When a Chapter 13 debtor files for bankruptcy, the debtor must also submit a repayment plan for approval by the court. The plan lets the court and creditors know how much the debtor intends to pay to creditors. Before the court confirms a plan, creditors have the right to make an objection within a specified time.
The Chapter 13 Plan
A repayment plan must provide for payments in full to priority creditors, payments of any arrearage to secured creditors, and payments to unsecured creditors for at least as much as the creditors would have received from the debtor’s nonexempt assets in Chapter 7. The debtor must have enough disposable income—current monthly income minus allowed expenses—to pay unsecured creditors.
A creditor may object to the confirmation of a debtor’s proposed plan. A creditor will receive 25 days notice before the confirmation hearing in which to file an objection with the court. A confirmation hearing usually occurs 45 days after the meeting of creditors. The following are typical objections raised by a creditor:
- Payments to unsecured creditors under the plan are less than what would have been received in a Chapter 7 liquidation bankruptcy
- The debtor did not propose the plan in good faith
- The debtor has enough disposable income to pay more to unsecured creditors
- The plan will exceed the maximum term because of a miscalculation of creditor claims or the means test
- The value placed on a secured creditor’s collateral is incorrect
If a creditor objects to a debtor’s plan, the debtor, or the debtor’s lawyer, and the creditor can negotiate. If the parties are unable to reach a compromise, the bankruptcy court will make a decision on the issue.
Confirmation of the Plan
After all of the objections have been resolved, the court may decide to confirm or not to confirm the plan. If the plan is not confirmed, the debtor can file a modified plan or can convert the case to a Chapter 7 bankruptcy. The court can dismiss the case if it decides not to confirm the plan or the modified plan.
If the court confirms the plan, the debtor and the creditors are bound by the terms. This means that creditors have to accept the payment amounts as provided by the plan and the debtor must make regular payments to the trustee. If the debtor’s circumstances change and the debtor is unable to continue making payments, the court may grant a hardship discharge if the debtor qualifies.
If a creditor objected to your Chapter 13 plan, a bankruptcy attorney may be able to help you reach a compromise with the creditor.