LAWDOG BANKRUPTCY: CHAPTER 13

Effect of Confirmation

Confirmation of Plan

The Bankruptcy Court conducts a confirmation hearing to determine whether the proposed Chapter 13 plan is feasible, and includes the elements required for confirmation. Any party in interest may file an objection to confirmation. Creditors generally are given notice of the hearing, by mail, twenty-five (25) days prior to the hearing, pursuant to Bankruptcy Rules Rule 2002(b).

Requirements for confirmation of a Chapter 13 plan include that the plan must comply with the provisions of a Chapter 13, and other provisions of the Bankruptcy Code, including payment of costs and fees. The plan must be proposed in good faith.

The "best interests of creditors test" must also be met. This simply means that creditors must receive at least as much under the plan as they would have received in a Chapter 7 liquidation. The plan must be feasible. There must be no opposition to the plan by a secured creditor, unsecured creditor, or the Chapter 13 Trustee. See Section 1325 (a), reproduced here for illustration purposes only.

If there is opposition to the plan by a secured creditor, unsecured creditor, or the Chapter 13 Trustee, the plan may still be confirmed but it must be feasible and meet other rules. See the "cramdown" rules discussed below.

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Confirmation When There Is Opposition ("Cram-Down" Rules)

Any creditor or the Trustee may object to a proposed plan. Rules which permit the confirmation of a plan over these objections are sometimes referred to as the "cram-down" rules. If the trustee or the holder of an allowed unsecured claim objects to the confirmation of the Chapter 13 plan, then the court may not approve the plan unless, as of the effective date of the plan, the unsecured claim is to be paid in full over the life of the plan, or all of the debtor's projected "disposable income" to be received in the three-year period beginning on the date that the first payment is due under the plan, will be applied to make payments under the plan. This is sometimes referred to as the "best efforts of debtor rule".

For purposes of this subsection, "disposable income" means income which is received by the debtor and which is not reasonably necessary to be expended for the maintenance or support of the debtor or a dependent of the debtor; and, if the debtor is engaged in business, for the payment of expenditures necessary for the continuation, preservation, and operation of such business. See Section 1325 (b), reproduced here for illustration purposes only.

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Secured Claims

With respect to each allowed secured claim provided for by the plan, a debtor may obtain the consent of the secured creditor to keep the collateral, or surrender the collateral, or pay the allowed secured claim in full, with interest, over the life of the plan. More specifically, the plan must provide that the holder of an allowed secured claim retain the lien securing such claim, and provide for distribution of cash installments or other property with a present value, on the effective date of the plan, of at least the allowed amount of the secured claim. See Secured Claim from previous menu or click here. Link does not return to this page. Also see Section 1325 (a)(5), reproduced here for illustration purposes only.

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Effect of Confirmation

The provisions of a confirmed plan bind the debtor and each creditor, whether or not the claim of such creditor is provided for by the plan, and whether or not such creditor has objected to, has accepted, or has rejected the plan. Except as otherwise provided in the plan or the order confirming the plan, the confirmation vests all of the property of the estate in the debtor, free and clear of any claim or interest of any creditor provided for by the plan. See Section 1327 reproduced here for illustration purposes only.

Except as provided in a confirmed plan or order confirming a plan, the debtor shall remain in possession of all property of the estate. A debtor engaged in business may operate the business of the debtor and, subject to limitations, has the rights and powers of a trustee. See Section 1304 reproduced here for illustration purposes only.

A discharge is provided under Chapter 13 where the debtor has completely performed under the plan. Upon the completion of the plan, a debtor will be granted a discharge. If the debtor does not complete payments under the plan, the Chapter 13 bankruptcy may be dismissed or converted to a Chapter 7 liquidation. A "Hardship Discharge" may be granted in certain situations. See Conversion, Discharge, & Dismissal from previous menu or click here. Link does not return to this page.

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