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Chapter 13 Plan: Optional Provisions

If the debtor has any disposable income available after full payment of all allowed claims, a Chapter 13 plan may provide for the payment of postpetition interest on unsecured debts that are nondischargeable (e.g., a student loan).

The following plan provisions are generally permitted under § 1322(b)(11):

a. Reaffirmation of debt, waiver of discharge: The debtor may reaffirm a particular debt provided the conditions for reaffirmation have been met. Generally, it is not advisable to reaffirm the debt if at all possible. The debtor may waive discharge of all debts pursuant to a written waiver approved by the court.

b. A Chapter 13 plan may provide for the avoidance (under 11 USC § 522(f)) of any liens that impair the debtor’s exemption rights.

c. Payment of certain secured debts “outside" plan: The plan may call for the debtor to pay certain secured debts (e.g., house or car loan obligations) directly to the creditors rather than through the Chapter 13 trustee. Especially since there will be no Trustee Fees for payments made directly to the creditors outside of the Plan. Paying secured claims “outside" the plan has consequences for both debtor and creditor. From the creditor’s perspective, the Chapter 13 trustee is not obligated to “police" the payment of creditors outside the plan. Those creditors are thus left on their own to seek relief from the automatic stay if current payments are not made.

From the debtor’s perspective, paying secured claims outside the plan may not result in a discharge of those claims, even where the debtor fully performs under the plan. On the other hand, paying creditors outside the plan is attractive to debtors because it avoids the fee payable to the Chapter 13 trustee on payments made by the trustee under the plan.

The most common example of payments outside the plan concern the debtor’s home mortgage: Some courts permit the debtor to make current payments directly to the home mortgage lender but require the payment of arrearages (or other “cure" payments) to be made to the Chapter 13 trustee. A debtor wishing to cure defaults on a loan secured by the debtor’s principal residence must make the cure payments to the Chapter 13 trustee. Directing how payments are applied by lender to debt: Accounting “snarls" can arise where the secured lender simultaneously receives ongoing mortgage payments from the debtor and “cure" payments from the Chapter 13 trustee under the plan. The plan should specifically provide that plan payments received from the Chapter 13 trustee will be applied to pay the prepetition default on the loan, and ongoing payments received from the debtor should be applied to reduce principal and interest due under the loan as stated in the loan documents. Otherwise, the lender will likely follow the loan documents and apply all payments as stated therein.

Payments coming due postpetition on debts to creditors holding purchase money security interests in personal property collateral (e.g., furniture) must be paid directly to those creditors in an amount sufficient to provide “adequate protection" ). But the debtor must provide the trustee with evidence of those payments, including the amounts and dates paid. [

Payments on “impaired" claims (i.e., claims not paid in full under the plan) should be made by the Chapter 13 trustee. If the plan rewrites a secured creditor’s claim by extending its maturity, reducing its interest rate, or decreasing the amount of installments, those payments must be made by the Chapter 13 trustee, not the debtor.

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