STEP FOUR - THE CHAPTER 13 PLAN
What is a Chapter 13 plan?
The Chapter 13 plan is designed to let creditors, debtors, the court and the Chapter 13 trustee know how you want to treat each of your debts.
Chapter 13 plans can become very involved, and can be very confusing if you are not familiar with the system. Many pro se debtors (individuals representing themselves) unfortunately are unsuccessful in properly preparing their Chapter 13 plans, and their cases fail. This is just one of many reasons why I strongly encourage you to contact an attorney to help you with your Bankruptcy.
Chapter 13 cases generally involve a lot more of law and motion work than Chapter 7 cases. It is also fairly common for the trustee or creditors to object to your plan. Objections must be addressed and responded to in a proper manner, and again shows the importance of having an attorney represent you.
When is my Chapter 13 plan filed?
As part of preparing your petition and Chapter 13 plan, I will discuss with you your intentions regarding your various debts, and then prepare your plan for you. I will then review the plan with you and we will sign the plan in your signing appointment. Once this is completed we will file the plan and your petition usually at the same time.
Chapter 13 plans often have to be filed using motions. Motions can be tricky as they are required to be served to certain parties in particular methods and a specific amount of notice of the court hearing has to be provided. I, as your attorney, will take care of that for you.
I also make court appearances to confirm the plan on your behalf. You generally will not need to appear. If you do need to appear, I will discuss this with you and explain what you should expect.
When your petition is filed you will receive your case number. In about a week or two from the time you file your petition you will receive the notice of the 341 meeting of creditors. This will advise you of the time, date and location of your hearing. This court hearing you do need to attend.
Although you will file an initial Chapter 13 plan with your Bankruptcy case, Chapter 13 Plans can be modified or amended before confirmation of the plan or after confirmation of the plan. (Confirming the plan basically means that the court approves the plan.)
It is important to note that you should begin your plan payments the month after your bankruptcy was filed, whether or not your plan was confirmed. You may have to file several different plans before you have one confirmed by the court, nevertheless, that plan payment will still be due on the 25th of each month.
It is important to keep making your payments, and making them on time. If you do not, your case could be dismissed. If something comes up, such as loss of income, making it so that you cannot make your Chapter 13 plan payment, contact me immediately and we will review your case to determine if an amended plan should be filed.
Your Chapter 13 plan payment is paid to the trustee that is assigned to your case. This information can be found on your 341 Meeting of Creditors notice, and is on file with the court.
What is included in your Chapter 13 plan?
Your plan must provide for the treatment of all of your debts. You do not necessarily have to pay back all of your creditors. You do, however, have to list them all in your plan. Your plan will then tell your creditors, the trustee and the court what debts you intend to pay.
There are basically seven different types of debts plus executory contracts. All of your debts must be listed in one of those categories. I will prepare your plan and explain why each of the debts is treated as a certain type of debt.
The main debts that are paid through the plan are your creditors.
The different types of debts are often referred to as classes.
Class one debts are debts that are delinquent, but are not paid off within the time frame of your Chapter 13 plan. Examples of these types of debts are home mortgages that are delinquent. The plan will pay your monthly mortgage payment as well as get you current on the payments.
Class two debts are debts that are being modified by the plan, or will be paid off during the plan. Examples of these types of payments are second mortgages that are being “stripped”, vehicle loans that are being crammed down to the amount you owe, or other types of loans that can be paid off during the life of the Chapter 13 plan.
Class three debts are debts that you want to surrender. For example, if you have a vehicle loan for a car you do not want to keep, you would surrender the car and the debt.
Class four debts are debts that are generally current, and that either you or someone else is paying directly. If you are current on your home mortgage and paying it directly, that debt would be included here.
Class five debts are priority debts such as taxes. They will receive a monthly distribution and be paid off by the end of the plan.
Class six debts are co-signed debts that will be paid off in full during the life of the plan.
Class seven debts are all unsecured debts. These are generally all lumped together and then a percentage of how much is paid to unsecured debts is specified in your plan.
Unsecured debts are debts such as credit cards. The percentage that unsecured creditors are paid depends on a variety of factors. Getting that percentage correct can be tricky as it depends on different aspects of your particular case, and is yet another reason why it is recommend that you file with an attorney.
Executory contracts are debts such as leased vehicles and sometimes rental agreements. If you do not list those debts, then it is assumed that they are deemed rejected. So if you want to keep your leased vehicle, you will need to list that debt here.
You will also very likely pay your remaining attorney’s fee through the Chapter 13 plan. Chapter 13 cases generally cost $4,000 - $6,000 for attorney's fees. This fee retains me for the 3 - 5 years that your plan is active. Although that is the full fee, generally only a portion of that fee is what you pay prior to filing the Bankruptcy. The remaining balance of attorney’s fees will be paid through the plan as a monthly distribution. If you want the fee paid through the plan reduced, then more of the fees would need to be paid prior to filing the Bankruptcy petition.
After the filing of your petition you will then move on to step five, the court hearing.
Contact us to discuss your case!
1. Step One – The Consultation
2. Step Two – Preparing to File
3. Step Three – Filing the Bankruptcy
4. Step Four – Preparing the Chapter 13 Plan
5. Step Five - The Court Hearing
6. Step Six – Closing Your Case and Getting a Discharge