Understanding the Chapter 13 Payment Plan
There are a number of advantages to filing a chapter 13 bankruptcy, and you may have to file a chapter 13 bankruptcy to meet your goals. For example, if you are facing a foreclosure or are behind on your mortgage and wish to pay back arrears owed on your home or other real property, a chapter 13 bankruptcy is a good tool to do so. Additionally, you may be able to lower your car payment and strip liens in chapter 13 bankruptcy, which you cannot do in a chapter 7 bankruptcy. It also acts to consolidate most or all of your debts into one payment that is made to creditors by a chapter 13 trustee. If you decide on a chapter 13 bankruptcy, you propose a 3 to 5-year payment plan to pay back your creditors. There are many factors that are taken into account when understanding the chapter 13 payment plan and Steiner Law Group can help make sense of them.
What is a chapter 13 plan?
Your chapter 13 payment plan is a plan proposed to the court, your creditors and the chapter 13 trustee to repay all or part of your debts over time. When understanding the chapter 13 payment plan, it is important to note that the plan has many requirements, including:
- The length of the plan;
- Feasibility of the plan (it must have a reasonable probability of success);
- All of your disposable income must be devoted to the plan payments;
- Certain priority creditors must be paid in your plan;
- Your plan payments total must be at least as much as creditors would receive in a chapter 7;
- Any objections to the plan must be addressed;
- The plan must be confirmed by the court;
- You must provide the chapter 13 trustee with all required documentation; and
- Your plan must be proposed in good faith.
Additionally, you want to ensure that the plan meets your goals, subject to these requirements. Steiner Law Group is experienced with balancing all of these considerations to prepare a chapter 13 that meets these requirements and your goals.
What debts have to be included in a chapter 13 plan?
Another factor to consider when understanding the chapter 13 payment plan is that in order to be confirmed by the court, your chapter 13 must pay back certain priority debts, including all taxes and the costs of the chapter 13 bankruptcy. Secured claims are those for which the creditor has the right take back certain property (i.e., the collateral) if you do not pay the underlying debt, such as a home or car loan. In contrast to secured claims, unsecured claims are generally those for which the creditor has no special rights to collect against particular property owned by the debtor, most often credit card and medical bill debt.
Your chapter 13 plan must pay priority claims in full unless a particular priority creditor agrees to different treatment of the claim or, in the case of a domestic support obligation, unless the debtor contributes all “disposable income” – discussed below – to a five-year plan. If you wish to keep your home and are behind on your payments, all arrears owed on the home must be included in your chapter 13 plan payment. General unsecured creditors, such as credit card or medical bill debt, have low priority and are typically paid back a small percentage of the amounts owed, and certain kinds of taxes have priority treatment,
Steiner Law Group evaluates your plan and lists all creditors in order of priority to determine what debts are required to be paid into your chapter 13 plan.
What determines the dollar amount of a chapter 13 monthly payment?
Your chapter 13 plan payment amount takes into account several considerations:
- How much disposable income do I have after my living expenses?
- What is the amount of my priority debts that must be paid in full?
- Do I have any assets that are non-exempt and that have equity?
- If I am filing to pay back arrears owed on a mortgage or vehicle, is the full arrears paid into my chapter 13 plan?
Steiner Law Group uses all of these factors to determine how best to structure your chapter 13 plan to ensure that it meets your goals.
How long does a chapter 13 plan last?
Your chapter 13 plan will typically last 3-5 years. If you earn below the median income for your household size in your state, you qualify for a 3-year plan. However, if your chapter 13 plan payments are too high under a 3-year plan, the chapter 13 plan can be extended over 3 years to meet your goals.
If you earn above the median income for your household size in your state, your plan duration is 5 years. In these 5 years, all of your priority debts must be paid, such as taxes and certain domestic support obligations, as well as other debts that further your goals, such as paying back arrears on a home or vehicle.
Confirmation of a chapter 13 Plan.
In order for the trustee to distribute chapter 13 plan payments, the plan must first be confirmed by the court. In order to be confirmed, a chapter 13 plan has to meet all the requirements under the law.
Can a chapter 13 plan be changed?
A lot can happen in 3 to 5 years. For example, a car can break down or a job loss can happen. If these unanticipated events occur, the court can modify your plan. If your car breaks down, you may be able to request that the court allow you to purchase a new car. If you experience a job loss, your plan may be modified for a period of time to allow you to find new employment.
Steiner Law Group is experienced in helping clients propose and confirm chapter 13 plans that meet the requirements of the law and the goals of our clients.
