Chapter 13 Bankruptcy Plan

The Chapter 13 Bankruptcy Repayment Plan

Unless the court grants an extension, under Chapter 13 Bankruptcy,  a bankruptcy debtor must file a repayment plan with the bankruptcy petition, or within 15 days after the petition is filed. A plan must be submitted for bankruptcy court approval and must provide for payments of fixed amounts to the trustee on a regular basis, typically biweekly or monthly. The Bankruptcy Court trustee then distributes the funds to creditors according to the terms of the plan, which may offer creditors less than full payment on their claims.

Creditors' Claims and Repayment under the Chapter 13 Bankruptcy Plan

There are three types of claims:

1. Priority
2. Secured
3. Unsecured

Priority claims are those granted special status by the bankruptcy law, such as most taxes and the costs of bankruptcy proceeding. Secured claims are those for which the creditor has the right take back certain property (i.e., the collateral) if the debtor does not pay the underlying debt. 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.

The 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.

"Secured" Claims Under the Chapter 13 Bankruptcy Repayment Plan

If the debtor wants to keep the collateral securing a particular claim, the plan must provide that the holder of the secured claim receive at least the value of the collateral. If the obligation underlying the secured claim was used the buy the collateral (e.g., a car loan), and the debt was incurred within certain time frames before the bankruptcy filing, the plan must provide for full payment of the debt, not just the value of the collateral (which may be less due to depreciation). Payments to certain secured creditors (i.e., the home mortgage lender), may be made over the original loan repayment schedule (which may be longer than the plan) so long as any arrearage is made up during the plan. The debtor should consult their Arizona Bankruptcy Attorney or their Nevada Bankruptcy Attorney to determine the proper treatment of secured claims in the bankruptcy plan.  Debtfreebankruptcy.com has Bankruptcy Law Offices in both Arizona and Nevada. We offer local offices in Las Vegas and Henderson Nevada.  In Arizona we have local offices in Phoenix, Tucson, Tempe, Mesa, Glendale, Prescott, and Flagstaff.  Our Bankruptcy Lawyers will be able to assist you with any Chapter 13 Bankruptcy questions that you may have.

"Unsecured" Claims Under the Chapter 13 Bankruptcy Repayment Plan

The Chapter 13 Bankruptcy repayment plan need not pay unsecured claims in full as long it provides that the debtor will pay all projected "disposable income" over an "applicable commitment period," and as long as unsecured creditors receive at least as much under the plan as they would receive if the debtor's assets were liquidated under Chapter 7 Bankruptcy. In Chapter 13 Bankruptcy, "disposable income" is income (other than child support payments received by the debtor) less amounts reasonably necessary for the maintenance or support of the debtor or dependents and less charitable contributions up to 15% of the debtor's gross income. If the debtor operates a business, the definition of disposable income excludes those amounts which are necessary for ordinary operating expenses. The "applicable commitment period" depends on the debtor's current monthly income. The applicable commitment period must be three years if current monthly income is less than the state median for a family of the same size - and five years if the current monthly income is greater than a family of the same size. The plan may be less than the applicable commitment period (three or five years) only if unsecured debt is paid in full over a shorter period

From the Administrative Office of the U.S. Courts