Standards For Fixing The Length OF A Subchapter V Plan, Under § 1191(c)(2)?

Fixed (photo by Marilyn Swanson)

By: Donald L Swanson

A debtor’s Subchapter V plan must provide for disposable income payments over a “3-year period, or such longer period not to exceed 5 years as the court may fix” (11 U.S.C. § 1191(c)(2), emphasis added).

One of the mysteries of Subchapter V is this: what standards should a bankruptcy court apply in fixing the length of a plan’s payments period, under § 1191(c)(2)?

As far as I can see, no bankruptcy court has yet attempted to articulate a standard for making such a “fix.”

Observations

So . . . here are some observations on the subject.

  1. 3 years is the starting place:  Sec. 1191(c)(2) provides that three years is where the analysis begins—it refers to plan payments made “in the 3-year period, or such longer period . . . as the court may fix”;
  2. More than 3 years is required when debtor’s projected disposable earnings are insufficient to, within 3 years, satisfy the Chapter 7 liquidation standard of § 1129(a)(7)(A)(ii) or pay priority tax claims within 3 years under § 1129(a)(9)(C) (both standards are incorporated into Subchapter V by §§ 1191(a));
  3. The 5-years standard in regular Chapter 11 is rejected by statute in Subchapter V:  In regular Chapter 11, an individual debtor is required to propose a 5 years plan (see § 1129(a)(15)(B))—however, Subchapter V explicitly rejects the provisions of § 1129(a)(15), including its 5-years plan requirement (see § 1191(b));
  4. Chapter 12 has a slightly different provision:  Chapter 12 limits plan payments to 3 years, “unless the court for cause approves a longer period” of up to five years (§ 1222(c))—this “for cause” provision is slightly different from the “as the court may fix” provision in Subchapter V (but how and to what extent it’s meaning and standards are different, no one knows);
  5. Chapter 13 has a substantially different provision:  Chapter 13 allows for a 3 year payments period, except that 5 years is required for debtors with income above a defined poverty-line (§ 1325(b)(4)(A)); and
  6. The word “fix” is an odd choice for this statute:  The word “fix” has multiple meanings, and its usages include, (i) “The fix is in” (i.e., a wrongful manipulation), (ii) “I need my fix” (i.e., a drug addict’s phrase), (iii) “Are you still fixing hair” (i.e., doing beauty parlor work—line from an Alexander Payne movie), (iv) “I’m in a fix” (i.e., a difficult or awkward situation), (v) “fixed it for you” (i.e., corrected an error) and (vi) “a date needs to be fixed for a hearing” (i.e., deciding upon a specific detail)—this last usage is, apparently, what’s meant in § 1191(c)(2).   

Suggestions

So . . . here are three suggestions on the subject.

  1. Since the statute starts with the “3-year period” and authorizes a court to “fix” a longer term, 3-years should be the presumptive plan term that can be extended when a substantial reason exists for doing so;
  2. The choice for a term that the bankruptcy court may “fix” is not limited to 3-years or 5-years—it can be something in between; and
  3. Since § 1191(b) specifically and explicitly rejects the 5-years requirement of § 1129(a)(15)(B), the fixing of a 5-years period should be rare, unless requested by debtor.

Conclusion

11 U.S.C. § 1191(c)(2) authorizes a bankruptcy court to “fix” the period in which a debtor is to make plan payments at more than 3 years but not more than 5 years.  That statute, however, contains no direct guidance on what standards a court should apply in making the fix.  And it appears that the bankruptcy courts have not yet attempted to articulate what the standards might be.

Hopefully, the observations and suggestions above are helpful.

** If you find this article of value, please feel free to share. If you’d like to discuss, let me know.

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