How to Read & Review Your Bankruptcy Petition: Part 6—The Chapter 13 Plan

Part 6 of our series of Articles on how to read and review the bankruptcy petition prepared for you by bankruptcy lawyer discusses Chapter 13 Payment Plan.

In particular, since the forms used for the drafting of Chapter 13 Plans vary widely from jurisdiction to jurisdiction, this Article describes only the Chapter 13 Plan used in the United States Bankruptcy Court for the Eastern District of Michigan as this is where we primarily practice.

If you are curious, therefore, about the Chapter 13 Plan form used in Grand Rapids or Traverse City or Chicago, this Article may be helpful to you generally but not as to specific details.

This Chapter 13 Plan is, however, the one used in Detroit, Ann Arbor, Monroe, Bay City, Saginaw, Flint, and all Michigan in cities in between and surrounding those locations.

Let’s get started.

 

The Eastern District of Michigan Mode Chapter 13 Plan

 

The Chapter 13 Plan “form,” as noted, can differ greatly from location to location within the United States. There is, for instance, a national form Plan that some jurisdictions use. Other local Federal Bankruptcy Courts have adopted their own forms.

The Eastern District of Michigan is such a jurisdiction. It has adopted its own form Chapter 13 Plan, located on the court’s website here.

All Chapter 13 Plans filed in the Eastern District of Michigan must use this local form plan pursuant to the Court’s Local Rule requiring it.

The first thing you will want to do when reviewing the Chapter 13 plan prepared by your bankruptcy attorney is to ensure that it is the right Plan form.

That said, it is highly unlikely that any even mildly experienced bankruptcy attorney would use the wrong Plan—but it never hurts to check. Especially if you’ve retained your cousin Jeffrey, the real estate lawyer who has never touched a bankruptcy case in his life, to help you out.

 

The Chapter 13 Plan Caption and Section I: Notices

 

The correct Plan verified, you will, when reviewing your draft Chapter 13 Plan, next focus in on the details.

 

• The Caption and Plan Summary Box

 

The top of page 1 of the Plan is the Caption. This contains the title of the form document, as well as your name(s) and the last 4 digits of your Social Security Numbers.

Ensure that these are, once again, spelled correctly and that the SSNs are correct.

Your Case No. will be blank as it has not yet been filed with the Court and assigned one. Likewise, your Judge’s name will not yet be populated for the same reason.

Below that Judge’s Name line, once again, here, we have also a little box that somewhat summarizes the bottom-line details of the plan. The “Plan Summary” box should indeed be completed.

The “ACP” is the “Applicable Commitment Period.” This is the result of your Chapter 13 Means Test. It is the numbers of months your Plan is required to cover, based on your Means Test result. If you “passed” the Means Test, the ACP, here, will be 36 months. If not, it will be 60 months.

Note that this does not mean that your Plan is only 36 months long, if that is your Means Test result. You can file a longer Plan in order to fully repay non-dischargeable tax or other priority debts and/or to reduce the monthly Plan payment accordingly.

The Minimum Plan Length line, here, is where the actual number of months your particular Plan includes is noted.

The monthly Plan Payment amount is noted here, next. Finally, the little Summary box notes the minimum amount you are required to pay to your “Class 9” (unsecured, non-priority) creditors, as well as the percentage of tax refunds that you are required to commit. (This means that the percentage you are required to forward to your Chapter 13 Trustee throughout your Plan period.)

Both of these last 2 items derive from fields further into the Plan form. We’ll get to them, below. When reviewing, simply note the amounts, and hold your questions for now.

 

• Section I: Notices

 

The initial “Notices” are sort of “shout-outs” to third parties, such as your creditors, who review your Plan once it is filed. The purpose is to draw a reader’s attention to key features of your Plan that may affect a third party’s claim value.

Notice “A” asks whether or not your Plan includes “non-standard” provisions at the very end. We’ll get to the Section IV provisions referenced, but, sometimes, your attorney will stick some “custom” language in of one sort or another. If this box is checked “Included,” make a note to look for language inserted by your lawyer when you get to Section IV and ask your attorney about it.

Notice “B” asks whether or not your Plan limits the value of a secured claim based on its collateral’s value or an appraisal. Modifying secured claims (debts) is something interesting that can be done in a Chapter 13 bankruptcy. If the “Included” box is checked, make sure to review your Secured claims (we’ll get to them) closely and ask your attorney any questions you may have.

