Two issues have arisen that should be considered before the new plan form becomes mandatory. The hope is to address these matters in the next few weeks so as not to cause a delay in the ordered mandatory use of the new plan form on June 1.

Issue 1. Part 3.5—surrender of collateral and payment of related claims:

In the process of preparing to roll out the new form the trustees discovered a mistake in the revised text in Part 3.5 (addressing surrender of collateral) that warrants correction. The new form’s Part 3.5 provides: “The debtor surrenders to each creditor listed below the collateral that secures the creditor’s claim. Entry of an order confirming this plan immediately (1) terminates the stay under 11 U.S.C. § 362(a) as to the collateral only; (2) terminates any stay under 11 U.S.C. § 1301; (3) abandons the collateral under 11 U.S.C. § 554(b); and (4) pays the creditor’s allowed claim as an unsecured claim in the manner provided for in Part 5.” As the trustees have observed, provision (4) of this text has the unintended consequence of requiring the trustees to pay the full amount of a secured creditor’s timely filed claim as an unsecured claim. 

To eliminate this consequence and better capture the provision’s intended result, the following new Part 3.5 text is proposed for consideration and comment: 

“The debtor surrenders to each creditor listed below the collateral that secures the creditor’s claim. As to those creditors, entry of an order confirming this plan immediately (1) terminates the stay under 11 U.S.C. § 362(a) as to the collateral only, (2) terminates any stay under 11 U.S.C. § 1301, (3) abandons the collateral under 11 U.S.C. §554(b), (4) satisfies each creditor’s allowed secured claim in full, and (5) pays any allowed unsecured claim in the manner provided for in Part 5. Unless otherwise ordered, confirmation of the plan does not preclude requests to determine the secured and unsecured amounts of claims provided for by this Part 3.5.” 

Issue 2. Part 5—administrative expense allowance and reduction of payments to general unsecured creditors when debtors’ income supports paying both: New introductory language in Part 5 states, “For purposes of Part 5, any payments of allowed administrative expenses, including future attorney’s fees incurred on the Debtor’s behalf, will reduce the amounts not yet paid to non-priority unsecured claims, but only after the court allows the administrative expense. Such reductions may not result in payments to non-priority unsecured creditors of an amount less than the liquidation amount stated in subpart 5.1.”

This provision may not be appropriate in all circumstances. Some over-median debtors, for example, may have sufficient net monthly income to allow them to pay the administrative expense and all general unsecured claims. Likely, however, these circumstances will not arise frequently, thus, the issue might be left for parties in interest to address during the confirmation process. Alternatively, the new provision could perhaps be further altered as follows to defer any debate about the debtors’ ability to pay both expenses and claims until the court adjudicates the application for allowance of additional administrative expenses: 

“For purposes of Part 5, any payments of allowed administrative expenses, including future attorney’s fees incurred on the Debtor’s behalf, will reduce the amounts not yet paid to non-priority unsecured claims, but only after the court allows the administrative expense and only to the extent the court does not order otherwise in allowing the expense. Such reductions may not result in payments to non-priority unsecured creditors of an amount less than the liquidation amount stated in subpart 5.1.”

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Please send any comments, questions, or concerns about these proposals to the chapter 13 trustees, or Mike Keepman, the Attorney Advisor to the Clerk of the Bankruptcy Court.