NACBA 2012 Fall Workshop Jill Michaux Cathy Moran

IN THE BEGINNING….

Plan shall… Provide for payment in full of priority claims Provide same treatment within a creditor class

Plan may…. Separately classify cosigned consumer claims Modify secured claims, except homes Cure default on long term debt Pay post petition debts Assume or reject leases or executory contracts Provide for vesting of property of the estate

HOW MUCH MUST DEBTOR PAY?

Priority claims Liquidation dividend Means test product

Liquidati on dividend Priority claims

The plan… shall provide for the full payment…of all claims entitled to priority under section 507 § 1322(a)

Priorities Support Administrative expenses Employee wages Taxes § 507

LIQUIDATION – BEST INTERESTS TEST

the value…of property to be distributed under the plan on account of each allowed unsecured claim is not less than the amount that would be paid on such claim if the estate of the debtor were liquidated under chapter 7 §1325(a)(4)

Liquidation premium ≠ Non-exempt equity

Hypothetical Ch. 7 includes Non exempt assets Avoidable transfers

Ch. 7 trustee pays Trustee commission Estate’s professionals Income taxes on estate Costs of sale

Minimum payable to “unsecured creditors”

BEST EFFORTS

- the plan provides that all of the debtor’s projected disposable income to be received in the applicable commitment period …will be applied to make payments to unsecured creditors under the plan. §1325(b)(1)(B) Means test result

projected disposable income = disposable monthly income from B-22 Above median income

projected disposable income = CMI less amounts reasonably necessary for support Below median income

Plan must pay to unsecureds the greater of Priority claims Liquidation Means test product

SECURED CLAIMS

Secured claim Creditor with lien has a secured claim – Only to the extent of the value in collateral – Balance of claim is unsecured § 506

Car Claims

Adequate protection Protects secured creditor against erosion of its position Payable pre confirmation Generally, 1% of secured claim a month

910 cars -section 506 shall not apply to a claim described in that paragraph if the creditor has a purchase money security interest securing the debt … the debt was incurred within the 910-day period preceding the date of the filing… and the collateral for that debt consists of a motor vehicle …acquired for the personal use of the debtor §1325(b) hanging paragraph

Cars outside hanging ¶ Secured claim is value of car Secured claim payable with interest Balance of claim unsecured § 506

Car interest rates modifiable Till rate: prime interest rate + risk factor

Mortgage claims

Mortgage arrears Plan can cure prepetition arrears No interest payable Generally no adequate protection payable

No bifurcation on principal residence §1322(b)(2) prohibits modifying claims secured only by home

Rentals & Vacation Homes

Tax & judgment liens §506 applies Secured claim accrues interest Calculate treatment of unsecured claim- priority or not

Priority claims 100%

OTHER PROVISIONS

You can also Provide for direct payment of claims Indicate intent to surrender Assume leases Separately classify co signed debt

Strip or avoid liens § 506 applies to liens not protected from modification Home mortgage liens stripped if no value §522 allow voiding liens that impair exemptions

General unsecured claims Liquidation dividend minus Priority claims minus Co signed debt = Payment to general unsecured claims

NACBA 2012 Fall Workshop Jill Michaux Cathy Moran