The Partially Secured Creditor Under Chapter XIII of the Bankruptcy Act

Under current bankruptcy law, a partially secured creditor can force a struggling debtor into straight bankruptcy despite the debtor’s voluntary attempt to rescue himself from insolvency under a Chapter XIII wage earner plan. Since the partially secured creditor has a security interest in the debtor’s personal property, though it may be one of only negligible value, he is generally treated under Chapter XIII as a wholly secured creditor. If the partially secured creditor is affected by the wage earner plan, his assent to it is required before the court can confirm the plan. He may therefore, by his single dissent, thwart the debtor’s attempt to resolve his financial problems under Chapter XIII even though the debtor’s other secured or unsecured creditors agree to the wage earner plan. The partially secured creditor thereby obtains an inequitable advantage over the other creditors and is put in a position to undermine the usefulness of Chapter XIII as an alternative to straight bankruptcy. This article will examine the position of the partially secured creditor under Chapter XIII wage earner plans and will recommend ways to deal with him which can result in more equitable treatment of the debtor and other creditors and will at the same time effectuate the chapter’s purpose