On December 18, 2008, the United States Bankruptcy Court for the Northern District of Ohio in Youngstown adopted a Uniform Chapter 13 Plan, which will govern all Chapter 13 cases filed on or after February 1, 2009.  The Plan, as adopted, takes effect immediately and provides the following changes:

1. Strict requirements upon mortgage holders to apply Trustee payments to pre-petition arrears correctly and in accordance with the proof of claim and terms of Note and Mortgage.
 
2. Establishment of an affirmative duty and obligation upon mortgage holders, upon Chapter 13 discharge, to deem pre-petition arrears as cured in full both for accounting purposes and in compliance with RESPA.

3. Establishment of an affirmative duty and obligation upon mortgage holders to apply and credit all post-petition payments "as if no pre-petition default existed" and in accordance with the terms of the Note and Mortgage, including a requirement that payments made within the contractual grace period be applied without penalty or late charge.
 
4. Requirement that monthly payments be adjusted according to changes in property taxes, insurance or interest rate AND that such payment change be communicated in writing to debtor, debtor's counsel and the Trustee.  Such notice must be provided "timely" by creditor: meaning within the timeframe provided in the Note and Mortgage or pursuant to RESPA, as if the loan were not in default and neither a foreclosure nor a bankruptcy had been filed.
 
5. Requirement that mortgage holders refrain from paying any pre-petition real estate tax obligation which is provided for in debtor's plan in order to prevent "double dipping" on tax payments by both the taxing authority and the mortgage holder.
 
6. An initial disclosure to all parties that creditors must file a proof of claim in order to receive distributions from the Trustee.  Additionally, the Plan provides that claims will be paid per claims filed, not according to plan treatment.
 
7. A requirement that debtors devote to the plan all post-petition tax refunds received during the life of the plan (excluding earned income and child care credits) and that such refunds may increase the unsecured dividend to creditors.
 
8. A section devoted solely to treatment of claims upon which a non-filing co-signer is liable including either: (a) payment in full through plan, (b) direct payments outside plan by co-signer or (3) payment as a general unsecured claim.
 
9. A section devoted solely to treatment of 910-day vehicle loans and 365-day personal property-secured loans.
 
10. A section providing notice to creditors of liens which the debtor will be moving to avoid either by motion or adversary proceeding.
 
11. A requirement that debtors and their counsel provide specific treatment for executory contracts and unexpired leases as either (a) rejected, (b) assumed and paid by debtor outside the plan or (c) assumed and paid by Trustee inside the plan.
 
12. Language allowing for the filing of claims for post-petition obligations which would then be paid in the same manner as similarly situated creditors.
 
13. With regard to property to be surrendered by debtor through the plan, a time limit of the later of the claims bar date or 90 days after entry of an order directing surrender within which a creditor may file a deficiency claim.  Claims not timely filed will result in a creditor accepting the surrendered property in full satisfaction of its claim.
 
14. Requirements upon debtors to provide notice to the Trustee of: (a) change in marital status or support payments, (b) change in employment, (c) change of address or (d) debtor's receipt of any financial windfall.

The Plan, as adopted, provides creditors with additional and clearer notice of the treatment of their claims and also increases the likelihood of increased dividends to unsecured creditors during the life of a plan.  However, the Uniform Plan also creates the potential for an increase in sanctions motions by debtors stemming from a creditor's failure to accurately and timely apply pre and post-petition payments and/or to notify the appropriate parties of payment changes.
 
We will monitor the implementation and administration of this Plan by the Trustee and the Court and will provide further updates as trends emerge. 

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

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