Chapter 13 Plan of Repayment
The Chapter 13 Plan provides for payment of three basic categories of creditors:
1. General Unsecured Debt. This category includes credit card debts, hospital bills, loans, and personal loans. General unsecured creditors need not be paid 100% of their debts so long as debtor will contribute all projected “disposable income” over an applicable commitment period of 3 to 5 years), and so long as this group of creditors receives at least as much under the plan as they would receive if the debtor’s assets were liquidated under Chapter 7 (after calculating debtor’s exemptions). Disposable income is the debtor’s income (other than from child support payments) less amounts reasonably necessary for support of the debtor or dependents of the debtor.
2. Priority Debt. Priority debts include state and federal tax claims, domestic support obligations and administrative claims, such as attorney’s fees and trustee’s fees. In general, priority creditors are paid in full through the life the plan over 3 to 5 years unless a priority creditor agrees to a different treatment under the plan or unless the priority creditor is a domestic support obligation and debtor contributes all disposable income over 5 years.
3. Secured Debt. Secured creditors have a lien on debtor’s assets, such as a car loan or mortgage. The debtor may surrender the collateral or keep the collateral. Assuming that the debtor wishes to retain the collateral, the Chapter 13 plan must provide in general that the secured creditor must receive at least the value of its collateral with interest.
In the case of a car loan, if the loan was used to purchase the vehicle and it was purchased over 910 days prior to the filing of bankruptcy, the plan must provide for full payment of the debt owed, not just the value of the collateral. If the car is older, then the plan can “cram down” the car loan and provide for payment of only the collateral.
In the case of a mortgage on debtor’s principal residence, the Chapter 13 plan may only provide for the payment of missed mortgage payments that came due prior to the bankruptcy filing. The current mortgage payment coming due after the filing of the Chapter 13 must be paid directly to the loan servicer by either the debtor or the Chapter 13 Trustee, depending on which division the Chapter 13 Plan is filed. This means that the plan itself cannot alter the current monthly mortgage payment which comes due after the filing of the Chapter 13 and can only provide for the cure of previously missed mortgage payments.
The length or “applicable commitment period” of the Chapter 13 Plan will depend on the debtor’s current monthly income. If current monthly income is less than the state median for a family of the size of the debtor, the applicable commitment period is three years. If current monthly income is greater than the state median for a family of the size of the debtor’s, the applicable commitment period must be five years.
Within the first 30 days after filing the bankruptcy case, the debtor must make his or her first monthly payment under the Chapter 13 plan to the Chapter 13 trustee or the case may be dismissed and debtor will have to re-file.
A hearing is held no later than 45 days after the Meeting of Creditors during which the bankruptcy judge must decide to approve or “confirm” the Chapter 13 plan. The plan must be feasible and meet strict standards for confirmation requirements set forth in the Bankruptcy Code. Creditors may object to confirmation of the plan.
If the court confirms the plan, the Chapter 13 Trustee will begin to distribute funds received by the debtor monthly under the plan. The Chapter 13 Trustee will disburse funds to the creditors according to whether the creditors are secured, unsecured, or priority creditors.
If the court does not confirm the plan, the debtor may file a modified plan in order to cure objections of creditors or the Chapter 13 Trustee. The debtor may also convert the case to Chapter 7 in lieu of modifying the Chapter 13 Plan.
Once the debtor has completed all payments called for by his or her Chapter 13 plan, then the debtor obtains a Chapter 13 discharge.