Chapter 13 revolves around your payment plan, which you propose based on your budget, and possibly negotiate with creditors and the trustee.
In our last two blog posts we introduced Chapter 13 “adjustment of debts” bankruptcy. We explained how to qualify for it and how it can buy you extremely valuable time. Today we get to the heart of this option: the Chapter 13 payment plan.
The Length of the Plan
A Chapter 13 case almost always requires a 3-to-5-year payment plan. That may sound like a long time, but the length itself is often an advantage. That’s because your Chapter 13 plan often has you paying special debts that you want or need to pay, and the more time you have the less you have to pay each month. That makes achieving your plan goals easier and more realistic.
Whether a plan has to be at least 3 years long vs. 5 years depends on two main factors. First, your income plays a major role. Without explaining this in detail here, relatively lower income results in a minimum 3-year plan. Higher income results in a 5-year plan.
Second, even if your minimum plan length is 3 years, you may want to stretch it out longer. You’d do that to reduce how much you pay each month into the plan.
Your Chapter 13 Plan
Your plan is a blueprint for how you will deal with your debts for the 3 to 5 years of your Chapter 13 case. It must meet a list of requirements. See Section 1322, “Contents of plan,” of the U.S. Bankruptcy Code.
The core of the plan states how much you will pay to ALL of your creditors each month, and who gets paid from that amount. There are other provisions in the plan that don’t directly involve money. We’ll cover these in more detail in upcoming blog posts.
The Plan Approval Procedure
You and your bankruptcy lawyer prepare and then present your Chapter 13 plan to the bankruptcy court. This is usually done at the same time as your lawyer electronically files your case. But sometimes the plan is filed a week or two later, especially if your case was filed in a hurry.
Your creditors receive a copy of your plan and are allowed limited kinds of objections to it. If your plan follows the legal requirements the creditors usually don’t have much room for objection.
The Chapter 13 trustee also has a role in determining whether the plan meets the appropriate rules. The trustee suggests changes, usually in the form of objections. Usually these are resolved informally between the trustee and your lawyer. They often involve only minor tweaks in the plan terms, so that it’s still meeting your intended goals.
The bankruptcy judge resolves any disagreements about the plan between you and your creditors, or between you and the trustee, as needed. This usually happen quite quickly, although can delay the approval of your plan for several weeks.
The approval of a plan is called its confirmation, and usually takes place at a confirmation hearing. Your lawyer usually attends, but you almost never need to. The confirmation hearing usually happens about two months after your lawyer files your case. But it can be postponed (“adjourned”) once or even more often if there are objections which take time to resolve.
The judge approves your plan by signing a confirmation order. Your confirmed plan plus the confirmation order together largely govern your relationships with your creditors throughout the rest of your Chapter 13 case.
In our next blog post we’ll cover how a Chapter 13 plan deals with the different categories of your debts.