If a debtor has current monthly income that is below the median income level, they have an applicable commitment period (“ACP”) of 3 years, and the plan duration needs to be at least 36 months. What if a 36-month plan will not provide enough funds to pay secured and priority claims in full?
Most attorneys (and/or their software programs) automatically make the plan a 60-month plan, but in many instances that is unnecessary. A 60-month plan forces the debtor to pay more to unsecured creditors than they are legally required to pay and to stay in the plan for longer than necessary.
Our plan says (in 2.1, after the payment schedule):
“If fewer than 60 months of payments are specified, additional monthly payments will be made to the extent necessary to make the payments to creditors specified in this plan.”
Set up your plan as a 36-month plan when the debtor’s income is below-median. If it takes longer than that to be feasible, the debtor will need to keep making payments, but as soon as secured and priority claims are paid in full I can file my plan completion report.
If you provide for 60 months of plan payments because the plan isn’t feasible as a 36-month plan, you are committing the debtor to stay in the plan for 60 months. I am happy to take the debtor’s money on behalf of unsecured creditors if that’s what the debtor wants to do, but I am not happy when doing so is because of the attorney’s misunderstanding.
The downside to showing the plan as a 36-month plan is that it can be confusing. Make sure your clients (debtors and creditors) understand that 36 months is the minimum time period, not the maximum. As an alternative, show in your plan payment schedule that the debtor will pay $x per month for “at least 36 months” AND add a nonstandard provision stating that the debtor will make payments under the plan for 36 months or until secured and priority claims are paid in full, whichever is later.
Three other caveats:
1) 60 months is the maximum plan duration. If your plan says 36 months and it will take longer than 60 months to pay secured and priority claims, the plan is not feasible. The monthly plan payment amount will need to increase.
2) If there is a liquidation issue, a different approach might be necessary.
3) If the debtor has income that is above-median, they have a 5-year ACP and they must propose a 60-month plan.
