Plan Confirmation in Chapter 13 -

     The court is required to conduct a confirmation hearing within 45 days after the meeting of creditors. The Court needs to find that the plan is filed in good faith, is feasible (i.e., the debtor is likely to be able to make the payments), and that the other confirmation standards of Bankruptcy Code Sections 1324 and 1325 are satisfied. Under Bankruptcy Rule 2002, creditors are given a minimum of 28 days notice of the hearing on confirmation of the plan. This allows them time to obtain counsel, if desired, and to file a written objection to confirmation of the plan if they believe they have a valid and meritorious basis for doing so.

Common Objections to the Plan

     In practice, most of the objections to confirmation seem to come from the Chapter 13 trustee, who is experienced in the analysis of the underlying financial data set forth on the schedules. The most common objections are that the plan does not commit the debtor's projected disposable income for the applicable (3 to 5 year) commitment period, or that the debtor has not met the "best interests of creditors" test. The vast majority of these objections are settled, with the debtor providing the trustee with the required backup and proof of the position taken on the plan, and/or by the debtor amending his plan to increase the dividend paid on claims.

Separate Classification of Creditors

     A common issue at confirmation hearings is where a debtor proposes to pay back more to one general unsecured creditor, say, a friend or relative who loaned him money, than to bank and other institutional lenders. The preferred party may be a credit union with whom debtor has had a long-term relationship which debtor wants to keep in the future to help rebuild credit. Or, the debtor may want to pay back in full through the plan a debt which has been determined by the court to be non-dischargeable, because he does not want to have to deal with it after the plan is over. A debtor may try to further this special treatment by creating different classes of unsecured non-priority claims in his plan.

     However laudable the debtor's intent, courts generally will not allow such special classification. It is a hallowed and time-honored principle of bankruptcy jurisprudence that similarly-situated creditors be treated the same. In the Chapter 13 arena, this is found in Sections 1322(a)(3) and (b)(1) of the Bankruptcy Code. Read together, these sections state that a plan must provide the same treatment for each claim within a particular class, and that there can be no unfair discrimination in creating classes of claims.

Co-signed Consumer Debts

     The only exception to this rule is with respect to co-signed consumer debts. These can be separately classified and paid, under Section 1322(b)(1) of the Bankruptcy Code. The sense is that if the debt were not paid in full under the plan, then the creditor could obtain relief from the co-debtor stay and proceed against the co-signer. As long as the debt is paid in full under the plan, the co-signer will be protected.

Written by Henry Rendler