How Does a Chapter 13 Repayment Plan Work?

A Chapter 13 repayment plan is a court-approved budget that lasts three to five years. You make one monthly payment to the Chapter 13 trustee, who pays your creditors in the order the plan sets: priority debts like recent taxes and support in full, home or car arrears over time, and unsecured creditors what your disposable income allows.

What a Chapter 13 Plan Is

Chapter 13 is the reorganization chapter of the Bankruptcy Code. Instead of giving up non-exempt property, you keep what you own and commit part of your future income to a repayment plan. Under 11 U.S.C. § 1322(a)(1), the plan must hand over to the trustee’s supervision as much of your future earnings or other income as is needed to carry it out.

In practice, the plan works like this. You file a written plan with your petition that lists every category of debt and says how each one will be treated. You send one monthly payment to the standing Chapter 13 trustee, the trustee keeps a percentage fee set by the Department of Justice (by statute it cannot exceed 10 percent of the payments, 28 U.S.C. § 586(e)), and the rest goes to your creditors in the order the plan sets. Some payments, such as a current mortgage or car payment, may be paid by you directly outside the plan, depending on how the plan is written. When you finish the last payment, the court enters your discharge.

The court will only confirm a plan you can actually afford. Under § 1325(a)(6), the judge must find that you will be able to make all the payments and comply with the plan, so a plan is built from your real budget, not from what creditors would like to receive.

How Long the Plan Lasts: Three Years or Five

The length of the plan depends on your household income. The Bankruptcy Code compares your “current monthly income” (generally the average of the six full months before filing), multiplied by 12, with the Florida median family income for a household of your size.

• Below the median: the plan may not run longer than three years unless the court approves a longer period for cause, and never longer than five (11 U.S.C. § 1322(d)(2)). Many filers ask for a longer plan anyway, because spreading arrears over five years lowers the monthly payment.
• At or above the median: the “applicable commitment period” is five years (§ 1325(b)(4)). The plan can only be shorter if it pays all allowed unsecured claims in full.

The median figures are published by the U.S. Trustee Program and are updated periodically, so the comparison is always run against the table in effect on the day you file.

How Your Monthly Payment Is Calculated

There is no fixed percentage that everyone pays. The monthly payment has to be large enough to clear several legal floors at the same time:

• Priority debts in full. Claims the Code gives priority, such as many recent income taxes and domestic support obligations, must be paid in full over the life of the plan unless the creditor agrees otherwise (§ 1322(a)(2)).
• Secured debts you are keeping. If the plan pays a mortgage default or a car loan, the payment must cover those amounts as the plan provides.
• The best-interests test. Unsecured creditors must receive at least as much as they would have received if your non-exempt property had been sold in a Chapter 7 case (§ 1325(a)(4)). Florida’s exemptions protect a great deal, so for many filers this floor is low, but non-exempt equity raises it.
• Your disposable income. If the trustee or an unsecured creditor objects, the plan must either pay unsecured claims in full or commit all of your projected disposable income for the commitment period to them (§ 1325(b)(1)). Disposable income is your current monthly income minus expenses reasonably necessary to support you and your dependents (§ 1325(b)(2)); for above-median filers those expenses are measured largely by IRS standards.

Whatever remains for credit cards, medical bills, and personal loans after those floors are met is what unsecured creditors share. Depending on income and assets, that may be a small percentage of what they are owed or the full amount. The unpaid balance of most of those debts is discharged at the end.

What Happens to Your House and Car in the Plan

Chapter 13 is often chosen to keep a home or a car, and the plan treats each one differently.

Your home. The plan generally cannot change the terms of a loan secured only by your principal residence (§ 1322(b)(2)). What it can do is cure a default: under § 1322(b)(5), the missed payments are spread over the plan while you keep making the regular mortgage payment. That is how a plan stops a foreclosure and lets you catch up without a lump sum.

Your car. If you bought a car for personal use more than 910 days before filing, the plan may be able to pay the secured part of the loan only up to the car’s value, with the rest treated as unsecured debt. For a personal-use car bought within 910 days of filing, the “hanging paragraph” at the end of § 1325(a) bars that reduction, though the plan can still spread out the missed payments.

Payments start before confirmation. Unless the court orders otherwise, you must begin plan payments within 30 days after the plan is filed or the case begins, whichever is earlier (§ 1326(a)(1)). The stage-by-stage process, from filing through the confirmation hearing, is described on our Chapter 13 bankruptcy page.

What If You Miss a Payment or Your Income Changes?

Three to five years is a long time, and the Code expects that life will change. Before the plan is finished, you, the trustee, or an unsecured creditor with an allowed claim can ask the court to modify it, for example to lower the payment after a job loss or to raise it after a significant increase in income (§ 1329(a)).

Ignoring missed payments is what puts a case at risk. A material default under a confirmed plan is grounds for the court to dismiss the case or convert it to Chapter 7 (§ 1307(c)(6)). If a case is dismissed, the automatic stay ends and creditors can resume collection, so it is far better to raise a problem with your attorney early, while a modification is still possible.

If you cannot finish because of circumstances you are not responsible for, such as a serious illness, the court may grant a hardship discharge before the plan is complete, but only if unsecured creditors have already received at least their Chapter 7 liquidation value and modifying the plan is not practicable (§ 1328(b)). A hardship discharge is narrower than a full one: it does not cover long-term debts like a mortgage being cured under § 1322(b)(5) or the kinds of debts listed in § 523(a) (§ 1328(c)). When all plan payments are completed, § 1328(a) directs the court to grant the discharge as soon as practicable.

Chapter 13 Plans in Miami-Dade County

Miami-Dade Chapter 13 cases are filed in the U.S. Bankruptcy Court for the Southern District of Florida, and plans are paid to the standing Chapter 13 trustee for the district. The Southern District requires every Chapter 13 plan to be written on its local form plan, so the numbers have to be organized the way that form expects, including how mortgage arrears, car loans, and unsecured creditors are listed.

For many Miami-Dade families, the plan question comes up because a foreclosure sale date or a repossession notice is close, or because household income is too high for Chapter 7. If you are looking for a Chapter 13 bankruptcy attorney near me, bring your pay records for the last six months, your mortgage and car loan statements, any tax notices, and any support order. Arturo R. Alfonso P.A. reviews those numbers in English or Spanish and tells you what a realistic plan payment would be before anything is filed.

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