Source: http://www.jsslaw.com/article_details.aspx?id=102
Timestamp: 2013-05-25 05:38:57
Document Index: 647904351

Matched Legal Cases: ['§1322', '§1123', '§1122', '§109', '§1325', '§1325', '§1121', '§1121', '§586', '§1325', '§1129', '§1325', '§1129', '§ 1129', '§1129']

Trustee and Trustee Fees. In Chapter 13, a trustee is automatically appointed. The Chapter 13 trustee reviews the plan and makes recommendations to the court as to whether or not it should be confirmed or modified. The Chapter 13 trustee also receives the payments under a confirmed plan and distributes them to creditors. For these efforts, the Chapter 13 trustee receives a fee that can be as much as "10% of the payments made under the plan." (10)In Chapter 11, a trustee is not automatically appointed (11) and no such percentage-based fee is collected. Instead, the debtor typically continues "in possession." Chapter 11 debtors, however, must pay quarterly fees to the U.S. Trustee from the petition date through substantial consummation of the plan and entry of a final decree. The fees are based on the level of disbursements and currently are, for example, $325 per quarter in which quarterly disbursements total less than $15,000; and $650 per quarter in which they total $15,000-$75,000.In summary, the types of trustee fees charged in Chapter 11 and 13 cases are different; and total fees in either case will depend upon various factors, such as the total amount of plan payments and the length of the case. Debtors who intend to propose lower plan payments might have lower trustee fees under Chapter 13, while trustee fees might be a neutral factor for debtors who expect to process a Chapter 11 case quickly and make higher total plan payments.
Projected Disposable Income Requirement. If an unsecured creditor objects to the plan (and assuming that the plan does not call for its claim to be fully paid), Chapter 11 and 13 debtors each must meet different requirements with respect to their projected disposable income (PDI). Chapter 13 debtors must propose to pay all of their PDI received during the "applicable commitment period" - five years for those with above-median income - to their unsecured creditors. (12) Chapter 11 debtors, by comparison, must show that the value of all of their plan distributions is at least equal to their PDI for the longer of five years or the life of the plan. (13) Thus, Chapter 11 debtors may be able to satisfy this requirement if all of their plan payments - to both secured and unsecured creditors - equals or exceeds their PDI.PDI also is determined differently under Chapters 11 and 13. "Disposable income" is defined under both as the debtor's current monthly income (CMI) less amounts "reasonably necessary to be expended" for maintenance or support of the debtor and dependents, for domestic support obligations, for qualifying charitable contributions, and for business expenses. (14) CMI, in turn, is calculated by averaging the monthly income received by the debtor received from all sources (without regard to its taxability) during the six-month period preceding the commencement of the case. While this calculation presumptively determines CMI, it can be rebutted by evidence of a substantial change in the debtor's income at the time of plan confirmation. (15)In Chapter 13, however, the expense limitations of the "means test" standards (which are derived from expense guidelines of the Internal Revenue Service and may be much lower than the actual living expenses of many potential Chapter 11 debtors) apply in determining what expenses are "reasonably necessary" for debtors with above-median incomes. Although there is a split of authority on this issue, there is support for the proposition that Chapter 11 debtors are not limited by the IRS expense guidelines and that the reasonableness of their expenses instead must be judicially determined. (16) Arguably, then, there is more flexibility in determining PDI in Chapter 11 cases; and debtors with higher expenses might fare better in Chapter 11.
(1) E.g., In re Kelly, 841 F. 2d 908 (9th Cir. 1988); In re Mohr, 425 B.R. 457 (Bankr. S.D. Ohio 2010; In re Shelley, 231 B.R. 317 (Bankr. D. Neb. 1999); Waites v. Braley, 110 B.R. 211 (Bankr. E.D. Va. 1990).(2) See Code §1322(b)(2) and §1123(b)(5).(3) E.g., In re Zimmer, 313 F. 2d 1220 (9th Cir. 2002).(4) That is particularly so for Chapter 11 debtors. For example, Chapter 11 debtors must file monthly operating reports listing their monthly receipts and disbursements (Bankruptcy Rule 2015.3); periodic entity reports disclosing information about entities in which they have a substantial or controlling interest (Bankruptcy Rule 2015.3); and disclosure statements containing adequate information from which creditors can make an informed judgment about the plan. (Code §1122).(5) The precise manner in which creditors may be classified and ballots are tallied is outside the scope of this article.(6) Code §109(e).(7) Code §1325(a)(5)(B). Additionally, see, e.g., In re Barnes, 32 F.3d 405 (9th Cir. 1994)(holding that plan, which called for restructuring of the secured claim over nineteen years and only proposed to repay sixty percent of it over the five-year plan period, did not comply with Code §1325(a)(5)(B)(ii).(8) Bankruptcy Rule 3015(b).(9) Code §1121. By waiting beyond the exclusivity period, however, they risk the chance that a creditor or other party in interest might file a competing plan. Code §1121(c).(10) 28 U.S.C. §586(e)(1)(B).(11) In Chapter 11, a trustee may be appointed for cause, however, including fraud, dishonesty, incompetence, gross mismanagement or where such appointment is in the interest of creditors. (12) Code §1325(b)(1).(13) Code §1129(a)(15)(A).(14) Code §1325(b)(2) and §1129(a)(15)(A).(15) In re Lanning, 560 U.S. __ (2010).(16) See In re Roedemeier, 374 B.R. 264 (Bankr. D. Kan. 2007); and Section D.2. of 2005 Committee Note to Official Bankruptcy Forms 22A, 22B, and 22C, reprinted in Norton Bankruptcy Law and Practice 2d, Bankruptcy Rules, at 1146 (Thomson/West 2006-2007 ed.) See also 7 Colliers on Bankruptcy ¶ 1129.03[15][a] (describing such a reading of Code § 1129(a)(15)(B) as "flawed." As stated by the Roedemeier court, "in calculating an individual Chapter 11 debtor's projected disposable income, §1129(a)(15)(B) must be read to allow a judicial determination of the expenses that are reasonably necessary for the support of the debtor and his or her dependents." In re Roedemeier, 374 B.R. at 272-73.
Brian N. SpectorMemberT: 602.262.5977F: 602.495.2654bspector@jsslaw.com