How is a Chapter 13 bankruptcy plan developed?

A Chapter 13 plan is developed by factoring in the debtor’s disposable income, amount of debt to be paid in the plan, and length of the plan.

Disposable Income

When a Chapter 13 plan payment is determined, it must be within the debtor’s disposable income.  In other words, the debtor must be able to afford the plan payments as it relates to the budget they file with the court.  Therefore, as the plan is developed, the budget may be adjusted to be certain all the numbers add up accordingly. 

Amount of Debt in the Plan

The plan must also be sufficient to pay the secured and priority debt that is within the plan, as well as administrative fees and attorney fees, if applicable.  Many attorneys will start with the plan and determine how much they need to make it feasible and, from there, work back to the budget to make sure they have adequate income.  If not, the budget and/or plan must be tweaked.

Re-working the Plan

As the plan is being developed, there are certain things that may be done to adjust the plan payment.  The length of the plan is one possible way to make adjustments.  If a debtor is only required to have a three year plan but needs to lower their payment, they may lengthen the plan term to lower the monthly amount.  The interest rate being paid to creditors may also be adjusted, as long as it is not statutorily set.  It may also become necessary to surrender some property if the debtor simply cannot afford to pay for it.