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Toward a More Perfect Plan

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The focus of a chapter 13 filing is found in §1321, with its simple dictate: "The debtor shall file a plan." The debtor's goal in such a plan is to resolve as many issues as possible with the plan and confirmation. While there are limitations on what may be included within a chapter 13 plan, there is a broad spectrum of plan provisions that may be included. A confirmed chapter 13 plan would appear to be res judicata to a number of issues, both as an order and statutorily.2 The Code permits a plan to cure defaults,3 assume or reject executory contracts,4 restructure secured claims5 and identify the debtor's projected disposable income.6 The confirmation of the plan may also be held in conjunction with the valuation of the collateral securing a claim under §506.7

However, courts are often reluctant to apply the provisions of §1327 to a confirmed chapter 13 plan where notice has been inadequate to affected creditors.8

Case law compels a conclusion that debtor's counsel and creditors often have a difficult time crafting a plan that is sufficiently clear that a debtor can rely on the binding effect of confirmation, and a creditor can understand and respond to a plan. To respond to this problem, courts have adopted "preferred" plans or "mandated" plans for use in their jurisdictions. Even though the Rules Committee has adopted specific forms for voluntary petitions (Form 1), involuntary petitions (Form 5), Schedules (Form 6), Statements of Financial Affairs (Form 7), Commencement of a Case Notice (Form 9), proofs of claim (Form 10) and Notice of a Hearing on a Disclosure Statement (Form 12), among others, the Rules Committee has not provided any format or form for a chapter 13 plan. As a result, there is a proliferation of handcrafted forms, adopted and promoted by various judges and trustees, resulting in a crazy patchwork of plan provisions, plan terms, notices, jargon and an assortment of idiosyncratic and parochial provisions.

The debtor's bar tends to endorse this parochial fragmentation. Debtors' attorneys tend to limit their representation to one or two districts, and once they understand the idiosyncrasies of the trustee and the court, they are comfortable with a form that applies only in their local jurisdiction. Creditors, however, are severely hindered by this proliferation of plan forms and formats. They must understand the idiosyncracies of all of the districts within which they hold claims.

Practitioners have a responsibility to correct this problem. Debtors' counsel, if they wish to reap the benefits of §1327, must provide clear and effective notice of plan provisions,9 avoiding the confusion of multiple plan formats.10 Creditors rightly object when plan provisions are "hidden" or "camouflaged" within boilerplate provisions of long chapter 13 plans,11 and failure to make plan provisions clear leaves the debtor at risk.12 If a plan is clear, the debtor can quickly obtain the full benefits of chapter 1313 and can accomplish in one hearing what otherwise might take multiple steps.14

Although chapter 13 plans comprise various components such as interest rates, valuations of collateral, payment schedules, retention of liens, assumption and rejection of contracts, the curing of defaults and classification of claims, the basic structural format of a chapter 13 plan is remarkably similar from district to district. Despite this, prescribed plan formats vary from the plan proposal recommended by the Northern District of Illinois (consisting of five pages), the plan prescribed by the Northern District of California (nine pages) to the plan generally used in the Western District of Tennessee (one page).

The National Association of Chapter 13 Trustees, in conjunction with their annual seminar, collected 50 practitioners from across the country, composed of debtors' counsel, trustees, creditors' representatives, creditors' attorneys and others. Their task was to create a plan that could be embraced by all practitioners and that might be promoted as a uniform plan format for adoption across the country. The rules were simple. The plan format could not exceed two (2) pages in length, had to encompass the basic provisions of §§1325 and 1322, had to be easy to read, and had to include motions related to the confirmation of a plan, voiding liens, and value and collateral. The format had to be flexible enough to be used by most debtors. The participants were requested to avoid unnecessary or confusing language and to accommodate the concerns of creditors and debtors.

