A Chapter 13 case has everything a Chapter 7 has, plus a repayment plan. The plan is what the court, the trustee and the creditors are really looking at, and it is where an assistant's understanding matters most. This article covers the concepts. Choosing a plan's terms is the attorney's decision, so the assistant's job is to prepare accurate figures and draft for the attorney's review.
What the plan does
The plan proposes how the debtor will pay creditors over time out of their regular income. Payments go to the Chapter 13 trustee, who distributes them. If the court confirms the plan and the debtor completes it, the debtor generally receives a discharge of the remaining eligible debts. Meanwhile the debtor keeps their property, and the plan can be used to cure missed mortgage or car payments.
Plan length
A plan generally runs three to five years. The income test on the Chapter 13 forms, which compares the debtor's income with the state median, affects the length required. A plan cannot run longer than five years.
The building blocks
Most plans sort claims into groups:
- Secured claims, such as a mortgage or car loan, with the plan stating whether payments continue, arrears are cured or collateral is surrendered.
- Priority claims, such as certain recent taxes and support obligations, which generally must be paid in full.
- General unsecured claims, such as credit cards and medical bills, which are paid whatever the plan provides, subject to the legal requirements.
- The attorney's fees and the trustee's costs, which are built into the payment.
The tests a plan has to meet
Confirmation is not automatic. In general terms:
- Feasibility: the debtor has to be able to make the payments, which is why Schedules I and J must be realistic.
- The best-interest-of-creditors test: unsecured creditors have to receive at least as much as they would have received in a Chapter 7 liquidation, which depends on the value of non-exempt property.
- Disposable income: where required, the debtor commits the income that remains after allowed expenses.
- Good faith: the plan and the filing must be proposed in good faith.
Why the numbers matter more
In Chapter 13, an error on a schedule does not just risk an amendment. It can change the plan payment, the length of the plan or whether the plan can be confirmed. Values of property, the amount of arrears, priority claims and monthly income and expenses all feed the plan math. That is why it pays to have documentation behind every figure.
Forms and local practice
There is an Official Form for a Chapter 13 plan, and many districts require or prefer their own local form. Trustees also have their own preferences and procedures. Before drafting for a new district, learn the local form, the local rules and what the trustee expects.
After filing
Plan payments typically begin soon after filing, and a confirmation hearing follows. The work continues after the petition: amended schedules, responding to trustee requests, claims review and, at the end, the post-petition course certificate.
Build the skill
Chapter 13 is the advanced level in bankruptcy petition work. If you are comfortable with Chapter 7, the NAVBA Chapter 13 certification is a way to demonstrate it, and our primer on Chapter 7 vs. Chapter 13 covers the basics. To make this work your career, see joining NAVBA. Attorneys can learn how to hire a Virtual Bankruptcy Assistant.
This article is general information about bankruptcy practice, not legal advice. Local rules, trustee preferences and state law vary, so confirm current requirements for your jurisdiction.
