COMMENTS OF THE NACBA
of allowed
claims filed dividend g.
Only 4 plans allowed the debtor to
specify the method for determining the
dividend on general unsecured claims
The widespread use of “funds left over
after …” and “no less than” provisions
creates a serious problem for Chapter
13 debtors, as documented by NACBA’s
survey. Even though a debtor may be
absolutely entitled to propose a plan
with no dividend for general unsecured
claims, if the mandatory plan contains
these provisions, the plan will almost
inevitably pay dividends – if only
accidentally – on general unsecured
claims. And, in many cases, the
Chapter 13 Trustee is allowed to
increase this dividend at his/her whim.
The same argument applies when the
PDI or BIOC tests result in a calculated
dollar amount that must be paid on
general unsecured claims. In these
plans, this calculated amount is merely
the starting point, from which the
dividend is allowed to grow – despite
not being required by law.
In addition, many plans provide a hardwired calculation of trustee’s fees at
10%, a level which is permitted but
not often utilized. Since the actual
trustee’s fees are often considerably
less than 10%, this provision frequently
produces a surplus that “waterfalls” to
the general unsecured creditors even
though the debtor is not required to pay
them anything. These plans prevent
the debtor from proposing a plan that
the debtor desires, is entitled to, and
without which his/her basic bankruptcy
rights are seriously abridged. The
majority of local plans currently
mandated include these various
damaging provisions that also have the
effect of enlarging creditors’ rights in
violation of 28 U.S.C. § 2075.
NACBA’s members reported the
devastating results of mandatory plans
of this nature. Of the 52 respondents
who reported that nearly all of their
chapter 13 cases were required to pay
dividends on general unsecured claims
(95-100% of their chapter 13 cases),
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CONSUMER BANKRUPTCY JOURNAL
most of them reported that large
numbers of these cases would not be
required to pay any dividend for general
unsecured claims because they passed
both the PDI and BIOC tests. In fact,
58% of these respondents said that at
least half of their cases would not have
to pay any dividend at all, based upon
the PDI and BIOC tests. And, 21% of
the 52 respondents said that at least
90% of their cases would not have to
pay any dividend at all, based upon the
PDI and BIOC tests.
These disturbing discrepancies are
most likely due to the trickle-down
diversion of the overestimated trustees’
fees required by the plan to be paid by
the debtor, or simply a long-standing
policy of individual judges and trustees
to demand a certain dividend in all
cases.
The widespread systemic effect of plan
provisions specifying dividends on
general unsecured claims in mandated
local plans across the board abridges
debtors’ rights and enlarges creditors’
rights in violation of 28 U.S.C. § 2075.
It takes no leap of the imagination to
believe that where funds which could
be used by debtors for basic needs
are taken from them and diverted to
general unsecured claims, this places
those debtors’ plans that much closer
to failing due to some unexpected
expense during their three- to five-year
plan terms.
NACBA urges that if the proposed rules
are adopted, local model plans be
required to offer options for specifying
the dividend on general unsecured
claims, which include the ability for
the debtor to describe his/her own
provision.
Trustee to design it. Sometimes there
is a committee selected by the judge(s)
which produces a result that is edited
by the judge(s). Sometimes a draft is
published for comment, but often not.
When a committee is involved,
usually there will be an assortment of
“stakeholders” selected by the judge to
participate (e.g., creditors’ attorneys,
trustee(s), and one or two debtors’
attorneys). The fallacy of the concept
that a committee of stakeholders should
b