Chapter 8 The Chapter 13 Plan

• Library: Chapter 13 Bankruptcy (Nolo) (2020 Ed.)

CHAPTER 8: The Chapter 13 Plan

National Chapter 13 Plan (Form 113)

Chapter 13 Plan Requirements

What You Must Pay

How Long Your Plan Will Last

What You Must Pay Through Your Plan

What You Must Pay Either Through or Outside of Your Plan

Repayment of Unsecured Debts: Allowed Claims

Which Creditors Must File a Proof of Claim (Form 410)

Dealing With Unfiled Claims

Drafting Your Chapter 13 Plan

Part One

Part Two

Part Three

Part Four

Part Five

Part Six

Part Seven

Part Eight

Part Nine

Local Plan Language

Adequate Protection Payments

Order of Payment

Where to Find Your Plan

Sample Plan

Your Chapter 13 plan is the most important document in your bankruptcy case and it will control your financial life while your bankruptcy is pending. The plan tells the court and your creditors how you intend to repay your debts, including the total amount you will pay each month, how much each creditor will receive under your plan, and how long your plan will last. With a few exceptions, you and your creditors will be bound by it once the court confirms (approves) the plan.

In this chapter, we review all of the elements of the plan. Keep in mind that putting your plan together can be quite complicated, which is why most attorneys use computer software. Even then, experienced Chapter 13 bankruptcy attorneys often find it necessary to amend a plan more than once before it is confirmed.

National Chapter 13 Plan (Form 113)

For many years, an official bankruptcy plan form didn't exist. Instead, local courts created their plan forms without any particular guidance. Most courts—and even some trustees—had language and a format that debtors had to use in the specific court's district. The fact that the format of your plan would depend on where you filed added even more complexity to an already complicated task. And, given all the variations, it was impossible to cover all of the plan formats in this book or to keep up with local changes.

The problems created by the lack of uniformity were well known and the solution—a standardized form—arrived on December 1, 2017. Now, your court must use either the official Chapter 13 Plan (Form 113) or a local form that meets national standards. Most courts have made a choice to create a local form, so be sure to check for it; however, the information you'll include should be standardized across all jurisdictions.

Also, instead of requiring a debtor to draft the plan without guidance, forms provide a space for each of the different ways debt can be handled in a plan. For instance, there's a dedicated space for listing property that you intend to surrender, as well as discrete sections for the following payment types:

• monthly secured claim payments and arrearages
• claims subject to cramdown, lien stripping, or judicial lien avoidance
• priority debt payments, and
• any remaining claims.

Also, debts are now organized by the way they will be treated in the plan, as opposed to nondescriptive "class" labels that required knowledge of the legal coding system. The end result is that the changes have made creating a plan easier and more intuitive. The uniform approach also allows us to provide detailed instructions you can use in any bankruptcy jurisdiction. (More below under "Drafting Your Plan.")

Chapter 13 Plan Requirements

Here we lay out the basics of a Chapter 13 plan, as well as the steps to complete the Chapter 13 Plan (Form 113).

RESOURCE

Sample Chapter 13 plan. You'll find an example of a completed plan at the end of Appendix B. Or you can access the plan and all other official forms online at www.uscourts.gov/forms/ban kruptcy-forms.

What You Must Pay

To propose a plan that the judge will confirm, you must show that after deducting allowed expenses, you will have sufficient income to pay certain debts in full over the life of your plan. Some of these debts must be paid through your Chapter 13 plan—that is, you must pay the trustee, who will then pay the creditor (after collecting a fee). You can pay other debts outside of your plan. You'll pay the creditor directly.

RELATED TOPIC

If you have not read Chs. 1 through 5, do so now. To understand what goes into your plan, you need to know the basic rules for calculating your income and expenses, how to classify your debts, which debts you have to repay in Chapter 13, and how to determine how long your plan will last. All of this information is explained in detail in Chs. 1 through 5.

How Long Your Plan Will Last

If your income is more than the median for your state and household size, your plan must last for five years (with a few exceptions). If your income is less than the median, your plan can last for only three years. If you are a lower-income filer and you don't have enough income to pay all mandatory debts within the three-year period, you can ask the court to extend your repayment time to five years. But the court won't approve a plan that would take longer than five years to execute in any situation. If you don't have enough income to pay your mandatory debts within five years, you won't be able to propose a feasible Chapter 13 plan. (See Ch. 4 for more on calculating your base income and finding your state's median income.)

Proposing a Three-Year Plan If You Have No Disposable Income

If your income is above the state median, but you don't have any disposable income left after deducting living expenses and repayment of secured and priority debts, some courts will confirm a 36-month plan. Other courts won't do this unless your plan pays creditors 100% of what they are owed. The Fourth, Sixth, Eighth, Ninth, and Eleventh Circuit Courts of Appeal have all ruled that above-median debtors must propose a 60-month plan, even if they have no disposable income, unless creditors are paid 100%. Check with your attorney for the common practice in your area.

Paying Off Your Plan Early

What happens if you come into extra money before completing your plan? Can you pay off the plan balance early and be done with the bankruptcy? If your plan doesn't pay off your creditors in full, it's likely that your creditors and the trustee will oppose the early payoff, and in many cases, the court will side with the creditors, although it will depend on the particular facts of your situation.

Appellate courts that have considered the issue have ruled that in most cases, the plan cannot be paid off early—even if you are paying all of the money that was due under the plan. Bankruptcy law gives the benefit of any income increases during the plan period to your creditors by requiring all of your disposable income during that period (three or five years) to be contributed to your plan. If you have more income than you thought you would when you initially filed, you might be required to pay the extra money to the Chapter 13 trustee and continue making your plan payments until your plan period ends or you have paid your creditors in full, whichever is first.

But in some situations, the court might allow an early payoff on an individual case basis—especially if the payment funds are coming from a third party (such as from a friend or relative) or from exempt assets (you sell property that you're entitled to keep and use it to pay off the plan balance). Just keep in...