Chapter 11 Plan Default Procedures

Many Chapter 11 plans specify the procedures applicable to all creditors for addressing defaults on payments under the bankruptcy plan. If the plan does not contain provisions, FI attempts to negotiate default provisions in the proposed plan. The terms negotiated depend upon whether the debtor is an individual or a non-individual debtor. It may also depend upon when an individual Chapter 11 case was filed.

When the taxpayer is non-compliant with the terms of a confirmed plan, FI reviews the plan for default provisions. The FI caseworker must comply with the default provisions in the confirmed plan. IRM 5.9.8.19.3, Plan Default, discusses plan default in detail.

In the case of a default, Insolvency may refer the case to a revenue officer to resume administrative collection activity. The IRS can usually collect the full amount of the liabilities provided for in the Chapter 11 plan. The IRS may not be able to collect liabilities not provided for in the plan. They may have been discharged upon confirmation.

Insolvency may also refer the case to Area Counsel to file a motion to dismiss or convert the debtor’s Chapter 11 case to a Chapter 7 case. However, dismissal or conversion is usually only appropriate if the bankruptcy estate retained property after confirmation. Or, it may be because the confirmed plan requires creditors to address plan defaults through the filing of a motion for dismissal or conversion. There is no provision that reinstates the automatic stay upon conversion.