The New Chapter 13 Plan in Operation: The Good, The Bad, and The Ugly

The new chapter 13 plan form has been in use for a month now.  I’ve looked at about 125 plans, mostly from Best Case and CinCompass, with a few prepared in MS Word.  Some aspects of the plan form work well, but attorneys for debtors and for creditors need to be aware of common glitches and errors to watch for.

THE GOOD:

1) These boxes on page 1 of the plan are almost always checked correctly:I have seen a handful where all of the “included” boxes are checked, but none of the provisions is actually included.  A mistake or an exercise of caution?

2)  With plans prepared using a software program, if a section is marked “none,” the rest of the section is not reproduced.  A 10-page form can be condensed into a much shorter plan to be printed and served.

THE BAD:

1) The total amount of plan payments on Line 2.5 is often wrong, particularly if  payments are bi-weekly instead of monthly.  Actual example:  Plan says that $156 bi-weekly for 60 months = $52,623 pool.  Don’t assume the software program’s math is right.

2)  This section dealing with unsecured claims is frequently left blank.  I need to know how to pay unsecured claims.   Check the third box to make it a “pool” plan.

3) The exhibit to the plan, “Total Amount of Estimated Trustee Payments,” is unreliable.  Ignore it.

THE UGLY:

1) One software provider has decided that if the debtor is current on mortgage payments, the mortgage claim cannot be included in the plan.  Debtors’ attorneys cannot override the program.  Until practitioners and trustees can convince the software provider to allow it, the plan needs to reflect a nominal, fabricated arrearage amount, like $50.

2) Section 3.4 of the plan, the provision for avoiding liens under section 522(f), is not working as it should.  I gave an example in a previous post.  Maybe it’s a software issue; maybe it’s user error.  Review this section carefully.

3)  The way secured claims are valued in Section 3.2 is unpredictable.  The number in the column headed “Amount of secured claim” is the amount I will pay as a secured claim.  Here are the problems I’m seeing:

a) The plan sometimes fails to value the secured claim.  For example, this plan proposes to pay a secured claim in the amount of $15,922 instead of $11,044, the value of the collateral.

b) The reverse is true if the claim is oversecured.  In these situations, the software providers universally use the lower of the estimated amount of the claim or the value of the collateral as the amount of the secured claim.  Example:That’s fine if Ally’s claim is not more than the amount estimated.  But if it has a claim for $16,000, the plan treats it as secured only to $15,321.  Ally would need to object to confirmation, and the plan would need to be amended.  If creditors are asleep at the wheel and don’t object, the plan improperly crams down an oversecured creditor.

c) Finally, the ugliest of the ugly – where are these numbers coming from?  This is an example from one case, but I’ve seen it in several cases.  The amount of the secured claim seems to be a random number with no relationship to the estimated claim, the value of the collateral, or anything else in the debtor’s schedules (that I can identify). 

CONCLUSION:

Debtors’ attorneys, proofread your plans before they are filed.  I found these issues merely by eyeballing the plans.   Don’t rely solely on your software.  Creditors’ attorneys, make sure your clients know when to forward a plan to you for objection.