A Chapter 13 Bankruptcy is also called a wage earner’s Plan. It enables individuals with regular income to develop a plan to repay all or part of their debts. Under this chapter, debtors propose a repayment plan to make installments to creditors over three to five years. If the Debtor ‘s current monthly income is less than the applicable state median, the plan will be for three years unless the court approves a longer period “for Cause .” If the debtor’s current monthly income is greater than the applicable state median, the plan generally must be for five years. In no case may a plan provide for payments over a period longer than five years. 11 U.S.C. §1322(d). During this time the law forbids creditors from starting or continuing collection efforts.

The provisions of a confirmed plan bind the debtor and each creditor. 11 U.S.C. § 1327. Once the court confirms the plan, the debtor must make the plan succeed. The debtor must make regular payments to the Trustee either directly or through payroll deduction, which will require adjustment to living on a fixed budget for a prolonged period. Furthermore, while Confirmation of the plan entitles the debtor to retain property as long as payments are made, the debtor may not incur new debt without consulting the trustee, because additional debt may compromise the debtor’s ability to complete the plan. 11 U.S.C. §§ 1305(c), 1322(a)(1), 1327.

Chapter 13 plans are based upon the provisions in 11 USC Sec. 1322 and 1325. While many software programs are available that help with this task, a basic understanding of plan drafting is essential to a successful Chapter13 plan. Plans are basically several loan amortizations. Some, by law, must be repaid concurrently (often secured debt repayment) while others may take place subsequently (often unsecured debt).

Many jurisdictions publish model Chapter 13 Plans; the Eastern District of Michigan’s model plan can be accessed here.

The Code now requires equal monthly installments to certain creditors, 11 USC Sec. 1325(a)(5)(B)(iii), which can complicate the drafting of the Plan. If you are considering a Chapter 13, the contents of your plan should be discussed with a local bankruptcy attorney.

-Drew Broaddus