If it is not checked, your Plan requires simply that you pay what you owe to secured creditors per contract.

Notice “C” asks whether or not your Plan is avoiding a security interest or lien. This could be a mortgage stripping as to your primary residence or a cram-down as to a vehicle or other secured debt. Defining these Chapter 13 options is outside the scope of this Article. If the “Included” box is checked, again, review your secured claims carefully and ask your attorney any questions you may have.

Note that, per the bold-faced and capitalized stern warnings beneath these Notices, any “customization” of your Plan or secured claim modification is void unless these boxes are checked.

If you see any text that is in a different font or size or bolding than the Arial text used in the Local Plan form as you review and none of these “Included” boxes are checked, make sure that a box-checking error hasn’t been made.

 

Section II: Applicable Commitment Period—and More.

 

Section II contains key information for you—and everyone else viewing your Plan. How long is it? How much do you have to pay? Do you need to turn over any tax refunds?

This information is all contained here.

 

• Applicable Commitment Period

 

The Applicable Commitment Period, in Paragraph A, is the required length of your Plan (number of months), as determined by the results of your Chapter 13 Means Test.

If the first box is checked, this means that your income is “above average” or “over-median” as calculated in said Means Test and that the length of your Plan shall, therefore, be 60 months from the date of the entry of the Order Confirming Your Plan (OCP).

Note that that this OCP is typically not entered for several months after the filing of your Chapter 13 case—but that your Plan payments begin the first month after filing. Thus, if you are required to file a 60-month plan, your actual number of payments will usually be 63-66, or more, if complications regarding the confirmation, or approval, of your plan arise.

If the second box is checked, this means that your income less than the median per your Means Test and that you have the option of filing only a 36-month Plan (you can opt for longer, as noted above).

 

• Plan Payment

 

Paragraph B provides the Plan payment amount. Where does this number come from? Keep reading until we describe the Chapter 13 Worksheet at the end of the Plan form—and this Article.

 

• Future Tax Refunds

 

You may or may not be required to turn over your Federal tax refunds, or part of your Federal tax refunds, to your Chapter 13 Trustee during the pendency of your case.

If you are filing in the Detroit Bankruptcy Court (including Ann Arbor, Monroe, and elsewhere), you probably will be required to turn over said refunds.

The boxes under Paragraph C in Section II designate whether you are filing in Bay City, Flint, or Detroit, and what your particular tax refund turnover requirement is.

Check to ensure that the right filing location is designated here. If you have questions about why you must turn over your tax refund, discuss this with your bankruptcy attorney.

In Detroit, in particular, however, unless you are repaying 100% of your debt through your Chapter 13 Plan, you are always required to turn over Federal tax refunds.

 

• Discharge Eligibility

 

You are most likely eligible for a discharge at the end of your Chapter 13 case. However, it is possible to file a Chapter 13 even if you are not—because you received a discharge in a prior Chapter 13 just 2 years ago, for example.

The box in Paragraph D will be checked “yay” or “nay” as to this question. If you thought you were getting a discharge, but you see the other box checked here—discuss with your bankruptcy attorney immediately.

 

• Self-Employed with Trade Credit?

 

If you are not self-employed, just check Paragraph E to ensure that the box here is not checked. If you are and have incurred “trade credit,” this box should be checked.

Trade credit is a type of financing between businesses. Discuss with your bankruptcy attorney if you have questions about this.

 

Section III: Your Creditors.

 

Never mind the heading of Section III and its references to “classes” and “claims.” This Section lists the parties who will be paid from the money you pay into your Chapter 13. It also determines the order in which they will be paid.

Creditors and other parties will be listed here in groups (the “classes”). Those in Paragraph A will be paid before those in Paragraph B, who are paid before those in Paragraph C—and so on.

Generally, your Chapter 13 Trustee’s percentage-based fees will be accounted for in Paragraph A, with your own bankruptcy lawyer’s fees provided for in Paragraph B. Review the latter to ensure that these legal fees square with the retainer agreement that you signed.

Your actual creditors will, in groups based on the type of debt held (secured vs. unsecured, priority vs. non-priority), in the following paragraphs.

An in-depth discussion of the definitions of these differing debt classifications is outside the scope of this Article.

