The drafting and implementation of a new uniform Chapter 13 Plan and Confirmation Order are currently under way in the Bankruptcy Court for the Northern District of Ohio in Youngstown. A town hall meeting was recently held before the Hon. Kay Woods and Michael Gallo, the Chapter 13 Trustee, during which both creditors' and debtors' counsel provided feedback and voiced their concerns regarding various provisions contained within the draft Plan and Order.

Of particular note were the following provisions:

1. The treatment of claims will continue to be governed by the proof of claim as filed by a creditor, regardless of the treatment of such claim in the Chapter 13 plan.
    
2. The current draft of the proposed confirmation order contains language requiring debtors to report any tax refunds over $1,500 received post-petition to the Chapter 13 Trustee, which will then allow the Trustee to determine if any modification of the confirmed plan is needed.
   
   
3. Post-petition mortgage payments will continue to be paid directly by debtors, as the Chapter 13 Trustee has continued to indicate his lack of interest in handling mortgage payments on a conduit basis through the plan.
   
   
4. The uniform confirmation order as proposed contains language providing a rebuttable presumption for all creditors that any willful failure to credit plan payments properly would subject creditor to sanctions under 11 USC 524 (i). The creditors bar raised many issues with this language based upon the fact that it is not settled law as to whether or not long-term debts that survive the Chapter 13 discharge can be subject to 524(i) sanctions. In response, the Judge indicated that this language would be softened to remove the "rebuttable presumption" language.
    
5. The uniform plan as proposed makes it mandatory for mortgage lenders to provide notice of any payment or escrow changes to debtor, debtor's counsel, as well as the Trustee. Such notice must be given "timely" in accordance with the terms of the Note and Mortgage. While the Judge will not require that such notices be filed with the Court, we recommend that creditors file such notices with the Court for record-keeping and evidentiary purposes.
   
   
6. The proposed uniform confirmation order provides a hard deadline of 90 days after a relief from stay order within which secured creditors must file a deficiency claim. If the collateral has not sold within the 90-day timeframe, a creditor must file an estimated deficiency claim, which may then be amended at a later date.

Based upon the current draft and anticipated revisions, a small number of Chapter 13 cases in Youngstown may see increases in unsecured dividends to unsecured creditors during the life of the Chapter 13 plan.  We can anticipate a continued stream of post-petition defaults on mortgage payments, as the Trustee will not be administering these payments directly and the economy continues to worsen. 

Mortgage lenders should pay special attention to the new notice requirements for payment changes in order to avoid potential disputes with borrowers and their counsel as to payment delinquencies once a debtor nears plan completion.  All secured creditors should adhere to the strict 90-day deadline to file deficiency claims and, if necessary, should simply estimate the claim in cases where the collateral has not sold during the 90-day window.

A further revised draft of the Uniform Plan and Confirmation Order are expected within the next month. We will continue to advise our clients on the provisions contained therein and when a finalized version is ready for publication.

If you have any questions on this information, please contact Mr. Scott D. Fink, Esq.

Scott D. Fink is an associate in the Bankruptcy department of the Brooklyn Heights operations center of Weltman, Weinberg & Reis Co., L.P.A.  He can be reached at (216) 739-5644 or via email at sfink@weltman.com.

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