A debtor must file a chapter 13 plan along with his/her petition or within 15 days after filing the petition. A plan must contain details regarding the treatment of debts, liens, and secured assets and liabilities owned or owed by debtor. The court appointed trustee will distribute the funds to creditors in accordance with the terms of the plan. Of the three claims, priority, secured and unsecured, the plan should pay off priority claims in full unless a specific priority creditor opts for different treatment of the claim.
If an obligation underlying the secured claim was used to buy collateral, the plan must provide for full payment of the debt where debt was incurred within certain time limits before the bankruptcy filing. The debtor can determine the proper treatment of secured claims in the plan after consulting an attorney. The plan need not make payment of unsecured claims in full until it provides that the debtor will pay all projected disposable income over an applicable commitment period.
Disposable income is the income excluding the reasonable expenditure necessary for the maintenance or support of the debtor or dependents and excluding other charitable contributions up to fifteen percent of the gross income of the debtor [disposable income = income – (maintenance or support amount of debtor or dependents + charitable contributions up to 15% of the debtor’s gross income)]. Also the plan need not make payment of unsecured claims in full until the unsecured creditors receive as much as they would if debtor’s assets were liquidated under Chapter 7. If suppose, the debtor is engaged in a business, then the debtor’s disposable income would exclude the necessary ordinary operating expenditure.
Even if the plan is not approved by the court, the debtor should start making payments to trustee within 30 days after filing the bankruptcy case. A bankruptcy judge should hold a confirmation hearing not later than 45 days after meeting of creditors and decide if the plan meets all the standards for confirmation set forth in the Bankruptcy Code.
The most common and frequent objections raised by the creditors are: first, that the payments offered under the plan are less than what the creditors would receive if the debtor’s assets were liquidated; and secondly, that the debtor’s plan does not commit all projected disposable income over an applicable commitment period.
Once the court confirms the plan, trustee distributes the funds according to the plan. The debtor can convert the plan and file a modified plan if the court declines confirmation of the plan. If the court dismisses the case, the court may authorize the trustee to keep some funds for costs and the remaining should be returned to the debtor. Modification after confirmation may be at the request of the trustee or an unsecured creditor.
Provisions of a confirmed plan bind the debtor as well as the creditor. The plan requires regular payment to trustee by the debtor. A debtor may not incur new debt without consulting the trustee while the debtor is entitled to retain property. Additional debt can compromise the debtor’s ability to make the plan successful. Creditors under Chapter 13 who receive full or partial satisfaction cannot initiate or pursue any legal or other action against the debtor for collecting the discharged obligations.