The E.D. Ky. Chapter 13 Plan – Tips for Creditors’ Attorneys

Our local rules mandate the use of a form chapter 13 plan, Local Form 3015-1.  Here are a few notes to assist creditors’ attorneys and their clients in their review of plans filed in the EDKY.  The tips are also useful for debtors’ attorneys and their staff in preparing the plan.

Secured Claims Valued Under § 506 (Section II.A.2. of the Plan).

This section of the plan serves as a motion to value collateral.  The plan provides that the claim “shall be paid through the plan until the secured value [in the plan] or the amount of the claim, whichever is less, has been paid in full.  Any remaining portion of the allowed claim shall be treated as a general unsecured claim.”

The creditor should object if it believes the plan undervalues the collateral.  If necessary, the court will set the matter for an evidentiary hearing on valuation.  Other reasons to object might be if the interest rate is inadequate, the plan is inadequately funded to pay the claim in full within five years, or if the creditor wants a particular fixed monthly payment amount (otherwise, I pay secured claims pro rata).

If the plan provides for a secured value of $0, that means the claim will be paid as a general unsecured claim because there is no value in the collateral to secure the claim under section 506.  A claim that is underwater and is being stripped off should be listed in this section of the plan with a secured value of $0.  See my blog post on lien-stripping.  If the creditor believes there is value to support the claim, object to confirmation.

Secured Claims Not Subject to Valuation Under § 506 (Section II.A.3. of the Plan).

 If a claim is listed under this section of the plan (910-claims should be listed here), the plan shows the estimated amount of the claim, but the plan provides that the claim “shall be paid through the plan until the amount of the claim as set forth in the Creditor’s proof of claim has been paid in full.”

[Claims not subject to valuation (such as 910-claims)] “shall be paid through the plan until the amount of the claim as set forth in the Creditor’s proof of claim has been paid in full.”

Do not file an objection to confirmation if the only basis is that the plan underestimates the amount of the claim.  I pay according to the claim amount.  You may still object to confirmation if the interest rate is inadequate, the plan is inadequately funded to pay the claim in full within five years, or if the creditor wants a particular fixed monthly payment amount.

Curing Defaults and Maintaining Payments on Mortgages and Other Secured Debts (Section II.B.1. of the Plan).

Similarly, the plan asks for the ESTIMATED arrearage amount but states:  “[A]ny allowed claim for prepetition arrearages shall be paid through the plan until the amount of the arrearage as set forth in the Creditor’s proof of claim has been paid in full.

 “[A]ny allowed claim for prepetition arrearages shall be paid through the plan until the amount of the arrearage as set forth in the Creditor’s proof of claim has been paid in full.

It is not necessary to object to confirmation on the grounds that the plan understates the arrearage amount.  The arrearage amount in the creditor’s proof of claim controls.

If the debtor’s plan payment is insufficient to cure the arrearage within a reasonable time as required by section 1322(b)(5), then an objection may be warranted.  I look at whether the plan will pay secured and priority claims in full within 5 years.  It’s up to the creditor to determine whether the time for curing defaults is reasonable.

Special Provisions (Section VII. of the Plan).

Read the last section of the plan to see if there are any special provisions that might apply to the creditor’s claim.  Also watch for special provisions regarding the sale of property in which the creditor has a mortgage or security interest.  Pay close attention to any plan provision that requires the creditor to release its lien at some point in time and make sure such a provision is justified.

I hope these tips help. Feel free to post comments on the blog, or email me privately.

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