Lesson 23: Repayment Plan (Chapter 13)

As part of Chapter 13: Wage Earner's Plan, the repayment plan is a crucial component of the bankruptcy process. In this lesson, we will delve into the specifics of the repayment plan, its structure, and its implications for debtors and creditors.

What is a Repayment Plan?

A repayment plan in Chapter 13 bankruptcy is a court-approved plan that outlines how the debtor will pay off their debts over a period of three to five years. It allows debtors to keep their property while making affordable payments based on their income and expenses.

Components of a Repayment Plan

• Monthly payment amount
• Duration of the plan (usually 3 to 5 years)
• Types of debts to be paid
• Priority of payments

How is the Payment Amount Determined?

The payment amount in a repayment plan is determined based on the debtor's disposable income. This is calculated as follows:

The necessary expenses are those required for the debtor's basic living needs, such as food, housing, and transportation. The remaining disposable income is used to pay off debts according to the repayment plan.

Priority of Payments

The repayment plan prioritizes certain types of debts. Typically, the order of priority is:

1. Secured Debts
2. Priority Debts (e.g., taxes, child support)
3. Unsecured Debts

The following diagram illustrates the prioritization of payments:

Confirmation of the Repayment Plan

The repayment plan must be confirmed by the bankruptcy court. During the Confirmation Hearing, the court will review the plan to ensure it meets legal requirements and is feasible.

Criteria for Confirmation

• The plan must be proposed in good faith.
• Creditors must receive at least as much as they would under Chapter 7.
• The debtor must be able to make the required payments.

Modifying the Repayment Plan

Under certain circumstances, the repayment plan can be modified. This usually occurs if there is a significant change in the debtor's financial situation, such as a loss of income or unexpected expenses.

Process of Modifying the Plan

Benefits of a Repayment Plan

Chapter 13 repayment plans offer several benefits:

Conclusion

Understanding the repayment plan is essential for anyone considering Chapter 13 bankruptcy. It provides a structured way to pay off debts while retaining assets. For more detailed information, refer to the The New Bankruptcy: Will It Work for You? on Amazon.

For further reading, visit these related lessons:

• Automatic Stay Provision
• Discharge of Debts
• Trustee's Role in Chapter 13