Individual Chapter 11 Plans – So I Learned a Few Things at NACBA

I had a good time at the annual NACBA meeting last weekend in San Fran.  I did a program on individual chapter 11 cases with Judge Laurel Davis from Las Vegas and bankruptcy pundit Wayne Silver from San Jose.    We decided to let the audience, which was quite substantial, ask questions and I definitely learned a few things.

One big lesson was about whether plans must be five years, in other words, whether the individual must pay his net disposable income into the plan for five years.  It sure seems to say that in Section 1129(a)(15).  I know that it is required only “when a creditor objects,” but I sort of assumed that less that five years would bring an objection so it should be presumed to be five years.  There was a question about whether a “no” vote on the plan by an unsecured creditor is an “objection” but we obviously did not resolve that.  

I was also aware of the argument that (a)(15) requires only that the debtor pay an amount equal to his net disposable income over five years.  It doesn’t say he has to pay for five years.  But I was surprised that several people commented that they routinely propose plans of less than five years and even less than one year (or no years) when the debtor really has no unencumbered non-exempt assets and no net disposable income.  To do that seemed to me (until listening to this discussion) to be something akin to “not good faith” (I hate saying bad faith) but I think we will start trying it.  I’ll write something again when I get a scathing opposition saying what horrible people we are for proposing a less-than-five-year plan.

Another big lesson was how casual the comments were about proposing a nominal amount of “new value” to get past the absolute priority rule.  I joked about “what do you do when the only unsecured ballot you get is from Discover who votes no”?  One person laughed and said call Becket & Lee who represents American Express.  They will make a deal.  But the other answer was propose to pay $2,000 or some nominal amount as new value.  Again, I know how new value works but I assumed it had to be meaningful and I thought that even $10,000 or $15,000 was skimpy.  The $2,000, of course, assumes that the debtor owns nothing but non-exempt and other fully encumbered property.

Wayne, Judge Davis and I had a great conversation about the conflict of representing “the debtor ” and “the estate” at the same time.  Huh?  But we were not able to do more than point out that the attorney needs to keep his eye on the prize, the estate.

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