Bankruptcy Plan Term (3 to 5 Years) — A Comparison Of Statutes

11 U.S.C. § 1191(c)(2)

By: Donald L Swanson

Subchapter V of Chapter 11 authorizes a reorganization plan to have a term of three to five years.  Here is the precise language involved, in § 1191(c)(2)(A)&(B):

  • “in the 3-year period, or such longer period not to exceed 5 years as the court may fix.”

So . . . (i) What do the words “as the court may fix” mean?, and (ii) What standards should a court apply in making that “fix”?

At the present time, the answer to both questions appears to be this:  “No one knows.”

Comparison of Statutes

All reorganization chapters in the Bankruptcy Code (Subchapter V, regular Chapter 11, Chapter 12 and Chapter 13) have corresponding—but different—provisions on the term of a plan.  Perhaps a comparison of such corresponding provisions can shed light on the meaning of “as the court may fix” in Subchapter V’s § 1191(c)(2)(A)&)(B)?  

What follows are the statutory provisions, on a three to five years term of a plan, for each of the Bankruptcy Code’s reorganization chapters.

Subchapter V—“as the court may fix”

11 U.S.C. § 1191(c)(2) says (emphasis added):

(2) As of the effective date of the plan—(A) the plan provides that all of the projected disposable income of the debtor to be received in the 3-year period, or such longer period not to exceed 5 years as the court may fix, beginning on the date that the first payment is due under the plan will be applied to make payments under the plan; or (B) the value of the property to be distributed under the plan in the 3-year period, or such longer period not to exceed 5 years as the court may fix, beginning on the date on which the first distribution is due under the plan is not less than the projected disposable income of the debtor.

A dictionary definition of the word “fix,” and a dictionary example of how it is used, are:

  • Definition—“decide or settle on (a specific price, date, course of action, etc.)”; and
  • Example—“no date has yet been fixed for a hearing.”

An ad-libbed line, from a local extra, in an Alexander Payne movie is, “Are you still fixing hair?”

Regular Chapter 11—Mandatory 5 years for individual debtors

11 U.S.C. § 1129(a)(15) says (emphasis added):

(15) In a case in which the debtor is an individual and in which the holder of an allowed unsecured claim objects to the confirmation of the plan—(A) . . . ; or (B) the value of the property to be distributed under the plan is not less than the projected disposable income of the debtor (as defined in section 1325(b)(2)) to be received during the 5-year period beginning on the date that the first payment is due under the plan, or during the period for which the plan provides payments, whichever is longer.

It is noteworthy that Subchapter V specifically rejects this 5-year term for individuals (in § 1181(a)).

Chapter 12—“as the court may approve” and “for cause”

11 U.S.C. § 1225(b) says (emphasis added):

(b)(1) If the trustee or the holder of an allowed unsecured claim objects to the confirmation of the plan, then the court may not approve the plan unless, as of the effective date of the plan—(A) . . . ; (B) the plan provides that all of the debtor’s projected disposable income to be received in the three-year period, or such longer period as the court may approve under section 1222(c), beginning on the date that the first payment is due under the plan will be applied to make payments under the plan; or (C) the value of the property to be distributed under the plan in the 3-year period, or such longer period as the court may approve under section 1222(c), beginning on the date that the first distribution is due under the plan is not less than the debtor’s projected disposable income for such period.

11 U.S.C. § 1222(c) says (emphasis added):

(c) Except as provided in subsections (b)(5) and (b)(9), the plan may not provide for payments over a period that is longer than three years unless the court for cause approves a longer period, but the court may not approve a period that is longer than five years.

Chapter 13—Mandatory 5 years for substantial earners

11 U.S.C. § 1325(b)(4) says (emphasis added):

(4) For purposes of this subsection, the “applicable commitment period”—(A)subject to subparagraph (B), shall be—(i) 3 years; or (ii) not less than 5 years, if the current monthly income of the debtor and the debtor’s spouse combined, when multiplied by 12, is not less than—(I) in the case of a debtor in a household of 1 person, the median family income of the applicable State for 1 earner; (II) in the case of a debtor in a household of 2, 3, or 4 individuals, the highest median family income of the applicable State for a family of the same number or fewer individuals; or (III) in the case of a debtor in a household exceeding 4 individuals, the highest median family income of the applicable State for a family of 4 or fewer individuals, plus $525 1 per month for each individual in excess of 4; and (B) may be less than 3 or 5 years, whichever is applicable under subparagraph (A), but only if the plan provides for payment in full of all allowed unsecured claims over a shorter period.

Conclusion

No one knows what the words “as the court may fix” actually mean.

A comparison with corresponding statutes in other chapters suggests this:

  • “as the court may fix” is not a requirement for something longer than three years—unlike regular Chapter 11 for individuals (which is specifically rejected in Subchapter V) or Chapter 13 for substantial earners; and
  • “as the court may fix” provides greater authority and discretion to bankruptcy judges than the “may not provide . . . unless the court for cause approves a longer period” in Chapter 12.

It will be interesting to see what the courts do with the meaning of “as the court may fix.”

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