At first glance, Chapter 13 appears to offer creditors the same general remedies as other chapters of the Bankruptcy Code – the right to seek non-suit (11 USC § 1307), the right to seek relief from automatic stay (11 USC 362 (d)), and the right to object and challenge the confirmation of the debtor’s Chapter 13 plan. However, the best option may be a settlement that offers some relief to the creditor if the debtor fails in their Chapter 13, as the majority of Chapter 13 debtors do not successfully complete their plan (which typically lasts for 5 years).
Specifically, creditors’ lawyers in Chapter 13 cases can quickly realize that, in practice, it can be extremely difficult to derail a Chapter 13 case using legal remedies. Judges generally give Chapter 13 debtors – especially first-time applicants – the benefit of the doubt. For example, a creditor may object to a feasibility-based plan if the debtor’s expected income and expenses are insufficient to make payment of the proposed Chapter 13 plan. But, a debtor’s lawyer can simply modify bankruptcy schedules to reflect additional income (or lower expenses) to overcome this hurdle. It may seem like the debtor just made up these numbers, but if the debtor is up to date on their plan payments by the date of the confirmation hearing, the judge is likely to confirm the plan and give the debtor a chance. . This is because even if the creditor is very aggressive, the debtor has the absolute right to dismiss the case under § 1307 (b) and then re-file a Chapter 13 petition, which puts the creditor back on the line. square one (there may be requirements in a re-filed case depending on when it was filed versus the previous termination, but creditors are still generally at a disadvantage). Finally, although a Chapter 13 case may be dismissed if the debtor does not follow the required credit advice (§§ 109 (h) and 521 (b) (1)) or if the debtor’s debts exceed the imposed limits per §109 (e) (generally less than $ 419,275 for unsecured debt and less than $ 1,257,850 for secured debt), termination on these grounds is rare and should not be invoked.
These results can be particularly frustrating when the client views the debtor as someone trying to play with the system (which may or may not be true). So, with the game against you as Chapter 13 creditors’ attorney, what can you do? While it may seem counterintuitive, I think two types of “settlements” with the debtor can be a good result:
File a request for relief from the automatic stay and, as a settlement of that request, negotiate a “drop dead” settlement whereby, if the debtor defaults on any anticipated future payment, the creditor can immediately obtain relief from the default. suspension without further hearing. However, not all judges will approve of this type of self-enforcing provision.
File an objection to the confirmation and, as a resolution, negotiate a consent order that if the matter is dismissed for any reason, the dismissal is with prejudice for a period of one year. While this may require the creditor to “wait” for the debtor until it defaults, in the event of default, the creditor might have a year to obtain the appropriate remedy in state court without having to s ‘deal with a second bankruptcy filing.
These resolutions may not be available in all jurisdictions – as with any legal matter, the outcome of a particular case will depend on the facts, circumstances, judges, parties and lawyers involved. But, with the bridge stacked against the creditor in a Chapter 13, a settlement that provides the creditor with some level of finality if the debtor fails may be the best of times. As a creditors’ lawyer, you should consider directing the case to one of these types of settlements.
Copyright © 2021 Nelson Mullins Riley & Scarborough LLPRevue nationale de droit, volume XI, number 256