Consumer Bankruptcy Journal Winter 2016 - Page 8

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), 8 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