By Cheryl D. Cook, Attorney
Effective January 1, 2013, debtors seeking protection under Chapter 13 of the Bankruptcy Code must use a new model plan which was adopted by order of the Court on October 24, 2012. A copy of the new model plan can be found by going here.
According to the Court’s notice:
The Chapter 13 Trustees for the Eastern District of Michigan, after consultation with and after soliciting comments from the consumer bankruptcy bar in this district, have drafted and recommended to the Court a new Chapter 13 model plan for use in the Bankruptcy Court for the Eastern District of Michigan.
Importantly, the new model plan contains a prominent notice advising creditors:
YOUR RIGHTS MAY BE AFFECTED. THIS PLAN MAY BE CONFIRMED AND BECOME BINDING WITHOUT FURTHER NOTICE OR HEARING UNLESS A TIMELY WRITTEN OBJECTION IS FILED. READ THIS DOCUMENT CAREFULLY AND SEEK THE ADVICE OF AN ATTORNEY.
In light of the U.S. Supreme Court decision in United Student Aid Funds, Inc. v Espinosa, 559 U. S. 2010 WL 102, 7825 (U.S. March 23, 2010), this notice seems intended to give creditors ample warning of the effect of the failure to timely object to plan treatment.
This means that when creditors receive a Chapter 13 plan, it is imperative that they review the plan for treatment of their claims (or forward it to their attorneys for such review). Timing for objections in the Eastern District of Michigan is set by the Court; an untimely objection will be overruled. Once the Chapter 13 plan is confirmed, the confirmation order changes the contractual relationship between parties.
Proper review of a proposed Chapter 13 plan has to include identification of whether the creditor’s claim is secured or unsecured, whether the debtor’s proposed treatment is consistent with the creditor’s intentions or account documents, and whether the plan is feasible – i.e., whether the debtor can afford to do what he is proposing to do in his plan.
A couple of items to note specifically:
- Although, under the new model plan, a debtor may propose plan provisions different than those contained in the new model plan, the debtor must identify each provision that is different from the new model plan in Section I.B. of their plan, which appears on the first page of the plan.
- Further, under the section labelled “Additional Terms, Conditions and Provisions,” the Model Plan specifies the order of payment of claims by class, and it contains a provision specifying that Class 5.1 and Class 6.1 creditors will receive equal monthly payments to the extent that funds are available at the date of each disbursement.
- Subparagraph I of this Additional Terms section also requires creditors to apply all disbursements under the Plan only in the manner consistent with the terms of the Plan and to the account(s) or obligation(s) as designated on the voucher or check provided to the creditor with each disbursement.
- Arrearages on secured claims are identified as separate claims in the Trustees’ ledgers, so the Trustees will send a separate check for arrearage than for the regular monthly payment on a secured claim. Those payments are to be applied to the account specified on the check.
Plans can attempt to change items such as the interest rate applied to the loan, secured versus unsecured status, the amount of arrearage that the debtor is going to pay, the duration of the plan payments, and whether a junior mortgage loan will be stripped from the real estate securing it. Therefore, it is important to analyze the proposal to reorganize the debtor’s obligations before the objection deadline.
If you have any questions on this matter, please contact Cheryl D. Cook, Esq. Ms. Cook is an attorney in the Bankruptcy Group located in the Detroit office. She can be reached at 248.989.3089 and email@example.com.