Repayment Plan

In this section, you’ll find articles on how Chapter 13 repayment plans work, how secured and unsecured debts are treated, and more on the process.

Learn about these related topics below, or keep scrolling to learn about repayment plans.

Repayment Plans 101

A Chapter 13 repayment plan establishes a very specific, regular way in which a debtor goes about paying off their debts. That usually involves making monthly payments to the trustee.

The trustee then distributes specifically outlined payments to all creditors according to the plan. However, bankruptcy laws vary in how they treat different kinds of debt.

In this section, you’ll find articles on how Chapter 13 repayment plans work, how secured and unsecured debts are treated, and more on the process.

Chapter 13: Repayment Plan and Claims

Unless the court has granted an extension, a Chapter 13 bankruptcy debtor must file a repayment plan with their bankruptcy petition, or within 15 days of the petition's filing.

The plan must be approved by the court and must provide for payments of fixed amounts to the trustee on a regular basis. The trustee is then responsible for distributing the funds to creditors according to the terms of the repayment plan.

Creditors' claims are classed as priority, secured, or unsecured:

• Priority claims include taxes and the costs of the bankruptcy proceedings
• Secured claims are debts for which the creditor has the right to take back certain property if the debtor does not repay the debt
• Unsecured claims do not provide the creditor with any special rights over the debtor's property. 

The repayment plan must pay priority claims in full unless the creditor agrees to different terms. In the case of domestic support obligations, the debtor contributes all of their "disposable income" to a five-year plan. If the debtor wants to keep the collateral securing a debt they must structure their repayment plan so that the holder of the secured claim recovers an amount that is at least equal to the value of the collateral.

If the debt was incurred to acquire the collateral and the transaction happened within a certain time frame before the bankruptcy action, the entire debt must be repaid. Unsecured claims do not need to be paid in full as long as the debtor will pay all their projected "disposable income" over an applicable commitment period, and as long as the creditors will receive at least as much value under the repayment plan as they would under a Chapter 7 bankruptcy.

Chapter 13: Confirmation Hearing

At the confirmation hearing, the bankruptcy judge determines whether the plan is feasible and meets the standards set out by the Bankruptcy Code. Creditors can file objections at this time. If the plan is confirmed, the trustee distributes funds under the plan as soon as is practical. If the court does not confirm the plan, the debtor may modify the plan or convert the bankruptcy to a Chapter 7 case.

Debts After Discharge

Not all debts can be discharged in a Chapter 13 bankruptcy proceeding. Claims for child support and alimony, educational loans, fines relating to drunk driving or criminal acts, long-term obligations like mortgages, and any debts not provided for in a wage-earner plan may not be dischargeable.

Although spousal and child support obligations may not be discharged, filing a Chapter 13 bankruptcy may stay collection activities temporarily. The court may decide to lift the stay, though this often depends on whether the repayment plan provides for child and spousal support. If not, the court is more likely to lift the stay.

Student loans guaranteed by the United States government are also generally not dischargeable in Chapter 13 bankruptcy. The court may still discharge these loans if the court finds that their repayment would impose an undue hardship on the debtor or their dependents. The court often applies a three-part test to determine whether loans should be discharged that examines the debtor's income, the duration of the loan, and the good faith efforts the debtor made to repay the loan prior to bankruptcy.

Get Professional Legal Help With Your Repayment Plan

Filing for bankrutpcy is a serious endeavor that shouldn't be taken lightly. If all goes as planned, you'll get a fresh start to rebuild your credit and regain financial health. One of the best ways to ensure a successful bankruptcy, including a workable repayment plan, is to hire an experienced bankruptcy attorney.