The Chapter 13 Plan

Do all debts have to be paid back in a chapter 13 plan?

Probably not!

There is a common misconception that debtors in a chapter 13 must propose a plan to pay back all of their debts. In the overwhelming majority of cases, this is not true. In the overwhelming majority of chapter 13 bankruptcy cases, a skilled and experience lawyer can successfully propose a plan that pays close to nothing to unsecured debts - typically, credit card debts, medical bills, deficiency balances on repossessed cars or foreclosed homes. Once the bankruptcy plan is completed, all of these debts will be discharged.

Often, a skilled bankruptcy attorney can propose a plan that provides for no payments whatsoever to non-priority unsecured creditors. This type of bankruptcy plan is often called a "zero-percent plan."

A skilled bankruptcy attorney can use the chapter 13 plan to pay certain debts that are otherwise not discharged in bankruptcy. For example, certain taxes that are not dischargeable can be paid back without interest or penalties in a chapter 13 plan.

What are my monthly payments in a chapter 13 plan?

The exact amount of the monthly payments in a chapter 13 bankruptcy is determined by multiple, and sometimes very complex legal issues. An experienced bankruptcy attorney will perform careful analysis to carefully determine the lowest amount the debtor would have to pay.

Some of the factors that determine the monthly amount include:

Household income: The bankruptcy code requires that debtor's "disposable income" be paid into the chapter 13 plan. However, determining the "disposable income" can be a very complex process. The bankruptcy code requires that debtors analyze their income for the six months prior to filing the petition, and, in certain circumstances, take into account standardized expenses, but also, costs associated with paying car debts, home mortgages, child support, back taxes, and other items. Furthermore, at least one recent Supreme Court decision has introduced further complications in this analysis.

Generally, higher disposable income increases the probability that higher payments must be made in a chapter 13 plan.

Assets: Debtors that have more assets may have to propose higher monthly payment plans.

Recent transfers and payments: Debtors who have recently transferred assets, or who have recently made large payments to certain creditors may have to propose higher monthly payment plans.

Priority and secured debts: Debtors who have higher debts to certain priority creditors, or who have higher secured debts may have to pay higher monthly payments.

Bankruptcy location: Different courts and trustees have different requirements. A skilled attorney representing bankruptcy debtors in San Jose will have better chance of successfully confirming a chapter 13 plan that pays zero to non-priority unsecured creditors.

In the Oakland and San Francisco bankruptcy courts, "zero percent" plans can also be confirmed, but the confirmation criteria is usually more stringent.

By Sam Taherian

Working for years in the bankruptcy field, Attorney Taherian has brought financial freedom to thousands of clients throughout Northern California. Allow you and your family or business to be next. Rest easy knowing that not only does he successfully handle Chapter 13 cases, but also Chapter 7 and Chapter 11 filings and is prepared to assist you. He currently serves on the Board of Directors for the non-profit group, the Bay Area Bankruptcy Forum.