Chapter 13 Plan and Confirmation Hearing

Unless the court grants an extension, the debtor must file a Repayment Plan with the Petition, or within fifteen (15) days after the Petition is filed (Fed. R. Bankr. P. 3015).  A Plan must be submitted for court approval and must provide for payments of fixed amounts to the trustee on a regular basis, typically biweekly or monthly.  The trustee then distributes the funds to creditors according to the terms of the Plan, which may offer creditors less than full payment on their claims.

There are three (3) types of claims: priority, secured, and unsecured.  Priority claims are those granted special status by the bankruptcy law, such as most taxes and the costs of the bankruptcy proceeding.  Secured claims are those for which the creditor has the right take back certain property, i.e., the collateral, if the debtor does not pay the underlying debt.  In contrast to secured claims, unsecured claims are generally those for which the creditor has no special rights to collect against particular property owned by the debtor.

The Plan must pay priority claims in full, unless a particular priority creditor agrees to different treatment of the claim; or, in the case of a domestic support obligation, unless the debtor contributes all "disposable income," as discussed below, to a five- (5) year Plan (11 U.S.C. § 1322(a)).

If the debtor wants to keep the collateral securing a particular claim, the Plan must provide that the holder of the secured claim receive at least the value of the collateral.  If the obligation underlying the secured claim was used to buy the collateral, e.g., a car loan, and the debt was incurred within certain time frames before the bankruptcy filing, the Plan must provide for full payment of the debt, not just the value of the collateral, which may be less due to depreciation.  Payments to certain secured creditors, i.e., the home mortgage lender, may be made over the original Loan-Repayment Schedule (which may be longer than the Plan) so long as any arrearage is made up during the Plan.  The debtor should consult an attorney to determine the proper treatment of secured claims in the Plan.

The Plan need not pay unsecured claims in full as long it provides that the debtor will pay all projected "disposable income" over an "applicable commitment period," and as long as unsecured creditors receive at least as much under the Plan as they would receive if the debtor's assets were liquidated under Chapter 7 (11 U.S.C. § 1325).  In Chapter 13, "disposable income" is income, other than child support payments received by the debtor, less amounts reasonably necessary for the maintenance or support of the debtor, or dependents, and less charitable contributions up to 15% of the debtor's gross income.  If the debtor operates a business, the definition of disposable income excludes those amounts which are necessary for ordinary operating expenses (11 U.S.C. § 1325(b)(2)(A) and (B)).  The "applicable commitment period" depends on the debtor's current monthly income.  The applicable commitment period must be three (3) years, if current monthly income is less than the state median for a family of the same size, and five (5) years, if the current monthly income is greater than a family of the same size (11 U.S.C. § 1325(d)).  The Plan may be less than the applicable commitment period, three (3) or five (5) years, only if unsecured debt is paid in full over a shorter period.

Within thirty (30) days after filing the bankruptcy case, even if the Plan has not yet been approved by the court, the debtor must start making Plan payments to the trustee (11 U.S.C. § 1326(a)(1)).  If any secured loan payments, or lease payments, come due before the debtor's Plan is confirmed (typically home and automobile payments), the debtor must make adequate protection payments directly to the secured lender, or lessor, deducting the amount paid from the amount that would otherwise be paid to the trustee. Id.

No later than forty-five (45) days after the meeting of creditors, the bankruptcy judge must hold a Confirmation Hearing and decide whether the Plan is feasible and meets the standards for confirmation set forth in the Bankruptcy Code (11 U.S.C. §§ 1324, 1325).  Creditors will receive twenty-five (25) days' notice of the Hearing and may object to confirmation (Fed. R. Bankr. P. 2002(b)).  While a variety of objections may be made, the most frequent ones are that payments offered under the Plan are less than creditors would receive if the debtor's assets were liquidated, or that the debtor's plan does not commit all of the debtor's projected disposable income for the three (3) or five (5) year applicable commitment period.

If the court confirms the Plan, the Chapter 13 trustee will distribute funds received under the Plan "as soon as is practicable" (11 U.S.C. § 1326(a)(2)).  If the court declines to confirm the Plan, the debtor may file a modified Plan (11 U.S.C. § 1323).  The debtor may also convert the case to a liquidation case under Chapter 7 ((4) 11 U.S.C. § 1307(a)).  If the court declines to confirm the Plan, or the modified Plan and instead dismisses the case, the court may authorize the trustee to keep some funds for costs, but the trustee must return all remaining funds to the debtor, other than funds already disbursed, or due to creditors (11 U.S.C. § 1326(a)(2)).

Occasionally, a change in circumstances may compromise the debtor's ability to make Plan payments.  For example, a creditor may object, or threaten to object, to a Plan; or the debtor may inadvertently fail to list all creditors.  In such instances, the Plan may be modified either before, or after, confirmation (11 U.S.C. §§ 1323, 1329). Modification after confirmation is not limited to an initiative by the debtor, but may be at the request of the trustee, or an unsecured creditor (11 U.S.C. § 1329(a)).

** The information you obtain at this site is not, nor is it intended to be, legal advice. You should consult an attorney for individual advice regarding your own situation.**