Chapter 13 bankruptcy can be very confusing to people who need to file bankruptcy in Indiana. It is easy for people to remember that Chapter 13 is similar to debt consolidation in that a monthly payment is made to the trustee over a period of 36 to 60 months and so long as he or she makes the required payment at the end of that time the debt is discharged. For those people who need to file a Chapter 13 bankruptcy petition, they learn fast that there are a lot of rules dictated by the bankruptcy code prior to the confirmation, or court approval of a Chapter 13 bankruptcy plan.
11 USC 1325 is the section of the code that dictates what must be in a Chapter 13 debtor’s plan for the plan to be confirmed, or approved, by the bankruptcy court and 11 USC 1325(a)(5) is the code section that deals with equal payments and adequate protection in Chapter 13 cases. In order to understand equal payments and adequate protection it is necessary to understand that once a Chapter 13 case is filed the debtor is to make the first proposed plan payment thirty (30) days after the bankruptcy petition is filed and then again every month for the duration of the plan. However, just because a Chapter 13 plan is filed with the court doesn’t mean that the plan payment will not change (typically increase) prior to the confirmation of the Chapter 13 Plan. The reason for this is that the Chapter 13 plan is typically filed by the bankruptcy attorney representing the Chapter 13 debtor. The debtor’s attorney owes a duty to the debtor to attempt to keep the payment as low as possible while still filing the plan in good faith and in accordance with the bankruptcy code. On the other hand, the trustee, who is an attorney who has a duty to the creditors to make sure that the debtor is paying all of his or her monthly disposable monthly income into the plan and generally maximize the return for your creditors. As a result of the two conflicting interests, it is not uncommon for a plan payment to increase a bit after the filing of a Chapter 13 Plan.
Even though the trustee collects the funds from a debtor each month, the trustee often does not make any payments to creditors until the plan has been confirmed. This is an especially important fact for secured creditors such as vehicle lenders and mortgage lenders. This means that they may not receive any money toward a debt owed them in Chapter 13 bankruptcy for several months until the plan is confirmed by the Court. For a secured creditor this not the best scenario…..especially with a vehicle that is a depreciating asset. Without equal payments and adequate protection in Chapter 13 the lender would get nothing while the debtor was able to operate the vehicle to get to and from work knowing that the collateral (the vehicle) was just continuing to go down in value.
In response to concerns of secured creditors in 2005 when the bankruptcy law changed significantly, Congress enacted the equal payment provision and a companion provision extending the concept of adequate protection to both pre-confirmation and post-confirmation of Chapter 13 bankruptcy plans. This provision states that periodic payments are required in equal monthly installments and must be sufficient to provide adequate protection to secured creditors during the life of the plan. The equal payment provision prevents debtors from backloading payments to secured creditors or paying them other than on a monthly basis. In re Rivera, 2008 WL 1957896 (N.D.Ind.).
In addition, Indiana courts have found that Chapter 13 plans that allow for secured creditors to receive large balloon payments at the end of the plan have consistently been found to violate the equal payments provision. There is still much for judges to decide in the arena of equal payments and adequate protection arena. There is not a lot of case law at this point to guide attorneys in how to structure plans so that they can be confirmed even over the objection of creditors.
In the Southern District of Indiana Bankruptcy Court located in Indianapolis, it has been my experience that a monthly payment of at least 1% of the value of the collateral as of the date of the filing of the bankruptcy petition is sufficient to satisfy the equal payments/adequate protection subsection of 11 USC 1325. At the same time, I have yet to run across a Chapter 13 debtor who doesn’t understand the need to pay something in to the lender on his or her vehicle in order to be able to keep that vehicle and to continue to drive it to and from work. After all, since there is a loan on the vehicle it is also in the interest of the debtor to pay toward it from the payment they are making to the trustee so that less is owed on the vehicle in the long run.
I hope this clears up somewhat the meaning of equal payments and adequate protection in Chapter 13 bankruptcy. However, if you are a person contemplating filing Chapter 13 bankruptcy I would advise you to speak with a bankruptcy attorney. You certainly are not required to have a bankruptcy attorney to file a Chapter 13 bankruptcy. However, Chapter 13 is fairly complex and I recommend having an attorney. If you are a person living in central Indiana in or near Indianapolis, Zionsville, Fishers, Noblesville, Carmel, Westfield or any anywhere in the donut counties around Indianapolis and would like to learn whether or not bankruptcy or debt settlement may help solve your financial problems feel free to contact our Carmel office at (317) 575-8222 or click here.
Halcomb Singler, LLP, is a debt relief agency. It helps people file for bankruptcy under the bankruptcy code. No attorney-client relationship with the firm of Halcomb Singler, LLP, is created through this blog. Also, please note that Erika Singler is an attorney licensed in Indiana and does not seek to practice law in any jurisdiction in which they are not properly authorized to do so. The information contained in this blog is general in nature and should not be relied upon for the circumstances of any individual(s) or businesses.