The process was exciting to watch. All of the participants strenuously advocated for one format or another. All were willing to compromise, in one degree or another, to accommodate the concerns of other participants. Some were reluctant to abandon the longer and detailed boilerplate in plans, most of which simply restated the language of the Code. Some preferred the elimination of surplus language or duplication of terms.

Click here to see a PDF of the result of this friendly but forceful effort. By eliminating unnecessary reference to Code provisions, making consistent the location of the treatment of secured and priority claims, unsecured claims and disposable income, the participants felt that creditors could be better equipped to evaluate plans. A serendipitous effect of standardizing plan formats is the software support industry. With a larger number of districts using a consistent plan format, more software vendors would support the creation of software that could automatically integrate a plan into existing software packages.15

By adopting a uniform plan format in multiple districts, practitioners can fulfill the goal of the debtor's attorney: that most major issues in a chapter 13 case can be resolved at confirmation, and also meet the expectations of creditors by providing a meaningful opportunity to receive, review and evaluate the terms of a plan to determine whether plan treatment should be accepted or contested. Practitioners must agree on a uniform national plan format, advocate for that format and promote adoption of such a format by the Rules Committee.


1 Board-certified in consumer bankruptcy by the American Board of Certification. Return to article

2 Section 1327(a) provides, "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." Return to article

3 §1322(b)(3). Return to article

4 §1322(b)(7). Return to article

5 §1325(a)(5). Return to article

6 §1325(b). The leading case on the application of this section and its binding effect is Anderson v. Satterlee (In re Anderson), 21 F.3d 355 (9th Cir. 1994), where the court held that the debtor's projected disposable income is calculated at the time of confirmation. Return to article

7 See Rule 3012. Section 506(a) specifically recognizes that values can be fixed at confirmation. "...[v]alue shall be conjunction with any hearing...on a plan affecting such creditors' interest." Return to article

8 See In re Geiger, 260 BR 83 (Bankr. E.D. Pa. 2001) (Mortgagee not bound by plan, stating: "Any lien alleged or existing of any kind, type or nature to be canceled of record at discharge of debtor and closing of debtor's case" where notice was not adequate). Return to article

9 Sun Fin. Co. v. Howard (In re Howard), 972 F.2d 639 (5th Cir. 1992) (summary of a plan did not provide adequate notice to creditors to make confirmation binding). Return to article

10 See In re Harvey, 213 F.3d 318 (7th Cir. 2000), where a creditor was confronted with both a long-form and short-form plan. The circuit court held that the creditor had the responsibility to determine the impact the plan had on its claim, even though the short-form plan was not as clear as the long-form plan. Return to article

11 See Deutchman v. IRS (In re Deutchman), 192 F.3d 457 (4th Cir. 1999). Return to article

12 Piedmont Trust Bank v. Linkous (In re Linkous), 990 F.2d 160 (4th Cir. 1993) (notice of chapter 13 plan terms must be "notice reasonably calculated, under all the circumstances, to apprise the interested parties of the pendency of the action and afford them an opportunity to present their objections"). Return to article

13 In re Fili, 257 BR 370 (1st Cir. B.A.P. 2001) (where notice of a chapter 13 plan is adequate and the terms of the plan are clear, a creditor cannot ignore the treatment of its claim). Return to article

14 In re Durham, 260 BR 383 (Bankr. D. S.C. 2001) ("Upon finding that a creditor has adequate notice and opportunity to object to a plan which is clear in its terms, a chapter 13 plan is a sufficient and appropriate affirmative step to address a proof of claim filed by a creditor"). Return to article

15 In an article drafted for Advance Chapter 13 Practice Workshop, Frederick Rogovy, the president of New Hope Software Inc., encouraged practitioners to adopt a uniform plan format: "Reducing the number of approved plans to a manageable number is an essential first step toward generating more accurate plans with higher confirmation and completion rates and lower costs to both attorneys, trustees and debtors." Return to article

Journal Date: 
Saturday, February 1, 2003

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