Create A Plan to Repay Your Debts

What is the Chapter 13 Bankruptcy Repayment Plan?

Chapter 13 Bankruptcy or wage earners’ plan allows individuals with a regular income to create a 3 to 5 year bankruptcy repayment plan to repay all or part of their debts. The laws governing Chapter 13 bankruptcy can be found in Chapter 13 of the bankruptcy code also know as Title 11 of the United States code.

Chapter 13 Bankruptcy is available to all U.S. citizens; however, certain eligibility requirements must be met. A debtor’s outstanding unsecured debts must be less than $307,675 and secured debts must be less than $922,975. Credit counseling must also be completed within 180 days prior to filing Chapter 13 Bankruptcy.

How does the Chapter 13 Bankruptcy Plan work?

The Chapter 13 Bankruptcy repayment plan must be submitted with the bankruptcy petition within 15 days of its filing, unless the court grants an extension. The debtor must begin making their debt payments within 30 days after filing for Chapter 13 Bankruptcy. The debtor makes the payments even prior to the first Meeting of the Creditors (the § 341 meeting) and will continue as the bankruptcy court considers objections to the plan.

Payments are made directly to an assigned trustee who administers the case either through automatic payroll deductions, money orders, or checks. The trustee is responsible for paying the creditors until the plan requirements are complete. Disbursements must be made "as soon as is practicable" by the trustee after the court confirms the debtor’s plan.

The goal of the Chapter 13 bankruptcy plan is to allow the debtor to satisfy their debt obligations owed to most if not all of their creditors. A creditor has the right to provide input in regard to the development of the repayment plan.

-The bankruptcy petition is an official form filed by the person who wants to begin the bankruptcy process. Click the link for detailed bankruptcy petition information.

Debts addressed in the Chapter 13 Repayment Plan

Debts included in the plan include priority, secured and unsecured debts. Priority debts are given special status and include the costs of the bankruptcy and taxes. Secured debts include those which are backed by property or collateral and unsecured claims are those which are not backed by collateral or property which can be repossessed to pay the debt obligation.

Creditors who wish to receive payment for outstanding debts must file a Proof of Claim. Objections can be made by the debtor to the creditor claims. Creditors must respond to objections within 30 days in writing and if they do not, the claim is modified according to the objection or rejected. Judges may hold hearings to review the creditor responses, and the debt is considered valid unless the debtor can provide proof to discredit the claim.

What debts must be paid under the bankruptcy repayment plan?

1. Administrative Expenses –Administrative expenses include money owed to a non-creditor for the administration of the bankruptcy case. These obligations are paid first and include payment for the trustee (3% to 10) and the bankruptcy attorney.


2. Priority Creditors – Although priority creditors do not have secured interest to the debtor’s property, they are paid in full. Prior child support and spousal support, certain tax debts, wages, commissions, salaries, and contributions to employment benefit plans can all be considered priority debts.


3. Secured Creditors – Secured debts include debts backed by collateral or property: home equity loans, loans for personal property and home mortgages. Other debts which must be paid include statutory liens, judicial liens, and tax liens. The Chapter 13 debtor must either surrender the collateral or property back to the secured creditor, or they can repay the secured debt over the life of the plan.


4. Unsecured Creditors – Unsecured creditors do not have a security interest or collateral that they can repossess for debt payments. Unsecured debts include debts for medical bills, credit card debts, and certain unsecured personal loans. Unsecured creditors are paid after all other creditors are paid, and they are rarely paid in full. After the repayment plan is completed, any balances not paid in the plan are discharged.

The Chapter 13 Bankruptcy plan must be created and proposed in “good faith.” It also must be in the best interest of the creditors, giving unsecured creditors as much money as they would have received if the debtor had filed a Chapter 7 Bankruptcy. The Chapter 13 Bankruptcy plan must also provide full payment of priority claims and payment for the value of other secured claims.

Additionally, unsecured creditors must receive an amount of payment equal to the debtor’s monthly disposable income (the formula varies for those whose income is below or above their state’s median income).

Completing the Chapter 13 Bankruptcy Means Test

The length of your bankruptcy repayment plan is determined by this Means Test. Debtors who file Chapter 13 Bankruptcy must complete Form B22C. This form allows the debtor to calculate their average monthly income for the 6 month period prior to the month before filing their Chapter 13 Bankruptcy.

Form B22C helps the debtor calculate the amount they must pay in their Chapter 13 Bankruptcy and the length of the repayment plan (either 3 or 5 years).

The means test calculates the debtor’s median income for a household. If their median is below the standard, they can repay their debts in 3 years. If their income is higher than the median standard, they can pay their debts in five years.

