Chapter 13 Payment Plan
The Plan Confirmation Hearing
Depending on the court’s caseload and practice, your confirmation hearing may take place almost immediately after the first meeting of creditors or as long as 45 days later. In either case, this is the one formal court hearing that occurs in every Chapter 13 case, though some judges will not require you to attend if you have an attorney to speak for you. If you do attend, you may be required to answer under oath questions about your plan posed to you by the bankruptcy court judge, who will then apply established guidelines and decide whether your repayment plan is feasible and otherwise acceptable (in which case, it is said to be “confirmed”).
“Cramdowns”
This may occur at your confirmation hearing. As we mentioned in the first installment of this article, in a Chapter 13 case you must keep making your present payment to creditors who have collateral for their loans. However, if you can show that collateral other than your residence (such as a car) has declined in value, you can ask the judge to reduce (or “cram down”) the amount of the secured portion to that diminished value. Thus, for example, if the car that secures a $15,000 loan balance is worth only $12,000, the creditor will still have a $15,000 claim. However, the court can split the balance into a $12,000 secured claim and a $3,000 unsecured claim. Like other unsecured creditors, the lender will wind up being repaid substantially less than the full amount ($3,000) of the unsecured portion.
Your Obligations
Once your plan has been confirmed, your main responsibility will be to make fixed payments (usually bi-weekly) to the trustee. Many debtors choose to do this via payroll deduction in order to avoid missing a payment or making it late. The trustee will take the amount you pay and distribute it to your unsecured creditors, and you will receive periodic statements showing how much has been paid to each creditor.
For many people, the financial discipline imposed by a Chapter 13 plan represents the first time in their adult lives they’ve been forced to live within their means. The transition from avid borrower can be challenging, and the statistics indicate that something less than half of all Chapter 13 cases succeed.