FUNDAMENTALS OF BANKRUPTCY FOR LENDERS

OTHER NEW CHAPTER 13 PROVISIONS UNDER BAPCPA

1. DOMESTIC SUPPORT OBLIGATIONS

a. Revised Chapter 13 greatly strengthens the protections for creditors owed a domestic support obligation (child or spousal support) by a debtor.  Among the provisions are the following:

(1) The holder of a domestic support obligation is entitled to special notices from the Trustee regarding (i) the filing of the case, and (ii) the debtor’s location and place of employment upon the dismissal of the case.

(2) The debtor’s failure to pay any post-petition domestic support obligation is grounds for dismissal of the case.

(3) A Chapter 13 plan can provide for less than full payment of a domestic support obligation only if all of the debtor’s disposable income for a five-year period is paid to the trustee.

(4) A debtor may not have a plan confirmed unless all post-bankruptcy domestic support payments have been made.

(5) The debtor’s disposable income does not include post-petition domestic support obligation payments.

(6) The debtor may not obtain a Chapter 13 discharge upon completion of all plan payments until he or she has certified that all post-petition domestic support payments (and all pre-petition payments included in the plan) have been made.

2. TAX RETURNS

a. Revised Chapter 13 dramatically tightens the requirements for a debtor to file tax returns:

(1) The debtor must file all tax returns for the last four years before the 341 meeting of creditors.  If not, the trustee may defer the 341 meeting of creditors for a period of no more than 120 days (and the court, for cause, may extend it another 30 days), but no more.

(2) If the debtor does not file these tax returns, a party in interest may move to convert or dismiss the case.

(3) The debtor must have filed all tax returns prior to plan confirmation.

(4) As discussed elsewhere, the debtor must file all post-petition tax returns.

3. SECURED CREDITORS

a. Revised Chapter 13 also greatly strengthens the protections for secured creditors, particularly, creditors secured by personal property.  These protections include the following:

(1) The debtor may not “cramdown”:

(a) any secured obligation incurred within one year of the date of filing, and

(b) any secured obligation that is:  (i) a purchase money security interest, (ii) incurred within the 910 days of the bankruptcy filing, and (iii) the collateral for which is a motor vehicle for the personal use of the debtor.

(2) Where cramdown is allowed:

(a) a lien survives on the property until the debtor receives a discharge, even if the full amount of the “secured” claim has been paid.  Thus, if the debtor completes enough of the plan to make payment to secured creditors, but has a case dismissed thereafter, the lien survives.

(3) Periodic payments to a secured creditor:

(a) Payments must be made in equal monthly amounts.  If periodic payments are made to the holder of a claim secured by personal property, those amounts shall be enough to provide the holder of the claim adequate protection during the life of the plan.

(4) Initiation of periodic payments:

(a) The debtor must begin making payments called for in the plan to the trustee within 30 days of filing.

(b) The debtor is required to deduct from these payments amounts that the trustee would pay monthly to secured creditors or lessors of personal property, pay that amount to the creditor or lessor and provide evidence of payment to the trustee.

(5) Duration of Chapter 13 plan:

(a) The duration of a Chapter 13 plan shall be 3 years, unless the debtor’s income is not less than a prescribed benchmark, in which event it shall be 5 years. 

(b) If the debtor is paying 100% to unsecured creditors, there is no minimum time period for a plan.

(6) In determining the reasonableness of a debtor’s living expenses, the court will look to the means test described elsewhere in this outline.

(7) The debtor may modify a plan to provide for health insurance if insurance from an employer is lost.

(8) BAPCPA provides that a confirmation hearing on the Chapter 13 Plan should be held not earlier than 20 days and not later than 45 days after the date of the meeting of creditors.  This is significantly faster than the time under current law.

For more information or to request a presentation regarding BAPCPA, please contact Spotts Fain attorneys, Robert H. Chappell, III (804) 697-2025 or Jennifer J. West (804) 697-2094.