Chapter 13 Bankruptcy Repayment Plans
A Chapter 13 bankruptcy repayment plan allows you to repay creditors, in full or in part, in installments over a three-year period, during which time creditors are prohibited from starting or continuing collection efforts.
Plans over three years must be “for cause” and in no case will the court approve more than five years. You file your plan with the bankruptcy petition or within fifteen (15) days thereafter.
The chapter 13 plan must provide for the full payment of all claims entitled to priority under section 507(unless the holder of a particular claim agrees to different treatment of the claim).
Plans must be approved by the court and provide fixed payments to the trustee on a regular basis, (weekly, biweekly or monthly). Trustees distribute these funds according to the terms of your plan. (creditors typically receive less than full payment on their claims or about 10 cents on the dollar).
If the trustee or a creditor with an unsecured claim objects to confirmation of the plan, you are obligated to pay the amount of the claim or commit to the proposed plan all projected “disposable income” during the period in which the plan is in effect.
NOTE: Disposable income is defined as income not reasonably necessary for the maintenance or support of you and/or your dependents. If you operate a business, disposable income is defined as excluding those amounts which are necessary for the payment of ordinary operating expenses.
Problems with your plan are typically resolved during or shortly after 341 meeting. You can avoid problems by consulting the Trustee to ensure your plan is complete. Afterwards, a bankruptcy judge determines (at confirmation hearing) if your plan is feasible and meets the standards for confirmation.
Creditors receive 25 days’ notice of the hearing and may object to confirmation. The the most frequent objections are that payments are less than creditors would receive if your assets were liquidated or that your plan does not commit all of your projected disposable income.
Chapter 13 repayment plans begin within 30 days after filing your plan! Even if it has not been approved by the court, you must start making payments to the trustee.
When your plan is confirmed, the trustee begins paying your creditors. If your plan is not confirmed, you have the right to file a modified plan or convert the case to a chapter 7 liquidation bankruptcy
You, the trustee, or an unsecured creditor can request the plan be modified if your circumstances change enough to prevent you from making payments. Failure to make payments may result in dismissal of the case or its conversion to Chapter 7 liquidation case!
If your plan is not confirmed and the case is dismissed, the court may authorize the trustee to retain a specified amount for costs, but all other funds paid to the trustee are returned to you.
Making your repayment plan work
The confirmed plan is binding on you and each creditor. You are responsible for making the plan successful by making regular payments to the trustee! You may also consent having the payments deducted from your paycheck and sent directly to the trustee.
While confirmation of the plan entitles you to retain property as long as payments are made, you may not incur any significant new credit obligations without consulting the trustee!