The Plan is really the fine work of the Chapter 13 case. It is the road map that tells the court and the creditors where the case is going, at least as proposed by the debtor. The bankruptcy code requires that every debtor file a plan within 15 days after commencement of the case.
The plan must describe in some detail the method by which the debtor proposes to handle all of the debts. The law separates debts into “classes” that are recognized and required by law. The Plan sets out these classes or groupings so creditors understand how the plan affects them. It identifies funding sources (typically income of the debtor) and the duration or time over which payments will be made. And it establishes which debts will be discharged and how that will occur. After the plan is proposed by the Debtor, it must go through a “Confirmation Process” where it must be approved by the bankruptcy court. So let’s take a look at these parts of the Plan and the process.
CLASSIFICATION OF DEBTS
- PRIORITY CLAIMS:
The typical plan should divide the debts into logical categories, including the categories or “classes” required by law. For example, certain debts which are required under the Bankruptcy Code to be satisfied in full–such as non-dischargeable tax obligations–are typically going to be put under a priority classification along with family support. This “priority” class of debts might also contain a provision for payment of the debtor’s attorney fees.
- ATTORNEYS FEES AND OTHER CATEGORIES
A large percentage of debtors will pay all or most of their attorney’s fees for their legal representation as a component of the Chapter 13 plan. The plan also will divide debts into other logical categories such as a category for general unsecured claims without priority, a category for secured claims which are secured by the debtor’s home (principal residence), perhaps a category for secured claims secured by collateral other than the debtor’s principal residence, perhaps a category of claims for debts that are secured by personal property such as motor vehicles, big screen TV’s and other appliances.
- SECURED CLAIMS
A general requirement for Plans is that the debtor must pay interest to the creditor on value of the secured portion of claims. The separation of classes makes it easier for the court and creditors to understand the different ways these “classes” of claims are “treated” under the Plan.
DURATION OF THE PLAN
No plan is allowed to extend beyond the duration of 60 months. If the debtor enjoys an above-median income level, the plan duration, called a “commitment period” is required by law to be 60 months (less, only if the plan pays all claims in full) so as to maximize any possible repayment to unsecured creditors.
Otherwise, the commitment period is 36 months for those with below-median income, unless there is “cause” to extend the duration for up to 60 months total duration. “Cause” to extend beyond 36 months has been found where the debtor voluntarily desires to pay more to creditors or where the debtor can’t afford to complete the required payments (such as payments to secured claims and priority claims) within 36 months.
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