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Changes to Maryland’s Chapter 13 Local Rules and Form Plan

On October 19, 2007, the Bankruptcy Court announced changes to Local Rules applying to Chapter 13 cases and to the form Chapter 13 Plan. These changes take effect on November 1, 2007, and are fairly significant. (The new/changed language is in italics):

New Local Rule 3007-2 provides that:

In cases under chapter 13, the holder or servicer of any secured claim must notify forthwith the Debtor, the Debtor’s attorney, if any, and the Chapter 13 Trustee of changes in the amounts of future payments caused by changes in the interest rate, taxes, insurance or other sums required to be placed in escrow, and the effective date of the change.

This new Rule ensures that both counsel and the Chapter 13 Trustee are notified of changes to the monthly secured debt payment. This allows counsel or the Chapter 13 Trustee to make sure that Plan modifications to deal with the changed payment can be timely made.

The Plan itself has been changed in three principal respects (new language appears in italics):

1. (Paragraph 2b) Administrative claims under 11 U.S.C. §507(a)(2), including attorney’s fee balance of $___________ (unless allowed for a different amount by an order of court).

This simply clarifies the fact that the Court determines the amount of attorney’s fees. The order of payment is unchanged.

2. (Paragraph 4–New) Payments made by the Chapter 13 trustee on account of arrearages on pre-petition secured claims may be applied only to the portion of the claim pertaining to pre-petition arrears, so that upon completion of all payments due under the Plan, the loan will be deemed current through the date of the filing of this case. For the purposes of the imposition of default interest and postpetition charges, the loan shall be deemed current as of the filing of this case.

This important language incorporates the protections of § 524(i), and requires payments on pre-petition arrearages to be applied only to pre-petition arrearages. I recommend that all debtors’ counsel immediately incorporate this language in their Chapter 13 Plans; it offers significant protections for debtors.

3. (Paragraph 5 [formerly Paragraph 4]) Secured Creditors who are holding claims subject to cramdown will retain their liens until the earlier of the payment of the underlying debt determined under nonbankruptcy law, or discharge under § 1328; and if the case is dismissed or converted without completion of the plan, the lien shall also be retained by such holders to the extent recognized under applicable nonbankruptcy law.

This fixes the problem with some secured creditors objecting to Plans due to a conflict between the former language and the Code.

Personally, I am very pleased with these changes, and thank the Chapter 13 Plan Committee for its work on these issues and the Bench for making these modifications.

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