What is the Chapter 13 Plan?
A Chapter 13 bankruptcy case requires the filing of various documents with the Bankruptcy Court, including but not limited to a Chapter 13 Petition, Schedules A-J, Statement of Financial Affairs, a Statement of Social Security Number, and Form 122. Among these required documents that must be filed with the Court include the Chapter 13 Plan, quite likely the most important document that will be filed in your particular case. The reason the Chapter 13 Plan holds such an important and integral part of a Chapter 13 case is because it lays out the court-administered payment plan that you will be making payments on for upwards of 5 years. This Plan shows to the Court, the Chapter 13 Trustee, all creditors that are owed money, and any other interested party exactly who is to be paid, how they are to be paid, how much they are to be paid, and for how long they are to be paid. Without a Chapter 13 Plan, there is no Chapter 13.
The Chapter 13 Plan is broken out into different classes of creditors. Each class must abide by the Federal Bankruptcy Rules and any Local Rules of your particular Bankruptcy Court. The Local Rules vary from Court to Court. However, this page will focus on the Eastern District of California, Sacramento Division. Once the Chapter 13 Plan is filed with the Court and served on all interested parties, the Court allows a certain amount of time for objections to be filed. If no objection is filed, the Judge assigned to your case will do a final analysis of the plan to ensure that all of the rules are being followed. The approving of this plan is one of the major goals in your Chapter 13 case.
Below we will analyze the Chapter 13 Plan to show you how several of the sections and classes work and what is generally required in that particular section/class. Keep in mind that we will not discuss every specific portion of the plan---this page will focus on portions of the plan that we feel are most important to discuss.
Section 1 – Notices
This section lays out various notices that you must know when you are filing for Chapter 13 relief. The first notice that is laid out is the fact that our district (Eastern District of California, Sacramento Division) requires the use of this local form Chapter 13 Plan. This means that you are not allowed to file a different version of a plan that is possibly acceptable in another district.
Moreover, if you need to add any additional provisions to the plan that aren’t laid out in the form plan, you need to notate that in Section 1. If you do not provide notice in Section 1, no additional provisions that you lay out will take any effect. Another important noticing requirement in this Section 1 states that you are not allowed to alter any of the preprinted language on the form plan. If you do so, it will be given no effect.
Section 2 – Plan Payments and Plan Duration
Section 2 of the plan is very short but also extremely important to you. This section lays out how long your plan will be. The maximum the plan length can be is 60 months. In most circumstances, the shortest the Court will allow your plan to be is 36 months. One circumstance that the Court would generally allow for a less than 36-month plan is if you are proposing to pay 100% of the debt in less than the 36 months (Example: You owe $20,000 to the Internal Revenue Service and $15,000 to various credit card bills. You propose to pay that full $35,000 in 24 months).
Section 3 – Claims and Expenses
Administrative Expenses – This portion of Section 3 lays out how much your attorney was paid prior to the filing of the Chapter 13 case, how much your attorney is still owed, and how much your attorney will be paid on a monthly basis
Class 1 – This class of creditors are secured creditors that will mature after the completion of your Chapter 13 Plan and require defaults to be cured. This is best shown by the following example:
You own a home and owe $350,000.00 on the mortgage. The monthly payment on that mortgage is $2,000.00. You are 10 payments in default on the payments. The loan is set to mature in 20 years. Given those facts, you would include that mortgage in Class 1 of the Chapter 13 Plan. The mortgage company would get two monthly payments from your Chapter 13 Plan for the duration of your case, $2,000.00 and $333.33 (assuming your Chapter 13 Plan is 60 months in length). Those numbers represent your monthly mortgage payment ($2,000.00) and 1/60 of the default amount ($2,000.00 x 10 months / 60 months = $333.33). Thus, as long as you successfully complete the full 60 months, you will then be completely current on your mortgage.
Even though Class 1 generally is reserved for a person’s delinquent mortgage payments, it is also possible that a car loan be paid in this Class. The reason it’s less common for a car loan, however, is because they generally mature before the completion of the Chapter 13 Plan (i.e. Chapter 13 term 60 months; car loan matures in 40 months).
Class 2 – Class 2 is broken out into three different categories. This class contains the secured claims that are modified by the plan, have matured, or that will mature before the plan is completed.
Class 2(a) is designated for secured claims that will not be modified by the plan and will be in full through the terms of the plan. This is generally where you will see car loans.
Class 2(b) is designated for secured claims that will be reduced based on the value of the collateral. One of the benefits of Chapter 13 cases is the ability to reduce certain claims down to the fair market retail value of the asset. An example here would again be a car loan. If certain factors are met (i.e. the car loan is a purchase money security loan and it was taken out more than 910 days prior to the filing of the bankruptcy case), the debtor would only be required to pay the fair market retail value of the loan rather than the full loan amount.
Class 2(c) is reserved for secured claims that are reduced to $0.00 based on the value of the collateral. The most common example for this category would be an underwater 2nd deed of trust. If the debtor is able to prove to the Court that the value of their home is less than the amount owed on a 1st deed of trust, they would be able to include that 2nd deed of trust into Class 2(c) of the chapter 13 plan and if successful, that 2nd deed of trust would be reduced to a secured amount of $0.00.
Class 3 – This class is reserved for secured claims that are satisfied by the surrender of collateral.
Class 4 – Class 4 claims are claims that mature after the completion of the Chapter 13 Plan, are not in default, and are not modified by the plan. As is Class 1, the common claims that are found here are mortgage loans. The difference between Class 1 claims and Class 4 claims is the fact that to be included in Class 4, the debtor must not be in default on the loan when the Chapter 13 is filed. If that is true, then the Debtor is able to continue to pay the claim directly to the lender rather than paying the claim through the Chapter 13 plan payments.
Class 5 – Claims paid in Class 5 of the plan are unsecured claims that are treated differently than other unsecured claims. These claims consist of unsecured claims entitled to priority pursuant to 11 U.S.C. § 507, such as certain taxes, approved administrative expenses, and domestic support obligations.
Class 6 – This is another category for unsecured claims that are treated differently than general unsecured claims. Here in the Eastern District of California, Sacramento Division, two examples of a claim for this class would be co-signed debt or student loans. These certain claims the debtor is allowed to treat differently by describing out their treatment in the additional provisions of the plan, Section 7.
Class 7 – This is the class where your general unsecured claims (i.e. credit cards, medical bills, personal loans, etc.) are listed. In this class, you will need to detail out the total amount of general unsecured claims and the minimum percentage that those claims will be paid. For example, if these claims are set to be at 50 cents on the dollar, it would be listed at 50% of the total amount.
Section 4 – Executory Contracts and Unexpired Leases
Any lease not listed in this section is deemed rejected. For example, if you have a car lease and wish to continue to pay it, you would need to list it in this section. Moreover, this section allows for the debtor to cure any delinquent payments on said lease.
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