When an individual files a Chapter 13 bankruptcy, they must establish a repayment plan to pay back the debts that are owed to creditors. This repayment plan is referred to as the Chapter 13 Plan. When a debtor files this type of bankruptcy, they typically establish a plan that will repay creditors over 3 or 5 years, depending on the debtor’s income. The process for adoption of this plan by the court is known as Chapter 13 plan confirmation.
The Chapter 13 Plan
The Chapter 13 Plan establishes a payment schedule to repay creditors. In some cases, 100 percent of past due debt will be repaid. In other cases, it is possible to negotiate a smaller percentage of debt to be repaid to creditors. A bankruptcy attorney may be able to best explain the conditions under which all or a percentage of the debt will be repaid.
A Plan takes into account all debts owed and establishes a schedule for payments. The payments are not made to creditors. Payments are made directly to the court. If someone intends to file Chapter 13, they should ensure that they will be able to make the Plan payments on time and in full each month. If a debtor establishes a Chapter 13 Plan and finds that they cannot make the payments, an attorney may be able to request that a Chapter 13 filing be converted to a Chapter 7. If there are extenuating circumstances, it may be possible to amend or alter the Plan.
When Is the First Payment Plan Due?
After filing for Chapter 13, the first Plan payment typically will be due within 30 days of filing. However, a judge may require the first payment sooner. The judge may alternatively require that all debtors’ payments be received on the same day.
Confirmation and Oversight of the Plan
Within 60 to 90 days after the initial filing for bankruptcy, a Chapter 13 plan confirmation hearing will be held to confirm the case. At this time, a debtor’s attorney will appear before the judge to confirm the case. If payments have been made on time and according to the proposed plan, the confirmation hearing will most likely proceed without issue and the case may very well be confirmed.
The U.S. Bankruptcy Trustee’s office is the office that receives and oversees the Plan payments. A debtor will be required to provide proof of their income to the U.S. Trustee to ensure that they have the means to make timely Plan payments. If the U.S. Trustee’s office has received such paperwork and is sufficiently convinced of the debtor’s ability to make Plan payments, the Trustee’s office will recommend to the judge that the case be confirmed.
Once a Chapter 13 case is confirmed, it simply becomes a matter of making timely payments to the U.S. Trustee’s office as proposed in the Plan. In some cases, Plan payments will be deducted from a debtor’s paycheck. In other cases, an ACH automatic billing system may be used. Regardless, a debtor should continue to make payments according to the proposed Plan until their Chapter 13 responsibilities are fulfilled.