As to the treatment of any creditor’s claim in a bankruptcy case, a creditor who objects to the treatment of their claim may file an objection with the bankruptcy court, subject to certain requirements and deadlines based on the facts of the particular case.
This is not a passive process. A bankruptcy plan that is confirmed by the court is binding on all creditors, including those who did not object. If the plan improperly treats your claim, you must raise the issue before the confirmation deadline or be bound by whatever the plan says.
We review every proposed bankruptcy plan affecting our clients and file objections when the treatment is legally insufficient.
What a Plan Can and Cannot Do to Your Claim
Protection for a Home Mortgage
For claims secured only by the debtor’s primary residence, a Chapter 13 plan cannot reduce the principal balance, lower the interest rate, or otherwise modify the contractual terms of the mortgage. The debtor can catch up on arrears through the plan and must continue making regular monthly payments, but your loan terms are protected. This is one of the most important creditor protections in consumer bankruptcy.
Cram-Down on Other Secured Claims
For secured claims against property other than the primary residence, such as investment property, commercial real estate, or equipment, a Chapter 13 or Chapter 11 plan can propose to pay only the current value of the collateral rather than the full debt. A plan that does this is a cram-down. When a plan proposes to cram down your claim, two questions drive the dispute: what the collateral is worth, and what interest rate the plan will pay on that value. Both have a direct effect on your recovery, and we contest each where the numbers favor our client.
Typical Objections We File
The typical objections concern claim amounts or the value of collateral and are resolved either through negotiation with the debtor’s counsel or through a hearing before the bankruptcy court.
Other common grounds for objection include these.
The plan does not cure the full pre-petition mortgage arrearage for a home mortgage creditor. The full arrearage must be paid through the plan.
The plan proposes an interest rate that is too low on a crammed-down secured claim. The correct rate reflects the actual risk of this loan with this particular debtor.
The plan is not feasible: the debtor’s projected income is insufficient to fund both the ongoing mortgage payments and the additional plan payments. An infeasible plan will fail before completion, which helps no one.
The plan treats your claim differently from similarly situated creditors without a legitimate basis for doing so.
The Confirmation Deadline
Every Chapter 13 and Chapter 11 plan comes with a confirmation hearing date and an objection deadline. Miss the deadline and you lose the opportunity to challenge the plan’s treatment of your claim, even if that treatment is legally deficient. Courts rarely revisit confirmed plans after the fact.
We receive notice of every plan affecting our clients and promptly evaluate it. We do not miss confirmation deadlines.
Chapter 11 Plan Confirmation
In Chapter 11 cases, plan confirmation is significantly more complex. Creditors vote on the plan, and your vote counts proportionally to your allowed claim. If your class votes to reject the plan, the debtor can still seek confirmation through what is called a cramdown, but must satisfy additional legal requirements, including that the plan is fair and equitable to your class and that equity holders receive nothing unless creditors are paid in full.
We represent creditors throughout the Chapter 11 plan process, filing claims, participating in confirmation proceedings, and negotiating plan terms that fairly reflect what creditors are entitled to receive.
Related: Cram-Down, for when a bankruptcy plan proposes to reduce your secured claim to the current value of the collateral.
In this section: Proof of Claim · Automatic Stay Relief · Reaffirmation Agreements · Plan Negotiation
Frequently Asked Questions
What happens if we do not object to the plan at all?
The plan may be confirmed as proposed and becomes binding on your claim. If the plan underpays you, undervalues your collateral, or proposes an inadequate interest rate and you did not object, you lose the right to challenge those terms after confirmation. There are very limited circumstances in which a confirmed plan can be modified or revoked after the fact.
Can a Chapter 13 plan reduce my mortgage principal on the debtor's home?
No. This is the home mortgage protection rule. A Chapter 13 plan cannot modify the terms of a claim secured only by the debtor's primary residence. The plan can require the debtor to cure arrears and maintain ongoing payments, but it cannot alter the contractual interest rate, payment amount, or maturity date. If a plan attempts to do this, we object immediately.
What is the connection between my proof of claim and the plan?
The plan treats your claim based on the amount stated in your allowed proof of claim. If you did not file a proof of claim, or if you filed for the wrong amount, the plan may propose to pay the wrong amount, or nothing at all. Filing an accurate, timely proof of claim is the foundation of protecting your rights in any bankruptcy case.
Can the debtor extend the plan term to reduce monthly payments to me?
In some circumstances yes. A Chapter 13 plan can run up to 60 months. A longer plan term reduces the monthly payment on your claim but also means you are waiting longer for full recovery and are exposed to the plan failing before completion. We evaluate proposed plan terms for economic impact as well as legal sufficiency.
What is a cramdown and how do we fight it?
A cramdown is when the plan proposes to pay your secured claim only to the extent of the current value of the collateral, rather than the full outstanding debt. If the collateral has declined in value below the debt, the plan can propose to treat only the current value as secured. The two things we contest are the valuation (we present competing appraisal evidence to push the value higher) and the interest rate (we insist on a rate that reflects the actual risk of this loan with this debtor). There is a separate page on this site dedicated to cramdown. See Cram-Down in the Bankrupt Debtors section.
What happens to my claim in a Chapter 11 case if the plan is never confirmed?
If a Chapter 11 case is dismissed or converted to Chapter 7 without a confirmed plan, the automatic stay terminates and creditors generally resume their pre-bankruptcy rights. For a secured creditor this typically means you can proceed with foreclosure. For an unsecured creditor the situation is more complicated depending on how far the case progressed and what was paid during the case.