When you file a Chapter 13 case, you are required to create and file a plan of repayment. The Chapter 13 plan outlines how your creditors will be paid over the term of the plan (3 to 5 years). Once the bankruptcy court enters an order approving your repayment plan, you will start making monthly payments to the Chapter 13 trustee who will distribute the payments to your creditors according to the terms of the plan.
In determining how much your creditors will be paid, several factors are considered. All of the parties you owe money to are given notice of your bankruptcy case and given a deadline to file their Proof of Claim. The Claim sets forth how much the creditor believes you owe them. The Chapter 13 trustee reviews all of the claims and calculate the total amount the debtor must pay under the plan (which is called the “base” of your plan) in order to pay all of the claims according to the terms of the plan. A debtor is required to pay legal fees, trustee fees, priority claims, security claims and a percentage of what is owed to unsecured creditors. It is possible that your unsecured creditors will be paid 0%.
So, How Do You Know if Your Plan Is Feasible?
The amount you are paying into your plan must be sufficient to pay all of the claims as set forth in the plan. For example, if the debtor pays $100 per month over a period of 48 months, the plan base is $4800. If the amount required to pay the creditors’ claims is $5000, the plan is infeasible.
What Happens if the Plan Is Not Feasible?
The plan can be amended to resolve the infeasibility. The most common ways to amend a plan are to increase the amount of the debtor’s monthly payments and/or to extend the length of the plan (if it is under five years). It is also possible to make a lump sum payment, file a motion to reduce the percentage being paid to the unsecured creditors, or gradually increase the amount of the monthly payments after a specified amount of time has passed.
The attorneys at Fitzgerald Campbell represent debtors all over the State of California in bankruptcy, debt settlement, collections harassment and credit card lawsuits. If you have a matter relating to a debt you owe, contact us today by calling (844) 431-3851 for a consultation.