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The Chapter 13 Bankruptcy Plan

The key factor in your Chapter 13 Bankruptcy is the approval of a Chapter 13 Plan.   The Chapter 13 Bankruptcy Plan will specify the amount of the payment, the number of payments and how those payments are to be applied.   Below are some issues that factor into that Plan.  

The Chapter 13 Bankruptcy Trustee does an analysis of the Chapter 13 Bankruptcy Debtor’s financial situation and either recommends that the proposed Chapter 13 Plan be confirmed by the Court or files an objection to the same.  The Court may accept or reject the Trustee’s recommendation.

Under federal law, a Chapter 13 Bankruptcy filer’s creditors must receive no less than they would have received had the individual filed a Chapter 7 Bankruptcy.  In other words, creditors in a Chapter 13 Bankruptcy must receive at least as much as they would have received had there been a liquidation of the filer’s assets in a Chapter 7 Bankruptcy.

Under federal law, if a Chapter 13 Bankruptcy filer’s income is above the median income for their state, that individual is required to commit at least five years of disposable income to the repayment of creditors.  Chapter 13 Bankruptcy filers who have income below the median income for their state are only required to devote three years of disposable income to the repayment of creditors.  Your disposable income is your gross income minus necessary living expenses such as food, medical needs, housing, etc. 

Determination of the applicable commitment period is calculated by completing the Means Test.  The Means Test is the starting point in determining the Chapter 13 Bankruptcy filer’s projected disposable income. The Means Test is a historical calculation of the Chapter 13 Bankruptcy filer’s average monthly income based on the Chapter 13 Bankruptcy filer’s income for the six months prior to the Chapter 13 Bankruptcy filing date. If the Chapter 13 Bankruptcy filer’s annualized average income is higher than the state median income, the applicable commitment period is 60 months. If the Chapter 13 Bankruptcy filer’s annualized average income is lower than the state median income, the applicable commitment period is 36 months.

After the Chapter 13 Bankruptcy Plan has been confirmed by the United States Bankruptcy Court, the Chapter 13 Bankruptcy filer is required to make Chapter 13 Bankruptcy Plan payments monthly to the Chapter 13 Bankruptcy Trustee’s Office.  If the Chapter 13 Bankruptcy filer is employed, the Chapter 13 Bankruptcy filer must make their Chapter 13 Bankruptcy Plan payments by way of payroll deduction. If at any time during the Chapter 13 Bankruptcy, the Chapter 13 Bankruptcy filer believes that they cannot make their Chapter 13 Bankruptcy Plan payment or if unexpected expenses arise the Chapter 13 Bankruptcy filer can seek a suspension of their Chapter 13 payments. A suspension of Chapter 13 Bankruptcy Plan payments does not relieve the Chapter 13 Bankruptcy filer of the payment but simple extends the conclusion of the Plan. If the Chapter 13 Bankruptcy filer simply stops making payments and does not ask for a suspension of a Chapter 13 Plan, the Trustee may move for dismissal of the Plan.