Chapter 13 Repayment Plan

Confirmed Chapter 13 repayment plans help debtors stabilize their finances, pay off their debts, and can help improve their credit. This section explains how Chapter 13 repayment plans work, the important differences between secured and unsecured debts, and what debtors should do to file for a Chapter 13.

Repayment Plan and Confirmation Hearing

After filing a Chapter 13 bankruptcy, a repayment plan based on debtor’s monthly income and expenses is created. The debtor files the proposed payment plan within 14 days of the bankruptcy petition, unless the court grants an extension. The bankruptcy trustee reviews the plan. Creditors may object to the plan if they believe it’s unfair. A judge in bankruptcy court will decide whether to confirm it. Plan payments usually begin within 30 days after filing the petition or plan, which can be before the judge confirms the it.

At the confirmation hearing, the judge determines whether the plan is feasible and meets the standards set out by the Bankruptcy Code. This includes proposed good faith, the best interests of creditors, proper treatment of priority and secured claims, and in some cases, the projected disposable income test. Creditors can file objections at the hearing. If the judge confirms the plan, the trustee distributes funds under the plan as soon as is practical. 

If the court does not confirm the plan, the debtor still has options. They can modify the plan, convert the bankruptcy to a Chapter 7 case, or have their funds returned after permitted deductions.

How a Repayment Plan Works

In a Chapter 13 plan, the bankruptcy trustee classifies creditor’s claims according to the bankruptcy code. Priority debts get paid first. Unsecured debts may get discharged at the end of the payment period. In general, monthly payment plans get structured so that the debtor pays:

• Priority claims, such as child support and alimony payments and tax debts
• Secured claims, subject to automatic stay, receive payments next
• Unsecured claims such as medical bills and some credit card debt can get discharged at the end of the payment period

If a debtor wants to keep the collateral holding a secured debt, the plan payment must equal the value of the collateral. To keep collateral, a debtor may cure arrears and maintain payments, or pay the allowed secured amount with interest as permitted by the Code. 

When a debtor completes the plan and cures defaults while maintaining ongoing payments, the creditor cannot foreclose based on the cured pre‑bankruptcy arrears. The creditor may seek stay relief during the case or enforce remedies after the case if a debtor falls behind after filing.

In a Chapter 13 bankruptcy, the payment plan lasts for between three and five years. During that time, the debtor must continue to meet other regularly scheduled monthly payments. For example:

• The automatic stay does not affect child support or alimony payments. A bankruptcy filing will not stop any action for child support arrears or wage garnishment.
• Debtors who want to keep their homes must continue to make mortgage payments during the plan. If they default, they may have to surrender the property.

Unsecured creditors must receive at least as much value under the repayment plan as they would under a Chapter 7 bankruptcy.

Debts After Discharge

The Chapter 13 payment period may end earlier if all allowed claims and required amounts are paid. If all requirements are met, the court will discharge all remaining debts according to the federal bankruptcy laws at the end of the payment plan period. Debts that are eligible for discharge in all bankruptcies include:

• Unsecured debts such as medical bills, personal loans, and most credit card bills
• Tax debt, depending on multiple factors like when the return was filed, assessments, and fraud
• Some lawsuit judgments, depending on their basis

In a Chapter 13 bankruptcy case, some additional debts are dischargeable that are not eligible in a Chapter 7:

• Legal judgments for willful destruction of property
• Divorce property settlements other than child support or alimony arrears
• Debt acquired to pay non-dischargeable taxes

Not all debts get discharged in a Chapter 13 bankruptcy proceeding. Claims for child support and alimony, student loans, criminal fines, mortgages and car loans, and any debts not provided for in a wage-earner plan may not be dischargeable.

Although spousal and child support obligations do not get discharged, filing a Chapter 13 bankruptcy may stay collection activities for back child support or alimony. These domestic support obligations are not dischargeable, and certain collection actions are excepted from the stay. To receive a Chapter 13 discharge, debtors must certify they are current on all post-petition domestic support obligations.

Student loans guaranteed by the United States government are also generally not dischargeable in Chapter 13 bankruptcy absent a court finding of undue hardship. This is determined under the three-part Brunner test or a totality-of-circumstances standard in some circuits. A hardship discharge of student loans in a Chapter 13 bankruptcy is limited and takes place through an adversary proceeding.

Get Professional Legal Help With Your Repayment Plan

Filing for bankruptcy is a serious endeavor that shouldn’t be taken lightly. If all goes as planned, you’ll get a fresh start to rebuild your credit and regain financial health. One of the best ways to ensure a successful bankruptcy, including a workable repayment plan, is to hire an experienced bankruptcy attorney.