Chapter Thirteen Bankruptcy - The Chapter 13 Plan and Confirmation Hearing

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The debtor is required to submit a plan of repayment with the Chapter 13 bankruptcy petition or within fifteen days after the petition is filed, unless the bankruptcy court grants a extension.(Fed. R. Bankr. P. 3015.) A bankruptcy plan must be sent for approval of the court and it must provide for fixed payment amounts to the trustee on a reoccurring basis, which is either bi-weekly or on a monthly schedule. The funds are then distributed by the bankruptcy trustee to the creditors according to the terms outlined in the bankruptcy plan. This may offer creditors listed under the plan a lessor amount than the full payment of their claims.


There are 3 types of bankruptcy claims which are unsecured, secured, and priority. The claim that is granted special status by the U.S. bankruptcy law, such as most types of taxes and the costs associated with the bankruptcy are called priority claims. Secured claims is the type that when the creditor has the right to take back certain types of property or collateral if the debtor doesn't pay the underlying debt. Just the opposite of secured claims are unsecured claims in which the creditor has no rights that are special to collect against certain types of debtor owned property.

The bankruptcy plan must repay priority claims in the full amount unless a certain priority creditor agrees to different treatment of the claim or, in the case of a domestic support obligation, unless the debtor contributes all the "disposable income" - as discussed below - to a 5-yr. plan. 11 United States Code, Sub-Section- 1322(a).

The bankruptcy plan must provide that the holder of the secured claim receive at least the value of the collateral, if the debtor wants to keep the collateral securing a certain claim. If the obligation underlying the secured claim was used to buy the collateral (a example would be a car loan), and the debt was incurred within a certain time frame before the bankruptcy was filed, the bankruptcy plan must provide for a 100% repayment of the debt, not just the collateral value (which may be a lessor amount due to depreciation). Payments to certain secured creditors (such as a home mortgage lender), may be made over the original loan repayment schedule (which may be longer than the plan) so long as any past due amount is repaid during the plan. A lawyer should be consulted by the debtor to help figure out the appropriate treatment of secured claims in the bankruptcy plan.

The bankruptcy plan does not need to pay unsecured claims in the full amount 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 seven, and as long it provides that the debtor will pay all projected "disposable income" over an "applicable commitment period,". 11 United States Code, Sub-Section- 1325. In a chapter 13 bankruptcy, "disposable income" is the income (other than payments to child support received by the debtor) minus amounts reasonably necessary for the support or maintenance of the dependents or debtor and less contributions to charity of up to 15% of the debtor's gross income. If business is operated by the debtor, the definition of disposable income excludes the amounts which are necessary for ordinary business operating expenses. 11 United States Code, Sub-Section- 1325(b)(2)(A) and (B). The "applicable commitment period" will depend on the debtor's current monthly income. If current monthly income is less than the state median for a family of the same size - and 5 years if the monthly income currently is greater than a family of the same size, the applicable commitment period must be three years. 11 United States Code, Sub-Section- 1325(d). The bankruptcy plan may be lower than the applicable period of commitment (3 or 5 years) only if the unsecured debt is paid in the full amount over a shorter period of time.

Within thirty days after filing the bankruptcy case, even if the plan has not yet been court approved, the debtor must start making planned payments to the bankruptcy trustee. 11 United States Code, Sub-Section- 1326(a)(1). If any lease payments or secured loan payments come due before the debtor's plan is confirmed (which is typically automobile and home payments), the debtor must make adequate protection payments directly to the lessor or secured lender - deducting the amount paid from the amount that would otherwise be paid to the trustee.

No later than forty-five days following the meeting of the creditors, the bankruptcy judge must hold a confirmation hearing and make a determination on whether the bankruptcy plan meets the standards for confirmation set forth in the Bankruptcy Code and is feasible. 11 United States Code, Sub-Section- 1324, 1325. Creditors will receive a twenty-five day notice of the hearing and may object to confirmation. Fed. R. Bankr. P. 2002(b). While a assortment of objections may be made, the most frequent ones are that the debtor's plan does not commit all of the debtor's projected disposable income for the 3 or 5 year applicable commitment period, or that payments offered under the bankruptcy plan are less than creditors would receive if the debtor's assets were liquidated.

The chapter thirteen trustee will distribute funds received under the plan "as soon as is practicable" if the court confirms the plan. 11 United States Code, Sub-Section- 1326(a)(2). The debtor may file a modified plan if the court declines to confirm the plan. 11 United States Code, Sub-Section- 1323. The debtor may also convert the case to a liquidation case under chapter seven. (4) 11 United States Code, Sub-Section- 1307(a). If the bankruptcy court dismisses the case because they decline to confirm the plan or the modified plan, 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 due to creditors or already disbursed). 11 United States Code, Sub-Section- 1326(a)(2).

Occasionally, a change in circumstances may compromise the debtor's ability to make the bankruptcy plan payments. Such a example would be, a creditor may threaten to object or object to a plan, or the debtor may inadvertently have failed to list all creditors. In such cases, the plan may be changed either before or after confirmation. 11 United States Code, Sub-Section- 1323, 1329. Modifying it after confirmation is not limited to a initiative by the debtor, but may be at the request of a unsecured creditor or the trustee. 11 United States Code, Sub-Section- 1329(a).

The provisions of a confirmed plan bind each creditor and the debtor. 11 United States Code, Sub-Section- 1327. The debtor must make the plan succeed, once the court confirms the plan. The debtor must make regular payments to the trustee either through a payroll deduction or directly, which will require the to adjust to living on a budget that is fixed for a set period of time. Also, while confirmation of the plan entitles the debtor to retain property as long as payments are being made, the debtor may not incur any new debt without consulting the trustee, because the addition of more debt may compromise the debtor's ability to complete the plan. 11 United States Code, Sub-Section- 1305(c), 1322(a)(1), 1327.

A debtor may make bankruptcy plan payments through payroll deductions. This practice increases the overall likelihood that the payments will be made on a timely fashion and that the debtor will finish the plan. In any situation, if the debtor fails to make the payments that are due under the confirmed bankruptcy plan, the court may dismiss the bankruptcy case or convert it to a liquidation case under chapter seven of the Bankruptcy Code. 11 United States Code, Sub-Section- 1307(c). The court may also convert or dismiss the debtor's case if the debtor fails to make required tax filings during the case, or if the debtor fails to pay any post-filing domestic support obligations (examples are child support and alimony). 11 United States Code, Sub-Section- 1307(c) and (e), 1308, 521.

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