Individuals who desire to reorganize their debts under Chapter 13 of the United States Bankruptcy Code must file a proposed Chapter 13 repayment plan. As part of the Chapter 13 repayment plan, you will propose to the court and your creditors how you intend to repay your debts (often times unsecured debts only get paid pennies on the dollar-and the balance owed gets discharge, i.e. wiped out, tax free). In order to be eligible to file a Chapter 13 case, you must have a regular source of monthly income, such as wages from employment or income from self-employment, social security, pension or other reliable source that can be verified by the court. Some debtors may be able to demonstrate regular assistance from family members to satisfy the income requirements to file for Chapter 13 relief.
Chapter 13 Repayment Plan Approval Requirements
All Chapter 13 repayment plans must be confirmed by the court. In order to be confirmed, the Chapter 13 repayment plan must:
- Meet the requirements for a confirmable bankruptcy plan under the Bankruptcy Code
- Encompass any requests by the Chapter 13 Trustee assigned to the case
- Settle any objections to the plan filed by creditors
Because of the complexity of a Chapter 13 repayment plan, it is advisable for anyone contemplating filing a Chapter 13 bankruptcy to seek the advice of an experienced bankruptcy attorney even though, under the current law, individuals can represent themselves in a bankruptcy action. Many individuals who chose to file their own Chapter 13 bankruptcy case do more harm to themselves. If your bankruptcy forms or your Chapter 13 repayment plan does not comply with the bankruptcy rules or if they are completed incorrectly, your case could be dismissed and/or your creditors may be able to file motions and objections to recover their collateral (i.e. your home, your car, etc.).
We help individuals find real solutions to their debt problems by filing bankruptcy to reorganize their debts and keep their property. We also wish to educate debtors in the solution-research stage. Therefore, we are including some basic information to answer your questions about Chapter 13 repayment plans.
Step 1: Determine Your Required Commitment Period
The first step in preparing a Chapter 13 repayment plan is to determine the required commitment period. Under the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) enacted in 2005, a debtor whose income exceeds his state’s median income level must commit to a 60-month plan. If income is below the state median level, the debtor can voluntary choose a 60-month repayment plan but is only required to commit to a 36-month plan. Many debtors whose income is below the median level will choose a 60-month plan to lower their monthly payments.
Step 2: Determine Priority or Status of Your Debts
Under a Chapter 13 repayment plan, certain types of debts must be given priority or secured status. For example, administrative claims (i.e. the trustee’s commission) will be paid in full and before other claims are paid.
- Secured debts must be paid in full, with interest, unless you file a successful motion to value the collateral to a lower amount than is actually owed.
- Priority unsecured claims (i.e. taxes, alimony, child support, wages, etc.) must also be paid in full and have priority over general unsecured claims.
- Unsecured claims consist of all other debts and they may be paid a percentage on the dollar based on the required commitment period and your disposable income.
Determining how to treat claims and calculating the required payment to each claim can be a complex process that requires knowledge of the bankruptcy code and local bankruptcy rules.
Step 3: Determine Which Exemptions to Claim
Excess equity that exceeds the exemption levels must be included in the base amount to be paid to unsecured creditors. A bankruptcy exemption is the amount of the value of an asset that is exempt from creditors or the court. To calculate the non-exempt value of any asset, you must first decide if you are claiming the exemptions provided under the bankruptcy code or if you are choosing to “opt out” and claim exemptions provided under the laws of the state in which you reside.
Step 4: Determine Maximum Exemptions for Your Assets
After you determine the exemptions you are claiming, you must then review each asset to determine if the value exceeds the maximum exemption for that asset. If the value of the asset exceeds the exemption, the amount must be added to any disposable income that must be paid to unsecured creditors. There are ways to mitigate this problem, such as the use of wild cards. As you can see, this process can get complicated very easily; having a trained bankruptcy attorney you can consult will increase your chances of keeping all of your assets.
The above tips are only a small portion of the complex issues that are reviewed when calculating a Chapter 13 repayment plan. Request a free bankruptcy consultation and let experienced bankruptcy attorneys help you file a confirmable Chapter 13 repayment plan that allows you to save your assets.