Basics of the Chapter 13 Plan

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A Chapter 13 Plan is filed in every case filed under Title 11, Chapter 13 of the United States Bankruptcy Code.   The Chapter 13 Plan is initially filed by the Debtor.  The Plan states a proposed monthly payment which is deducted periodically from the Debtor's paycheck.  If the Debtor is not employed, the Office of the Chapter 13 Trustee will provide a means for the Debtor to pay the Chapter 13 Plan payment electronically via the internet each month, or set up an ACH bank account debit for the payment each month. 

The Chapter 13 Plan must provide for payment of any mortgage arrears, and designate any real estate which will be surrendered to the lender.  In some cases the Chapter 13 Debtor may wish to surrender an unwanted investment property, or even a residential home that is no longer feasible for the debtor to maintain.   The Debtor will have up to a maximum of sixty (60) months to complete the Chapter 13 Plan. The plan must be set up to run a minimum of thirty-six (36) months, unless the Debtor will be paying 100% of the debts, in which case the Plan can run shorter than thirty-six (36) months.  

The Chapter 13 Plan must provide for payment of any vehicle loans for vehicles the Debtor wants to keep. The Plan can provide for a reduced interest rate. Usually a market rate is identified by the Debtor's Attorney using publicly available sources such as the Wall Street Journal Online, Bankrate.com, Investor's Business Daily, etc.  The Debtor may "cram down," or pay only the market value of a vehicle if the loan securing the vehicle loan is older than 910 days on the date the Chapter 13 case is filed.  The balance of any loan that is crammed down in the Chapter 13 plan is paid as a general unsecured claim. 

In addition to treatment for vehicle loans, the Chapter 13 Plan must designate whether any auto or other leases shall be assumed or rejected.  If a lease is rejected, the creditor may take any legal action to secure and regain possession of the property that is subject to the lease.  The Bankruptcy Code provides creditors for rejected leases and surrendered property an expedited path to regaining possession of the property. The Plan should contain language informing the creditors how the Plan intends to treat any deficiency claim of such creditors. In some cases, the Plan can provide that the collateral securing a loan or a lease is surrendered as "payment in full," and that any deficiency balance will be paid pro rata with the general unsecured creditors.  

General unsecured claims do not always have to be paid in full inside the Chapter 13 Plan.   In some cases the Debtor's Means Test, or Form 22( c ), will dictate how much must be paid to general unsecured creditors and how long the Plan must run; the 36 month minimum, or 60 months.  In some cases, after the Debtor has claimed all available exemptions on the Debtor's property on Schedule C,  there may be a certain amount of property left over that is not protected by any exemption, or pledged as security for a valid secured debt.   In this instance, a "liquidation analysis" is completed by the Debtor's attorney to calculate an amount of money equal or approximately equal to the amount creditors would receive from the net proceeds of a liquidation of the property in a Chapter 7 case.    There are some cases where the Debtor may pay little or nothing to general unsecured creditors, while keeping all of the Debtor's property free and clear of creditor's claims. 

The Chapter 13 Plan must designate how any past-due taxes will be paid.  Most past-due taxes are paid as a priority claim, ahead of other debts.    Some federal, state and municipal income taxes can be paid pro rata with general unsecured creditors.  This usually does not occur until the taxes are more than three (3) years past due.  There are several formulas that the Attorney for the Debtor must check to determine whether some of the Debtor's past-due taxes can be discharged.  

The Chapter 13 Plan must also set out how any past-due Domestic Support Obligations must be paid.   A Domestic Support claim is a claim by the parent of a minor or disabled child for support.  Domestic Support can also include past-due alimony owed to a former spouse.  The Chapter 13 Debtor cannot receive a Discharge unless a declaration of the Debtor is filed at the end of the case certifying that all domestic support obligations are current.    

If you have questions about the Chapter 13 Plan or filing a Chapter 13 case in Mobile County or Baldwin County Alabama, please contact us for a free consultation.   Office and home appointments available Monday through Friday (8:00 a.m. to 5:00 p.m.)  

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