Mechanics of Chapter 13 repayment plan Lawyer Manual

Debtor’s proposed plan

After the bankruptcy petition is filed and creditors are notified, the debtor files a proposed repayment/discharge plan. The first payment under the plan must be made within 30 days of the filing of the case.

The first meeting of creditors is then held. At that time, creditors can question the debtor, under oath, about the plan, debts, assets, income, etc.

Confirmation of plan

At the confirmation hearing, a judge determines whether the debtor’s proposed plan can be confirmed. Creditors can raise objections to the plan.

To be confirmed, the plan must:

• Be proposed in good faith;
• Be feasible;
• Satisfy the "liquidation test, " i.e., the present value of proposed payments to each unsecured creditor must be at least equal to what that creditor would have received in a Chapter 7 liquidation;
• Either be accepted by secured creditors or provide for their secured claims in accordance with the Bankruptcy Code; and
• Provide for payment in full of certain priority claims, e.g., domestic support obligations and nondischargeable income taxes.

If the unsecured creditor(s) or the trustee object to the plan, it cannot be confirmed unless it meets an additional test. Under the additional test, the plan must either:

• Pay the full amount of the claim; and
• Use all of the debtor’s excess income to repay creditors over either a three-year period, if the debtor’s “current monthly income” as determined by the means test is under the state median income, or over a five year period.

Discharge of debts

Discharge of remaining debts is granted after all plan payments have been made. All after within the plan are discharged except:

• Alimony/child support;
• Debts maturing after the term of the plan;
• Debts that have been determined to be the result of fraud, embezzlement, defalcation while in a fiduciary capacity; and
• Debts resulting from drunk driving or willful or malicious injury that caused personal injury or death.
   

A "hardship discharge" may be granted despite debtor’s failure to complete the plan, if:

• The failure is beyond the debtor’s control;
• The sums the debtor has paid under the plan are at least as much as creditors would have received under Chapter 7; and
• Modification of the plan is not feasible.

Post-filing matters

Amendments

The debtor may amend the petition to include creditors who were owed money when the petition was filed but were left off after bankruptcy is filed. The case of In re Mendiola, 99 B.R.864 (N.D. Ill. 1989) states that after discharge in a no-asset Chapter 7 bankruptcy there is no need to amend the petition to add creditors that were inadvertently omitted from the petition as those debts are discharged despite the failure of the debtor to list them.

Modification of Chapter 13 plan

The debtor may modify the proposed plan before confirmation as long as it will still meet confirmation requirements.

To modify the plan after confirmation, the debtor must notify all creditors. If any creditors object to the modification, a hearing must take place to determine whether the changes should be approved.