Modified Plans of Reorganization and the Basic Chapter 13 Bargain

Abstract

A very large number of chapter 13 plans are confirmed each year. Unlike chapter 11 plans (for non-individuals), these plans may be revised after confirmation. The modification provisions of the Bankruptcy Code, however, give very little guidance as to what constitutes a permissible modification. In contrast, confirmation of the original plan is very carefully governed. This article theorizes that modification must honor the basic chapter 13 bargain. According to this bargain, the debtor is entitled to the bankruptcy estate and the are entitled to net surplus income. The article assesses whether the diffuse and disorganized caselaw of modification adheres to this normative structure. It explains how some of the precedents permit to raid the bankruptcy estate in violation of a debtor's rights. In particular, it argues that, in a modification, a court should not perform again the best interest of the creditors test of Bankruptcy Code 1325(a)(4), nor should bifurcation of secured claims be revisited.