CBS Chapter 13 Repayment Plans 3 — Questions and Answers
Question 1: A Chapter 13 debtor misses three consecutive plan payments. What is the most likely consequence?
- The plan is automatically extended by three months
- The trustee or a creditor may move to dismiss the case or convert it to Chapter 7 (Correct answer)
- The debtor receives an automatic 90-day grace period
- Secured creditors can immediately repossess collateral
Correct answer: The trustee or a creditor may move to dismiss the case or convert it to Chapter 7
Failure to make plan payments gives the trustee or creditors grounds to file a motion to dismiss or convert the case under 11 U.S.C. § 1307.
Question 2: Under the Till v. SCS Credit Corp. decision, how is the interest rate determined on secured claims in a Chapter 13 plan?
- The contract rate agreed to by the parties
- The federal prime rate alone
- A formula rate starting from the prime rate adjusted for case-specific risk (Correct answer)
- The rate set by the bankruptcy court at its discretion without reference to market rates
Correct answer: A formula rate starting from the prime rate adjusted for case-specific risk
Till v. SCS Credit Corp. established the 'formula approach': start with the prime rate and adjust upward to account for risk of default in the bankruptcy context.
Question 3: A debtor's Chapter 13 plan is confirmed. Six months later, the debtor loses their job. Which option is NOT available to the debtor?
- Seek a hardship discharge under § 1328(b)
- Move to modify the plan to reduce payments
- Convert the case to Chapter 7
- Retroactively void all creditor claims from the case (Correct answer)
Correct answer: Retroactively void all creditor claims from the case
A debtor cannot retroactively void creditor claims; they may seek plan modification, hardship discharge, or conversion to Chapter 7 upon a material change in circumstances.
Question 4: What is required for a debtor to obtain a 'hardship discharge' under 11 U.S.C. § 1328(b)?
- The debtor completes at least 50% of the plan payments
- Failure to complete the plan is due to circumstances for which the debtor should not justly be held accountable, unsecured creditors received at least what they would in Chapter 7, and modification is not practicable (Correct answer)
- The debtor has been making payments for at least 36 months
- Court approval and consent from all creditors
Correct answer: Failure to complete the plan is due to circumstances for which the debtor should not justly be held accountable, unsecured creditors received at least what they would in Chapter 7, and modification is not practicable
Section 1328(b) requires: (1) failure due to circumstances beyond the debtor's control, (2) unsecured creditors received at least their Chapter 7 liquidation value, and (3) plan modification is not practicable.
Question 5: How does Chapter 13 treat priority tax claims in the repayment plan?
- Priority tax claims are discharged like general unsecured debts
- Priority tax claims must be paid in full over the life of the plan (Correct answer)
- Priority tax claims are paid only if funds remain after secured creditors
- The IRS must consent to any payment of less than full value
Correct answer: Priority tax claims must be paid in full over the life of the plan
Under 11 U.S.C. § 1322(a)(2), a Chapter 13 plan must provide for full payment of all claims entitled to priority under § 507, including priority tax claims.
Question 6: A Chapter 13 debtor seeks to strip off (avoid) a wholly unsecured junior mortgage lien. Which condition must be met?
- The first mortgage must be in default
- The value of the collateral must be less than the amount owed on senior liens, leaving the junior lien entirely unsecured (Correct answer)
- The junior mortgage must be more than 10 years old
- The debtor must have at least 20% equity in the home after the strip-off
Correct answer: The value of the collateral must be less than the amount owed on senior liens, leaving the junior lien entirely unsecured
Lien stripping of a junior mortgage is permitted when the property's value does not exceed the amount owed on senior liens, making the junior mortgage wholly unsecured.
Question 7: What is the role of the Chapter 13 Standing Trustee with respect to plan payments?
- The trustee negotiates loan modifications with secured lenders
- The trustee collects plan payments from the debtor and disburses funds to creditors per the confirmed plan (Correct answer)
- The trustee approves or denies each individual creditor claim
- The trustee sets the repayment schedule without court involvement
Correct answer: The trustee collects plan payments from the debtor and disburses funds to creditors per the confirmed plan
The Chapter 13 Standing Trustee serves as a disbursing agent—collecting payments from the debtor and distributing them to creditors according to the confirmed plan and filed proofs of claim.
CBS Chapter 13 Repayment Plans 3
A Chapter 13 debtor misses three consecutive plan payments.
What is the most likely consequence?