Common Objections to Chapter 13 Plans

By Tom Streissguth

In a Chapter 13 bankruptcy, a debtor agrees to make monthly payments to a court-appointed trustee. The payments, which are based on the debtor's disposable income, go to creditors who have verified claims against the debtor. A Chapter 13 creditor has the right to object to the plan if the creditor believes the plan denies its legal rights or the rate of reimbursement is incorrect.

Inaccurate Debt Listed

A creditor can object to a Chapter 13 plan on grounds that the amount of the debt listed on the bankruptcy schedules is inaccurate. After the bankruptcy court notifies creditors that have been listed on the debtor's petition, these creditors must file a Proof of Claim form listing the outstanding amount of the debt. If the amount is in dispute, the court will schedule a hearing on the matter, at which time the creditor as well as debtor may present their evidence and arguments.

Classifying Debts

A creditor may find that the debtor has incorrectly classified the debt. A secured loan; for example, a loan contracted for the purchase of furniture or a car, may be listed as an unsecured debt without collateral. In addition, a creditor may disagree with the amount the debtor has listed as an arrearage on the debt. This is a common problem in Chapter 13 bankruptcy cases, when the confirmation takes place several weeks after the filing of the initial petition and schedules.

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Cramdowns and Late Objections

In some Chapter 13 cases, a secured debt may have an outstanding balance that's higher than the value of the collateral -- a circumstance common in auto and home loans. If a debtor proposes a "cramdown," in which the loan amount is modified to the collateral market value, a creditor has the right to object. If the bankruptcy law bans a cramdown, and the creditor fails to object before the confirmation meeting, the court will still modify the plan on the later request or objection of the creditor, in accordance with bankruptcy law.

Objections and Requests for Modification

Before the repayment plan goes into effect, the trustee will schedule a "confirmation" meeting of creditors, which the debtor must attend. Before this meeting takes place, any creditor may file an objection to confirmation of the Chapter 13 plan with the court, serving the same on the debtor and trustee. The objection, and any evidence presented by the creditor, will be taken into consideration by the trustee at the meeting. After the confirmation meeting, the plan goes into effect. At this point, a creditor may only request a modification of the plan, which will result in a court hearing at which all sides may present their case.

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Chapter 7 Vs. Chapter 11 for Individuals
 

References

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Provisions of Chapter 13 of the Federal Bankruptcy Laws

Chapter 13 bankruptcy is a form of personal bankruptcy that allows an individual’s debt to be adjusted if he has a regular income. Unlike Chapter 7 bankruptcy, a Chapter 13 proceeding allows the debtor to keep property and pay debts over time rather than liquidating assets to pay creditors. One advantage of Chapter 13 bankruptcy is the opportunity for the debtor to save his home from foreclosure and even stop a foreclosure already in progress.

Who Is a Secured Creditor in Chapter 7 Bankruptcy?

Chapter 7 bankruptcy is designed to allow individuals to obtain relief from their debts and make a fresh start through a discharge of their debts. However, a Chapter 7 discharge does not always allow debtors to completely eliminate their financial obligations. Instead, any assets that the debtor has that cannot be protected by exemption are sold, with the proceeds going to repay creditors ordered by a priority system designed to allow them to receive as much repayment as possible before a discharge is granted.

What Happens to an Unsecured Loan After Chapter 13 Has Been Dismissed?

When you file for bankruptcy protection under Chapter 13, you are asking a federal court for protection from your creditors. The court issues an automatic stay, meaning your creditors must stop all collection efforts and lawsuits against you. A trustee then draws up a repayment plan, which schedules monthly payments that will repay a portion of your unsecured debts. If you fail to meet the payments, the court may dismiss the case — and there will be important consequences for those unsecured debts.

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