The “Plan” in a Chapter 13 Bankruptcy

“The “Plan” is a document that lays out what you want the Chapter 13 Trustee to do with your money every month during your bankruptcy.  It dictates who to pay and how much to pay them.  It must be approved (confirmed) by the Court before becoming permanent.  Upon your initial bankruptcy filing, you will file a proposed edition of the Plan.  The Trustee may object or suggest changes.  At a point following the filing of the proposed plan, the court will decide to approve that plan, or an amended version thereof”

Chapter 13 Plan in a Nutshell

A Chapter 13 plan is a crucial aspect of the United States bankruptcy process, specifically designed for individuals with a regular income who are struggling with overwhelming debt. It is a court-approved repayment plan that enables debtors to reorganize their finances and pay off their debts over a three to five-year period. Unlike Chapter 7 bankruptcy, which involves liquidating assets to repay creditors, Chapter 13 allows individuals to retain their property while making manageable monthly payments based on their disposable income. The plan outlines the debtor’s proposed repayment schedule, which is subject to court approval, providing them with an opportunity to regain financial stability and alleviate their debt burden.

What a Chapter 13 Plan Does

Generally, the plan must provide for payment of secured creditors in full or according to the terms of the contract if the security is retained (e.g., home loans and vehicles).  However, some secured creditors may have their claims modified or avoided altogether.  The plan must also pay all administrative and priority creditors in full.  Unsecured creditors are entitled to receive as much as they would receive under Chapter 7, or how much you can afford to pay them over the life of the plan, whichever is greater.  Payments are made over a period of time.  Plans can provide for payments over as little as 10 months or as long as 5 years.  The minimum plan length will be determined by your income and allowable expenses. Payments usually start immediately via payroll deduction if the debtor is employed or directly from the debtor if self-employed.  The first plan payment is due no later than 30 days after the case is filed.  No new debts can be incurred while in Chapter 13 unless approved by the court.  The court considers bonuses part of your disposable income, your employer may be directed to pay a portion of your bonus over to the Trustee.

What is in a Chapter 13 Plan?

A Chapter 13 plan typically consists of several important sections that outline the details of the debtor’s repayment strategy. Here are the key parts commonly found in a Chapter 13 plan:

1. Introduction: This section provides basic information about the debtor, their bankruptcy case, and their intentions to file for Chapter 13.

2. Debtor’s Financial Situation: This part outlines the debtor’s current financial standing, including details such as income, expenses, assets, and liabilities.

3. Treatment of Secured Debts: Here, the debtor specifies how they plan to handle their secured debts, such as mortgages or car loans. It may include provisions for loan modification, interest rate reduction, or repayment over the plan period.

4. Treatment of Priority Debts: This section addresses debts that are given priority in the bankruptcy process, such as tax obligations or child support payments. The debtor explains how these debts will be repaid during the plan.

5. Treatment of Unsecured Debts: Unsecured debts, like credit card bills or medical expenses, are covered in this part. The debtor describes how they will be repaid, often at a reduced rate or percentage of the total owed.

6. Length and Duration of the Plan: The plan specifies the proposed duration, usually three to five years, during which the debtor will make regular payments to the bankruptcy trustee.

7. Payment Schedule: This section outlines the payment amounts and frequency, typically monthly, that the debtor will make to the trustee. It provides a clear roadmap for repayment throughout the plan’s duration.

8. Confirmation and Court Approval: The plan concludes with a section that seeks court approval and confirmation, acknowledging that both the debtor and the trustee have agreed to the proposed terms.

Each Chapter 13 plan is unique and tailored to the individual’s financial circumstances. It’s crucial to work closely with an experienced bankruptcy attorney to draft a comprehensive and feasible plan that meets the legal requirements and maximizes the debtor’s chances of successful debt relief.

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