What is important for your review of this section of your Chapter 13 Plan is to ensure that all of your debts are listed, one way or another. A mortgage or car payment will be easily spotted in Paragraphs C, D, or E (depending on how they are treated in your Plan).

An unsecured debt such as a credit card will be “lumped in” with all of the others in Paragraph I.

You will at least want to make sure the total amount of your unsecured debts in that Paragraph jibe with the total listed on your Schedule E/F.

If you think anything is missing or is listed with the wrong amount owed, inform your bankruptcy attorney immediately. Getting these numbers right is very important in Chapter 13 bankruptcy.

 

Section IV: Non-Standard Plan Provisions

 

Remember the Notices section you reviewed on the first page of the Chapter 13 Plan? And the box you checked or didn’t check regarding nonstandard Plan provisions?

Well, this Section is where the nonstandard provisions would be, if there are any. If that box wasn’t checked and you see anything written here—inform your bankruptcy attorney immediately.

The signature line for both the debtor (that’s you) and your attorney rests under this Section. However, arguably the most important (and easiest to understand) parts of the Eastern District of Michigan Chapter 13 Plan yet follow.

 

Attachment I: The Liquidation Analysis

 

The Liquidation Analysis chart draws from your Schedules A/B and C to disclose whether or not the non-priority unsecured creditors lumped together in Paragraph I, above, must be paid any minimum (total) amount or not based on the value of your assets.

The bottom line here, designated “Amount Available in Chapter 7,” is that amount, if any. If you have any non-exempt property that would be seized and liquidated by a Chapter 7 Trustee in a hypothetical Chapter 7, its non-exempt value must be paid dollar-for-dollar to your unsecured creditors.

For example, if you fully exempt all of your property except for your dog-eared copy of Avengers #1, worth $1,500.00, your Class 9 (Paragraph I), must receive—as a group, divvy up—$1,500.00.

Otherwise, there is no particular minimum amount your unsecured creditors must receive (unless your Means Test says otherwise, as described in our previous installment of this series of Articles, on that form).

If all of your property is fully exempted, the final line here should read “$0.00.”

You will want to give this a once-over to ensure that the numbers here jibe with those in your Schedules.

 

Attachment 2: The Chapter 13 Model Worksheet

 

A great many Detroit-area bankruptcy attorneys will actually start the Chapter 13 plan review discussion with a client here, at this sheet, rather than Page 1.

The reason is that this Worksheet page breaks down in an easy-to-read manner the mathematics of the Plan in detail. Here, you can see, even as a non-lawyer, how long the Plan is, and who is being paid exactly how much and what if anything is left over for unsecured creditors at the bottom.

Pull out your calculator and walk through it, line by line, to ensure accuracy. Don’t be shy about asking your lawyer what each line means and what is and isn’t included.

 

Section V: Additional Standard Provisions

 

By all means, read these “Additional” provisions. These may or may not be included in the filing copy of this document that your attorney actually files with the Court. Procedurally, they needn’t be as they “live” permanently on Chapter 13 Trustee David Ruskin’s (as of this writing) website and are incorporate in every Chapter 13 Plan filed in the Eastern District of Michigan “by reference.”

Often, the “non-standard” provisions included by your attorney revise these provisions as they were largely drafted by the Trustees and by creditors’ attorneys with little to no input incorporated from debtors’ attorneys.

Legalese is profuse here. Read as able and discuss any questions with your attorney.

 

How to Read and Review the Eastern District of Michigan Chapter 13 Plan: The Bottom Line

 

The bottom line is that this Chapter 13 Plan form will greatly influence up to the next 5 years of your life. It is well worth taking the time to pour over, revise as needed (with the approval of your attorney only), and to understand.

It is important to remember that your bankruptcy attorney is the expert here and that you are not. Many years of experience will have guided your attorney in drafting your Chapter 13 Plan (unless you’ve hired an inexperienced legal newbie). Nevertheless, it is your Plan—and your signature will need to be on it, attesting to its accuracy, before it is filed.

Attorney Walter Metzen is a Board Certified Bankruptcy Expert who has successfully assisted thousands of Metro Detroit Chapter 7 and Chapter 13 bankruptcy clients.

If you are seeking assistance with your Chapter 13 bankruptcy filing, contact us now to schedule your free initial consultation.