When filing a chapter 13 petition, a plan payment is calculated based on the figures included in the petition, and a plan is proposed by the debtor. In some cases, this payment will be confirmed by the court and may continue for the life of the plan. In other situations, changing the payment may be necessary to obtain plan confirmation. If the debtor changes his or her mind about what plan to pursue, e.g. the debtor decides to pay for a car instead of giving it up, the payment usually changes, and this is no surprise. However, other things can impact the payment, including:
In chapter 13, the plan payment is the amount the debtor pays to the trustee periodically to fund the chapter 13 plan. Typically, the payment is expressed in monthly terms, although some debtors pay on other frequencies, particularly those electing to have the payment withheld from their paychecks. The debtor proposes the initial plan payment, in an amount adequate to pay the debts proposed to be paid under the chapter 13 plan.
Frequently Asked Questions
Our frequently asked questions also address Plan Payment:
If you miss payments on your chapter 13 plan, you risk being dismissed from your bankruptcy case, or in more unusual circumstances converted to chapter 7. If your case is dismissed, your creditors will be able to resume efforts to collect from you, and you will not receive a bankruptcy fresh start. If a case is converted, a chapter 7 trustee will be appointed to sell your non-exempt property and pay your creditors.
Almost every chapter 13 plan involves a monthly payment to the standing trustee, which is in turn distributed to creditors. The two primary ways the monthly payment can be made is either by directly paying the trustee (e.g. mailing a check) or by having an employer withhold the payment from each paycheck.
We have discussed Plan Payment in the following posts on our bankruptcy blog:
A significant power of chapter 13 bankruptcy is the ability to propose a plan that cures a default associated with a long-term debt, i.e. to catch up a delinquent mortgage so that it is once again current. Due to this, chapter 13 is an option frequently considered by families who have fallen behind on their home mortgage payments. Understanding the basics of how a cure payment is calculated is important for appreciating the value and constraints of chapter 13.
Many chapter 13 bankruptcy plans take over payments on debts that the debtor beforehand was paying directly. Mortgage payments and car payments are the most common examples. Therefore, there is a transition between the last direct payment to the lender and the filing of the case and commencement of payments to the chapter 13 trustee. Careful timing of this transition can make coming up with the cash for the first month's chapter 13 payment more manageable.
Bankruptcy is unfortunately jargon-filled. Worse, some words have different meanings depending on the bankruptcy context. On this blog, I've previously discussed the two meanings of feasibility in bankruptcy. Another word that leads to confusion is modify and modification.
There are three common contexts where the term modify is observed:
Coming into chapter 13 bankruptcy, a common experience of individuals is payment due dates and the sometimes harsh consequences that follow from missed due dates. When money has been tight, the experience of a late payment fee and a default interest rate is frustrating and stressful. Naturally, with that experience, there can be some anxiety when I discuss that the plan payment is due the first of each month (in the Eastern District of North Carolina -- Raleigh's Bankruptcy Court). The shadow of past interactions with credit accounts covers expectations regarding the process of paying the trustee. So, going into chapter 13 bankruptcy, there is an opportunity to gain insight in advance of how chapter 13 plan payments are administered.