Bankruptcy Article #23
James Molleur September, 2006
This article will explain, in general, the process of a Chapter 13 case in the State of Maine. There are several steps that every Chapter 13 case follows:
- The creation of the Chapter 13 plan
- The trustee meeting
- Confirmation of the Chapter 13 plan
- Court approval of the Motion to Allow and Disallow Claims
Other steps might be taken in Chapter 13 cases, particularly in the event litigation is necessary, or if the debtor is unable to consistently make the required plan payments or post-petition mortgage payments. We will focus on the most important 4 steps described above, and expect that any variation from those steps will be specifically related to the facts of a particular case, which is beyond the scope of this article.
Creation of the Chapter 13 Plan
A Chapter 13 Plan has several components. The plan may:
- cure pre-petition mortgage arrearages;
- pays for any motor vehicle loan, with interest;
- any pre-petition priority tax debt;
- cure lease arrearages;
- pay a percentage to unsecured creditors equal to the Chapter 7 liquidation test;
- pay post-petition counsel fees and fund an administrative reserve;
- propose a sale of assets;
- propose a payment to creditors based upon a refinance;
- propose initiation of litigation; and
- pay the trustee his commission (currently 10%).
The extent to which any of these components are present in any particular plan will depend upon the facts of a particular case.
The trustee's commission is calculated by taking all of the proposed plan payments and dividing that amount by .9. In other words, if the total plan payments to creditors and for administrative fees equal $10,000, the trustee's commission would be $1,111, with the total plan payment by the debtor of $11,111.
The meeting of creditors required under Section 341 of the Bankruptcy Code (otherwise known as the 341 meeting) is a meeting convened by the Chapter 13 Trustee approximately 30 days after the filing of the bankruptcy petition and plan. Creditors are invited to attend but usually do not. The meeting is designed to provide the Trustee with a general overview of the debtor's financial circumstances, and can be completed, in most cases, within 10 - 15 minutes. If creditors appear at the meeting, they also have the opportunity to ask the debtor questions about the debtor's finances. This meeting is not, however, a chance for creditors to harass the debtor about the bankruptcy filing or any behavior of the debtor which occurred before the filing of the bankruptcy petition.
The Trustee usually has a 2 hour "orientation program" before the meetings begin. On any particular meeting date, the trustee may have as few as 2 cases or as many as 20, so there can be a crowd of people waiting for the Trustee to reach their case and hold their meeting. The meetings are usually staggered by time, with each hour having no more than 6 cases scheduled for that hour.
The Trustee's orientation program is excellent and provides each debtor with an opportunity to understand the Chapter 13 process from the Trustee's perspective. Although debtor's counsel and the Trustee may have different opinions about how the Chapter 13 program should be run, it is essential that debtors understand how the Trustee views the process and his expectations for the behavior of debtors in the bankruptcy system. While debtor's counsel may understand the Trustee's perspective very well, each bankruptcy case is most important to the debtors (since they are the ones trying to save a house, car, or pay taxes), so debtors should always attend the program.
Confirmation of the Chapter 13 Plan
Usually, a Chapter 13 Plan is presented to the Court for approval within 45 days of the conclusion of the Trustee meeting. Provided that the plan complies with the provisions of the Bankruptcy Code, no objections are filed by the Trustee or creditors, and the debtor is complying with the plan (by making plan payments to the Trustee and otherwise following plan obligations, as well as having filed all outstanding tax returns), the Court will approve (or "confirm") the plan.
Confirmation of a Chapter 13 Plan is an important accomplishment in any Chapter 13 case because it establishes the legal relationship between the debtor and creditors for the remainder of the case. While disputes with creditors may not be finally resolved until later in the case, a confirmed Chapter 13 Plan can eliminate many objections creditors can raise about how they will be treated in the plan.
Motion to Allow and Disallow Claims
Approximately 6 months after confirmation of the Chapter 13 Plan (or the filing of the case), the debtor is required to file a Motion to Allow and Disallow Claims with the Bankruptcy Court. The purpose of the motion is to set forth precisely how much each creditor will receive from the debtor in the Chapter 13 case. The reason why the motion is filed over 6 months after the case is filed is because the deadline for creditors to file proofs of claim expires 6 months after the case begins. Proofs of claim are the legal documents filed with the Bankruptcy Court stating the amounts each creditor claims is owed by the debtor, along with any documentary proof of the claim.
If there were any mathematical errors in the plan calculations at the outset of the case, they are usually corrected in the Motion to Allow and Disallow Claims. If creditors or the Trustee disagree on the mathematical computations included in the Motion, they file objections to the Motion. Any objections are typically resolved by negotiation.
The Motion to Allow and Disallow Claims also provides an opportunity for the debtor to object to claims filed by creditors and to avoid certain pre-petition liens recorded against the debtor's property. Court approval of the Motion is a significant step in the success of every Chapter 13 case. Once approved, the debtor need only make the required plan payments on a timely basis, provide the Trustee with yearly tax returns, and maintain insurance on property to successfully conclude his or her Chapter 13 Plan.