What Is the Chapter 13 Repayment Plan?

Repayment Plans in Chapter 13 Bankruptcies

Chapter 13 is a specific type of bankruptcy that allows debtors to propose a plan for paying off their debts. This type of bankruptcy is best for those who have enough income to create a debt Repayment Plan. If a bankruptcy petitioner does not make enough income, or if the income is irregular, the court may not approve a Chapter 13 bankruptcy. Chapter 13 benefits debtors because they can keep personal property under the terms of an accepted Repayment Plan. It can be the most important component of a Chapter 13 bankruptcy.

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Repayment Plan Terms

When someone files for bankruptcy, a Repayment Plan must be filed within 15 days of the filing of the bankruptcy petition. The Plan provides for regular fixed payments to a bankruptcy trustee, who then distributes the payments to creditors. Claims are given one of three statuses. Priority claims are debts given special treatment under bankruptcy law. Priority claims must be paid off in full unless the creditor agrees to a different payment arrangement. Secured claims are debts that have been secured by collateral. Unsecured claims are debts that have not been secured by collateral.

Secured and Unsecured Claims

Chapter 13 allows petitioners to keep certain property as long as they are making payments. Under this type of Repayment Plan, the bankruptcy petitioner must pay the creditor at least the value of the property. In some cases, these payments are made on the original loan repayment schedule. Unsecured debts do not have to be paid in full, but each creditor needs to receive as much as they would have received if the petitioner filed a Chapter 7 bankruptcy and liquidated his or her assets. Under a Chapter 13 Repayment Plan, a petitioner must pay all of his or her disposable income toward unsecured debts over a certain period of time. Disposable income is any income that is left over after all necessary and reasonable expenses have been paid. Necessary expenses include food, shelter, utilities, and child support payments.

Creditor Meeting and Confirmation Hearing

The 341 Meeting gives creditors an opportunity to protest, dispute, or seek changes to the details of the bankruptcy and/or the proposed Repayment Plan. The 341 Meeting typically involves the bankruptcy petitioner, his or her lawyer, a bankruptcy trustee, and representatives of creditors (not common). No more than 45 days following the 341 meeting, the bankruptcy judge holds a confirmation hearing. During this hearing, the judge decides whether the Plan meets legal standards and is feasible based on the petitioner's financial status. Creditors receive a notice of this hearing 25 days before it occurs. This will afford creditors a chance to object to confirmation of the Plan. If the judge confirms the Plan, the monthly payments received will be distributed to creditors by a Chapter 13 trustee. If the it is not confirmed, the petitioner may choose to convert the case to a Chapter 7 bankruptcy or to file a modified Chapter 13 Repayment Plan.

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