Chapter 13 bankruptcy allows individuals with regular income to reorganize their debts instead of liquidating assets. At the heart of this process is a court-approved repayment plan that typically lasts three to five years. Creating a realistic and well-structured plan is essential for gaining approval and achieving long-term financial stability.
Understanding the Purpose of a Chapter 13 Plan
A Chapter 13 repayment plan outlines how you will repay creditors over time based on your income, expenses, and types of debt. Priority debts—such as taxes, child support, and certain court judgments—must usually be paid in full. Secured debts, like mortgages or car loans, may be brought current, while unsecured debts such as credit cards often receive partial repayment depending on available disposable income.
Calculating Your Disposable Income
Your repayment amount depends on how much income remains after covering reasonable living expenses. This calculation includes housing, utilities, transportation, food, insurance, and medical costs. Courts expect these expenses to be necessary and realistic, not excessive. Any remaining funds typically go toward creditors through monthly payments to a bankruptcy trustee.
Listing All Debts and Assets
Accuracy is critical when preparing your plan. You must disclose every debt, creditor, and asset, along with interest rates and payment histories. Missing information can delay approval or lead to objections from creditors. Secured property, such as a home or vehicle, must be valued correctly so the court can determine how it fits into the repayment structure.
Structuring Affordable Monthly Payments
The goal of a Chapter 13 plan is sustainability. Payments should be high enough to satisfy legal requirements but low enough for you to maintain throughout the repayment period. A plan that stretches your budget too thin increases the risk of default, which can result in dismissal of the case. Many filers adjust discretionary spending to make their payments manageable.
Court Approval and Ongoing Adjustments
Once submitted, your plan must be confirmed by the bankruptcy court. Creditors can object if they believe the proposal is unfair or incomplete. If circumstances change—such as job loss or medical issues—you may request a plan modification, subject to court approval.
Creating a successful Chapter 13 repayment plan requires careful budgeting, full financial disclosure, and long-term commitment. With a realistic approach and proper preparation, the plan can provide a structured path toward debt relief and financial recovery.
This article was written by Alla Tenina. Alla is a top San Fernando Valley bankruptcy lawyer, and the founder of Tenina Law. She has experience in bankruptcies, real estate planning, and complex tax matters. The information provided on this website does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available on this site are for general informational purposes only. Information on this website may not constitute the most up-to-date legal or other information. This website contains links to other third-party websites. Such links are only for the convenience of the reader, user or browser; the ABA and its members do not recommend or endorse the contents of the third-party sites.
