Chapter 13: Repayment Plan and Confirmation Hearing
At the beginning of a Chapter 13 bankruptcy, often as part of credit counseling, you will create a debt repayment plan. This repayment plan outlines how you plan to repay your debts. At the confirmation hearing, the bankruptcy judge will look at your plan and decide whether it is in accordance with the standards laid out in the U.S. Bankruptcy Code.
Chapter 13 Repayment Plan Basics
If you are planning to file for Chapter 13, you must file a repayment plan with the bankruptcy petition or within 15 days of filing the petition.
The repayment plan must provide for a fixed payment to the trustee on a regular basis. If the court approves the plan, the trustee will distribute your payments to the creditors according to the terms laid out in the plan.
Creditors' Claims and Repayment Under the Plan
How you propose to pay back creditors depends largely on what type of debt you owe. In bankruptcy, there are three types of claims:
- Priority claims: The claims are granted special status by bankruptcy law. Most taxes and the cost of the bankruptcy proceeding are examples of priority debt.
- Secured claims: Secured claims involve collateral. Creditors have the right to take back certain property if the debtor does not pay the underlying debt. A mortgage is a secured debt.
- Unsecured claims: These are generally claims for which the creditor has no special rights to collect against a debtor's property. Credit cards are typically unsecured debt.
Priority Claims Under the Repayment Plan
Priority claims must be paid in full under a Chapter 13 repayment plan. The exceptions to this rule are if:
- The creditor agrees for the claim to be treated differently, or
- The debtor puts all "disposable income" to a five-year plan in domestic support obligation cases
"Secured" Claims Under the Repayment Plan
A Chapter 13 repayment plan gives you two options when it comes to secured claims. These are:
- Surrender the property (i.e., return it to our creditor), or
- Continue making payments in your repayment plan and keep the property
If a claim is secured by collateral, then you must repay at least the value of the collateral if you want to keep your property. This should be specifically provided in the repayment plan.
There are also some instances where you won't have to pay the entire balance on the secured debt. This is called a cramdown. A car loan can be a good example here as a car's value depreciates immediately after you buy it.
"Unsecured" Claims Under the Repayment Plan
The amount of money you will pay to unsecured creditors will depend on your "disposable income." Disposable income is simply the money you will have after paying necessary expenses for you and your dependents.
So, you must allocate all disposable income to paying your unsecured debts. Unsecured creditors may get some or all the money you owe them depending on how much your disposable income is. But, the creditors must get at least what they would get had you filed a Chapter 7 bankruptcy.
Also, you must make all payments within three years if your current monthly income is less than the state median. If your monthly income is greater than the state median of a family the same size, then the commitment period will be five years.
The Confirmation Hearing
The judge will hold a confirmation hearing within 45 days of the meeting of creditors. In this hearing, the judge will see if the repayment plan is in accordance with the rules in the Bankruptcy Code and if it is feasible. The creditors may be able to object to the confirmation.
What Happens at the Confirmation Hearing?
The confirmation hearing is similar to other court hearings: You will wait to be called to court. Once your case is before the court, creditors or the trustee can raise any objections they have on the plan you provided. The judge will hear both sides and decide whether your plan fulfills the requirements set out in the Bankruptcy Code.
Chapter 13 Plan Confirmation Requirements
Before confirming the plan, the judge will see if you have complied with the confirmation requirements. Accordingly, the judge will look at the following to determine whether your plan can be approved:
- Whether your plan is practical in terms of making the required payments on time
- Whether unsecured creditors will get at least the amount they would have gotten had you filed a Chapter 7 bankruptcy
- Whether you filed in good faith
If the court confirms the plan, the trustee will then distribute the assets received "as soon as is practicable."
If the court doesn't confirm your original plan, you can file a modified plan. You can also convert the case to a liquidation case under Chapter 7 (but you will have to pay a fee to convert a case under Chapter 13 to a case under Chapter 7).
Do I Have To Attend the Chapter 13 Confirmation Hearing?
It depends. Some courts require debtors to attend confirmation hearings. But in most cases, your attorney can attend on your behalf and answer questions the judge may have. But if you don't have an attorney, you must appear at the hearing; otherwise, the judge may dismiss your case.
Making the Repayment Plan Work
You, as the debtor, are responsible for making sure the repayment plan works. This means you must make timely payments to the trustee according to the plan.
Failure to make timely payments may result in your case being dismissed. This is especially the case if you don't make timely payments on your domestic support obligations or if you fail to file your taxes. The judge may also convert your case to a Chapter 7 liquidation case. See also Chapter 13: Individual Debt Adjustment information from the U.S. Courts government website.
An Attorney May Help in Your Chapter 13 Case
When you file for bankruptcy, you have to submit a repayment plan that outlines how you plan to pay creditors. Preparing the repayment plan may become challenging as it requires knowledge of bankruptcy laws. Consult a bankruptcy attorney to get legal help with your Chapter 13 case.
Contact a qualified bankruptcy attorney to find out your options for navigating the best path forward.