Under certain conditions, the court may allow below median income debtors to increase the length of their plan. Above median income households may also shorten their plan payment period if they pay 100 percent of the debts owed to their general unsecured creditors.

-See our Bankruptcy State Law pages to get a better understanding of the Means Testing in your State.

The Confirmation Hearing for the Chapter 13 Repayment Plan

Within 45 days from the 341 Meeting of the Creditors the bankruptcy court must schedule and hold a confirmation hearing to determine if the Chapter 13 Bankruptcy plan meets the standards established under the U.S. Bankruptcy Code and if the debtor can meet the payment schedule.

A twenty-five day notice will be given to all creditors, and creditors may make objections to the plan. Objections vary but generally are made by creditors to challenge the amount of the debt payments scheduled under the plan.

Modifying a Chapter 13 Bankruptcy Plan in Court

Plans can be modified if circumstances arise (job loss or severe health condition) which does not allow the debtor to continue to make their Chapter 13 Bankruptcy plan payments.

In some cases bankruptcy plan payments may be lowered or the court may allow the percentage paid to creditors to change if they determine the debtor no longer has the income to fund the amounts the court originally confirmed.

All plan changes must meet the standards established under bankruptcy law. Under certain conditions plan payments must be increased. For instance, the court may increase the required payments if the debt claims, which are confirmed, are higher than originally estimated.

Plans may also be modified, either before or after acceptance, if the debtor failed to list all of their creditors. Modifications can be requested by the debtor, the trustee or a creditor.

Can Creditors object or challenge a Chapter 13 Bankruptcy plan?

Although creditors cannot “vote” on whether they accept a debtor’s Chapter 13 Bankruptcy plan, there are valid reasons they may object to the plan. For instance, creditors may contend that the debtor’s Chapter 13 Bankruptcy plan was not proposed in good faith, it does not pass the best efforts test or the best interest creditors test. Secured creditors may also challenge the value that the bankruptcy plan has allowed for certain property or collateral.

What is the best interest of creditors test? This test calculates whether the bankruptcy plan is giving unsecured creditors a payment equal to the amount they would have gotten if the debtor had file Chapter 7 Bankruptcy.

What is the best efforts test? It is a test to determine the amount the debtor can afford to pay to repay their debts. The calculation must ensure that unsecured creditors are paid an amount equal to the debtor’s disposal income each month.

There is a different calculation for debtors whose income is below or above their state’s median income. If the debtor’s earnings are higher than the median salary for their state, the bankruptcy court will use the internal revenue collection financial standards, which is also used to help determine a taxpayer's ability to pay a delinquent tax liability.

Negotiates between the debtor’s bankruptcy lawyer, the trustee or the creditor generally can resolve most bankruptcy plan objections. If objections cannot be resolved by the objecting parties a bankruptcy court judge may intervene to resolve the issues.

-Contact a bankruptcy lawyer for more information about creating a bankruptcy repayment plan which will meet the standards outlined above.

Discharges under Chapter 13 Bankruptcy

Debts paid either in full or in part under the Chapter 13 Bankruptcy plan are discharged if the plan is completed. Certain debts are not discharged by filing Chapter 13 Bankruptcy: spousal support and child support debts, certain tax obligations, federal education loans, restitution for criminal actions from the personal injuries caused by DUI).

Some debts may be declared nondischargeable if the creditor files a legal action to have the debts declared collectible. These debts include debts for fraud while acting in a fiduciary capacity, debts for money or property obtained by false pretenses, debts for payment of damages awarded in a civil case for willful or malicious actions by the debtor that caused personal injury or death to another individual. Debts which extend beyond the life of the plan, such as a home mortgage, are also not discharged. Debts not discharged must be paid by the debtor.

In general, debtors can receive a discharge of their debt payments included in the Chapter 13 Bankruptcy if they can prove the following:

1. The debtor has completed an approved financial management course.
2. The debtor has not received a bankruptcy discharge in a prior bankruptcy case within a specified time frame (four years for Chapter 7, 11, and 12 and two years for Chapter 13 Bankruptcy).
3. The debtor has paid all of their spousal and child support obligations which were due before making such certification.

After the discharge, creditors may not initiate or continue any collection actions for debts which were discharged.

What if I do not complete the Chapter 13 Bankruptcy plan?

Under certain conditions, if the debtor is unable to complete the Chapter 13 Bankruptcy repayment plan, they may ask the court to grant a “hardship discharge.” Bankruptcy laws identify the following instances where a hardship discharge may be legal:

1. Failure to complete the Chapter 13 Bankruptcy plan was due to circumstances beyond the control of the debtor.
2. The creditors received as much money as they would have received if the debtor had filed Chapter 7 Bankruptcy.
3. Severe injury or illness has made employment impossible and the debtor does not have the resources to modify the plan.