The Chapter 13 Plan

The Plan. Within 14 days after filing a Chapter 13 petition, your bankruptcy attorney will prepare for your review and signature an Initial Chapter 13 plan which sets forth a plan to pay your creditors on a monthly basis through a single monthly payment to the Chapter 13 trustee. The plan and the amount of your monthly payment to the trustee is based on the income and expenses you provided on Schedules I (Income) and Schedule J (Expenses) filed with the Court. The Chapter 13 plan will include all of your regular monthly payments on secured items plus an amount for attorneys fees, arrearage on each account, trustee’s fees, and administration fees.

After your initial plan is filed, the court will issue an Order Establishing Deadline for Making Payments. You must begin making plan payments on the date set by the Order. You can anticipate that your first plan payment will be due approximately 30 days after your initial plan is filed on either the 14th or 28th of the month. The trustee does not accept personal checks so you must pay by cashier’s checks or money order. Always include your name and case number on all payments to the trustee to ensure accurate posting to your account and receipt of payment.

Chapter 13 and Liquidity. The Chapter 13 bankruptcy plan requires that your creditors to be paid through your Chapter 13 plan at least as much money they would have received if you filed a Chapter 7 petition. The amount payable to creditors in Chapter 13 depends largely on the value of your assets and your available exemptions. Therefore, it is important that you accurately list and provide a current fair market value of all of your assets in a Chapter 13 case, even though the purpose of a Chapter 13 is to avoid having you sell any of those assets.

Income and Expenses. The law requires that you pay all of your “disposable income” into the Chapter 13 plan. Disposable income is the amount of income you have at the end of the month after paying reasonable expenses (which may include expenses for anticipated vehicle or home repairs and medical expenses). Your statement of income and expense should be as accurate as possible because the amount of your net monthly income determines your plan payments to the Chapter 13 trustee. If you list expenses for luxury items, the trustee may require that you liquidate these luxury items unless your plan provides for the repayment in full of all creditors (secured and unsecured).

The trustee requires that you submit your income tax returns for the past three years in order to substantiate your income and to show that all your disposable income is being applied to the repayment of your creditors. When preparing your budget, you should take into consideration necessary repairs on your home and vehicle, reasonable personal expenses, reasonable expenses for your children and pets, etc.

Wage Deduction Orders. Many debtors prefer to have their payments made through wage deductions at their place of employment. Your employer simply deducts your payment from your paycheck and sends it directly to the trustee. This procedure makes it easier for you to stay current under your plan and eliminates the cost of postage and purchasing money orders or cashier’s checks. Even if the court orders your employer to deduct plan payments and send them to the trustee for you, are ultimately responsible for making sure all payments are made. If your employer fails to make a plan payment deduction, you must tell your bankruptcy attorney and immediately send the payment to the trustee by cashier’s check or money order.

Effect of Non-Payment. If you fail to make any plan payment to the trustee on time, the trustee will file an affidavit of default and serve it upon you. Thereafter, you will have 21 days to make the overdue payment plus the next payment due under your plan. Therefore, being late will cause you to make a total of two payments within the 21-day grace period in order to save your Chapter 13 bankruptcy. When a Chapter 13 case is dismissed for non-payment, the court may enter an order prohibiting you from filing another Chapter 13 case for up to six (6) months. The trustee may consider a stipulation of a payment program to make up for the past due amounts over time, provided you pay the current payment and the next payment due under your plan. If you do not pay the missed payments or enter into a payment program with the trustee within the 21-day period after the trustee’s Affidavit of Non-Payment, your Chapter 13 case will be dismissed for non-payment.

If you have a valid excuse for non-payment (illness, loss of employment, etc.) the trustee may agree to a modification of your plan allowing you to miss one to three payments (you can only miss three payments throughout the life of the plan and you must make the missed payments up over the next 12 months).

Creditors’ Proofs of Claim. Creditors are given a limited amount of time to submit claims (the “Claims Bar Date” is noted on the 341 Notice). Your secured creditors almost always file a claim (and if they don’t, your attorney may have to file one for them). The creditor’s claim indicates the amount of total debt, including what the creditor believes is the amount of arrearage owed for past due payments. The arrearage amount can include past due interest, costs, and attorneys fees to date of filing. Some, but not all, unsecured creditors will also file claims. Your bankruptcy attorney should send you copies of claims for your review. If you believe that a claim is in error, you should let your attorney know because you have the option of objecting to the amount of any claim filed. After you and your attorney have had a chance to review the claims filed, your attorney will likely prepare an amended plan which includes the amounts set forth in the filed claims.

Confirmation Hearing. The next step is a confirmation hearing before the bankruptcy judge where your plan will be reviewed, and if acceptable, be confirmed by the court. If your case is “ready for confirmation”, you and your attorney may be excused from the confirmation hearing. You will have at least 30 days notice of the court date. After your confirmation hearing, if your financial situation should change, you should contact your bankruptcy attorney to discuss whether or not you want to seek a modification of your plan. Any increase or decrease in your ability to pay may warrant a modification. Modifications can be submitted for approval at any time for the life of your plan.

Jon Alper

About Jon Alper

Jon is an attorney focusing on bankruptcy and asset protection in Orlando, Florida.