Chapter 13 Bankruptcy Confirmation
Confirmation in a Chapter 13 bankruptcy case is the process by which the bankruptcy court approves a debtor’s proposed repayment plan. Once a Chapter 13 plan is confirmed, it has several important effects:
- Protection from Creditors: Confirmation of a Chapter 13 plan provides the debtor with protection from creditors. As long as the debtor makes the payments required by the plan, creditors are not allowed to take any collection actions against the debtor.
- Discharge of Debts: Upon completion of the Chapter 13 plan, the debtor may be eligible for a discharge of certain debts, which means that the debtor is no longer personally liable for those debts.
- Modification of Secured Debts: In some cases, the debtor’s Chapter 13 plan may modify the terms of certain secured debts, such as mortgages or car loans. This may include reducing the interest rate, valuing the collateral, or extending the payment term.
- Repayment of Priority Debts: Chapter 13 plans require debtors to repay certain priority debts, such as taxes and domestic support obligations, in full over the course of the plan.
- Protection of Co-Debtors: If the debtor has co-debtors, such as a spouse or a co-signer, confirmation of a Chapter 13 plan may protect them from collection actions by creditors as long as the debtor makes the payments required by the plan (see blog on Automatic Stay).
7 Reasons Creditors Can Object to Confirmation
If a debtor has filed for Chapter 13 bankruptcy, creditors may object to the confirmation of the debtor’s repayment plan for several reasons. Some possible reasons for objection include:
- Feasibility of the Plan: Creditors may object if they believe that the debtor’s proposed repayment plan is not feasible and will not allow them to receive the full amount owed.
- Best Interests of Creditors: Creditors may object if they believe that the proposed repayment plan does not provide for the best interests of the creditors. For example, if the plan does not prioritize payments to certain creditors or does not pay creditors in the proper order.
- Good Faith: Creditors may object if they believe that the debtor has not acted in good faith throughout the bankruptcy process. For example, if the debtor has misrepresented assets or income, or if the debtor has failed to cooperate with the trustee or creditors.
- Lack of Disposable Income: Creditors may object if they believe that the debtor has not accurately calculated their disposable income, which is used to determine the monthly payment under the plan.
- Other Legal Requirements: Creditors may object if the debtor has not met other legal requirements, such as filing all necessary paperwork or attending all required meetings.
- Failure to Pay Appropriate Interest: An objection to failure to pay the appropriate interest rate in a Chapter 13 plan typically arises when a secured creditor’s claim is being paid over time through the plan, but the proposed interest rate (also called the “cramdown rate”) is too low to satisfy the creditor’s rights under the Bankruptcy Code (see blog on Interest Rates in Bankruptcy).
- Failure to Pay Regular Monthly Payment or Cure Arrears on Principal Residence Property: Creditors may object if they believe the proposed plan fails to accurately reflect the current amount of arrears necessary to cure the default or if the plan fails to include the contractual payment.
If a creditor objects to the confirmation of a Chapter 13 repayment plan, the bankruptcy court will hold a hearing to review the objection and make a decision. The debtor and the creditor will have the opportunity to present evidence and argue their case, and the court will ultimately decide whether to confirm the plan or modify it based on the objections raised.
Conclusion
Once a plan is confirmed by the bankruptcy court, its terms are binding on the debtor and all creditors—even if a creditor failed to object or appear—as to any issues that were or could have been litigated before confirmation. It is imperative that creditors review chapter 13 plans closely and consult experienced counsel to ensure their rights are protected.
