateral and how to confirm a plan where the bar date has not occurred?

A: The Working Group aimed to make the procedure for valuing secured claims more effective, but has done so by making it easier to have confirmation hearings after the bar date rather than before. The effect of the rule amendments and form would be to permit the plan to have the same effect as a motion to value property that serves as collateral. Section 506 permits a court to value the property securing a claim and the proposed rule would establish an effective procedure for implementing that statute – by confirmation of a plan that includes the value of property. The modification of Rule 3002 would shorten the bar date for filing claims in an effort to have the bar date and the date for confirmation (the deadline for which is included in a statute) roughly correspond. The thought is that the finality of confirmation as embodied in section 1327 is better achieved if the claims are filed by the time of the confirmation hearing.

11. Q: The plan form provides that “the following” priority claims would be paid in full. What would be the result if the form were in place and the form filed by the debtor did NOT list a claim that turned out was, in fact, a priority claim? For example, what would be the result if the plan listed nothing in the priority debt section, but the IRS (since it would have 180 days to file a proof of claim) filed a proof of claim that was, in fact, a priority claim.

A: The answer depends on whether the priority creditor is bound by the plain. Generally, under proposed amended Rule 3015(g), the determinations of secured and priority claim treatment, made at the time of confirmation under proposed Rule 3012, are binding on creditors, even if a contrary proof of claim is filed. If the plan is binding, a priority creditor must object to confirmation if the claim is not being paid in full. Under proposed Rule 3012, the confirmation hearing would then determine whether the amount of the claim actually entitled to priority, and if there were any valid priority claim, confirmation would be denied. But if a priority creditor, subject to the binding effect of the plan, did not object to confirmation and the plan was confirmed, the creditor’s claim, not being specified for full payment, would be paid as a general unsecured claim (assuming that there was a proof of claim filed and not subject to a successful claim objection). However, even though confirmation of a plan is binding, it does not prevent the filing of an adversary proceeding seeking to have a claim held nondischargeable, as many priority claims—such as domestic support obligations—would be.

Not all priority creditors, though, are subject to the binding effect of a confirmed plan. Part 8 of the plan provides that governmental units are not bound if the confirmation precedes their bar date and they have not filed an earlier proof of claim. Unless the plan was amended to cover later filed governmental priority claims, then the claims would not be subject to discharge and the governmental unit might have good cause for relief from the automatic stay. And if the debtor failed to list claims that the debtor knew were outstanding, there might be ground for dismissal of the case on good faith grounds.

Note that proposed amended rule 3015(g) does not exclude governmental units from the binding effect of confirmation on secured and priority claims; this exclusion is only in the form plan itself. It might be suggested to the Working Group that an exclusion be present in the rule itself.

12. Q: In conduit jurisdictions, do trustees make distributions prior to the confirmation of the plan?

A: The proposed form and rule amendments do not make any changes in local practice regarding pre-confirmation mortgage payments. Trustees who administer “conduit” cases do so in different ways, and the various practices would be able to continue.

13. Q: The form does not seem to permit the payment of variable interest rates like we have in the Northern District of Illinois. We have a system where the confirmed plan would permit the trustee to make changes when proper notification is given. How would that be handled in the new form?

A: The plan form, in Part 10, permits a debtor to include any provision that is contrary to or varies from the language in the form. If a debtor wishes to give the trustee authority to change the way that distributions are made when notices of payment changes are filed by a mortgage servicer pursuant to Rule 3002.1, that section would permit that language to be included. If this is an option that interested parties believe should be included in the plan form, they should let the Working Group know their views.

14. Q: Can uniformity really be achieved when so many districts have local rules, judge’s rules, different exemptions, etc.?

A: As mentioned in the webinar, the idea behind the national plan form is not to change the substance of confirmed plan but rather to make the procedures more uniform. This is consistent with the general purpose of the Code and the bankruptcy rules. After all, the Code says that the debtor must disclose assets and liabilities. The forms dictate that such can be done on Schedules A, B, D, E and F. The Rules Committee has concluded should at least make an effort to create a uniform method to communicate information about chapter 13 plans.

15. Q: If the rules are amended to make the plan binding on how claims are to be treated, have the provisions of 502(b) been made obsolete?

A: Amended rule 3015 would provide that chapter 13 plan would control the value of collateral (the amount of a secured claim rather than the amount of the remaining unsecured portion of the claim), the amount of a default to be cured, and the amount of any priority claim. These determination, though, do not result in any disallowance under section 502. The secured and priority claims affected by the plan would still be allowed and, if not otherwise provided for, would be paid as general unsecured claims. The plan, however, would answer the questions as to “what is the extent of the secured claim,” “how much of the claim is the default that must be cured,” and “what is the amount of the priority claim being paid in full.” On these questions, a confirmed plan would control over contrary amounts stated on the proof of claim

16. Q: The plan seems to require quite a bit of creditor activity. If the creditor disagrees with the value, or disagrees with the arrearages proposed to be cured, the creditor must object to confirmation of the plan. Isn’t this expecting a lot?

A: Yes. It is expecting a lot, but the outcome could be a faster, more definitive process that will ultimately reduce the transactional costs that the system currently imposes on debtors and creditors. The creditor community has long been asking for a simpler way to comply with all of the requirements that are imposed upon it by the chapter 13 process. The form will give the credit community the opportunity to standardize and expedite its response to plan provisions that it finds inappropriate. The hope is that creditors will use the standardization of the plan delivery process as basis for improving their ability to file claims and participate in the confirmation process promptly.

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