Mechanics of Chapter 13 repayment plan Manual del abogado

Debtor’s proposed plan

Under Chapter 13, the debtor must submit a proposed repayment plan when filing the bankruptcy petition or within 14 days after filing the petition. Once the bankruptcy petition is filed, a trustee is appointed to evaluate the case and manage the debtor's payments to creditors. The trustee will first hold a meeting with the creditors where the trustee and creditors question the debtor about their finances and proposed plan. The first payment under the plan must be made within 30 days of filing even if the plan has not been approved yet.

Following the creditors’ meeting, the debtor, trustee, and interested creditors will attend a court hearing on the debtor’s Chapter 13 repayment plan.

Confirmation of plan

At the confirmation hearing, a judge determines whether the debtor's proposed plan can be confirmed. Creditors can raise objections to the plan.

To be confirmed, the plan must:

• Provide for full payment of priority claims, e.g., domestic support obligations and nondischargeable income taxes.
• Provide that the holders of secured claims receive at least the value of the collateral;
• Satisfy the "liquidation test," i.e., the present value of proposed payments to each unsecured creditor must be at least equal to what that creditor would have received in a Chapter 7 liquidation;

If a debtor’s disposable income is below the state median, then the unsecured claims must be repaid in a three-year period, whereas if their income is above the state median, then the claims will be repaid over a five-year period.

Discharge of debts

Discharge of remaining debts is granted after all plan payments have been made. Some debts that are nondischargeable include:

• Alimony/child support;
• Certain long-term obligations (such as a mortgage)
• Student loans;
• Debts resulting from personal injury or death caused while driving intoxicated.
   

A "hardship discharge" may be granted despite the debtor’s failure to complete the plan, if:

• The failure is beyond the debtor’s control;
• The sums the debtor has paid under the plan are at least as much as creditors would have received under Chapter 7; and
• No es posible modificar el plan.

Post-filing matters

Amendments

The debtor may amend the petition to include creditors who were owed money when the petition was filed but were left off after bankruptcy is filed. The case of In re Mendiola, 99 B.R.864 (N.D. Ill. 1989) states that after discharge in a no-asset Chapter 7 bankruptcy there is no need to amend the petition to add creditors that were inadvertently omitted from the petition as those debts are discharged despite the failure of the debtor to list them.

Modification of Chapter 13 plan

The debtor may modify the proposed plan before confirmation as long as it will still meet confirmation requirements.

To modify the plan after confirmation, the debtor must notify all creditors. If any creditors object to the modification, a hearing must take place to determine whether the changes should be approved.