Secured Claims in a Chapter 13 Plan in the EDKY

In 2017, the court in this district adopted the so-called “national plan” with a few minor changes.  Part 3 of the chapter 13 plan form discusses treatment of secured claims, but it does not refer to payment of “allowed” claims.  Must I pay a secured creditor listed in the plan if no proof of claim has been filed by or on behalf of the creditor?

It is done in a minority of jurisdictions, but historically the majority rule (followed in this district) has been that a secured creditor must have an allowed claim in order to be paid under the plan.  It makes sense to pay only allowed claims in light of the 2017 amendment to Rule 3002 requiring secured creditors to file a proof of claim.  However, the plain language of the plan seems to follow the minority rule.

Some practitioners approached me a few weeks ago to express their concerns, and I explained to them my concerns and legal arguments.  We worked together to come up with a solution that would avoid the need for immediate litigation:  a nonstandard plan provision that can be included in Part 8 of the plan.

The nonstandard provision is cleverly entitled “Nonstandard Provision Regarding Allowance of Secured Claims.”  (click on the link to get a copy in MS Word).   In a nutshell, the provision:

• Requires a secured creditor to have an allowed claim in order to be paid under the plan;
• Reminds secured creditors that they must file a proof of claim under Rule 3002;
• Provides that if a creditor is listed as secured in the plan and the creditor files an unsecured proof of claim, the claim is treated as unsecured;
• Gives debtors an extension of time for filing a proof of claim on behalf of a secured creditor under Rule 3004; and
• Preserves the right of the trustee and debtors to object to claims after confirmation.

So far the nonstandard provision has been embraced by debtors’ attorneys and creditors’ attorneys.  I cannot require that it be used, but I think it is beneficial and protects debtors and their attorneys, creditors and their attorneys, and myself.

Debtors’ attorneys:  Please consider using the nonstandard provision in your plans, with the following caveats.

Rule 3004 gives you 30 days after the expiration of the creditors’ bar date to file claims on behalf of creditors.  While the nonstandard provision gives you some extra time, you are agreeing to use your best efforts to meet the deadline in Rule 3004.  Remember that if you are requesting the “no-look fee,” one of your duties under the “Rights and Responsibilities of Chapter 13 Debtors and Their Attorneys” is to “Timely file proofs of claims on behalf of creditors if necessary for the protection or benefit of the debtor.”

If the debtor files a proof of claim for a creditor, the amount that is set forth in the plan will control over the amount in the debtor’s proof of claim.  So if you estimate an arrearage of $5,000 in the plan and you file a proof of claim for $1.00 (setting aside the ethical questions raised by doing that), the claim will still be set up for $5,000.  If you have a legitimate reason to change the amount, file an amended plan in addition to the proof of claim.

You must use Official Form 410, Proof of Claim – the same form creditors must use.  Make sure you use the most recent version (04/16).  UPDATE: A new Form 410 goes into effect April 1, 2019.

Creditors’ attorneys:  Make sure your clients know that the deadline for filing a proof of claim applies to secured claims as well as unsecured claims.  The deadline for nongovernmental creditors is 70 days after the petition is filed.  Make sure they (or you) use the correct form (Official Form 410) (Official Form 410 eff. 04/01/2019), fill it out completely, and attach supporting documentation.

If the creditor timely files a proof of claim, the amount of the claim set forth in the proof of claim controls over the amount in the plan.  If you will be filing a proof of claim by the bar date, don’t object to confirmation of a plan that underestimates an arrearage or a 910-claim amount.  The creditor’s timely filed proof of claim will control the amount.

If you or your client misses the deadline but would like to be paid through the plan, contact debtor’s counsel about filing a proof of claim on behalf of the creditor, particularly if the plan includes the Nonstandard Provision Regarding Allowance of Secured Claims.