Chapter 13 Plans
Understanding Chapter 13 Bankruptcy Plans
Chapter 13 bankruptcy allows you to create a structured repayment plan to pay back your debts over three to five years while keeping your assets. This guide explains the key concepts in an easy-to-follow way, with examples and illustrations.
1. How Your Chapter 13 Payment is Calculated
Your monthly payment is based on:
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Disposable income: Your income minus necessary living expenses.
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Value of non-exempt property: You must pay at least what your creditors would receive if you filed Chapter 7.
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Priority debts: Taxes, child support, or alimony must be paid in full.
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Secured debt catch-up: Mortgage arrears, car loans, and liens are included.
📊 Example Table: Monthly Payment Breakdown
| Category | Monthly Amount |
|---|---|
| Trustee fee (approx. 7%) | $70 |
| Attorney fees (built-in) | $50 |
| Mortgage arrears (60 months) | $400 |
| Car loan (with interest) | $200 |
| Taxes (IRS priority claim) | $80 |
| Unsecured creditors | $100 |
| Total Plan Payment | $900 |
2. What is a 100% Plan?
A 100% plan means unsecured creditors (like credit cards, medical bills, and personal loans) are paid in full. This usually happens when:
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You have enough disposable income to cover all debts.
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You have non-exempt assets worth more than your unsecured debt.
💡 Example:
If your unsecured debt totals $10,000 and you have $15,000 in non-exempt equity in property, your plan must pay at least $10,000 to unsecured creditors — creating a 100% plan.
3. How Payments Are Distributed
When you send your monthly payment to the Chapter 13 trustee, they divide it in a specific order:
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Trustee fees (administrative costs)
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Attorney fees (if included in plan)
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Secured claims (mortgage arrears, car loans)
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Priority claims (taxes, support)
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Unsecured claims (credit cards, medical bills)
📊 Example Payment Distribution Pie Chart:
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Trustee/Admin: 8%
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Mortgage Arrears: 44%
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Car Loan: 22%
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Taxes: 9%
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Unsecured Debt: 17%
4. Understanding “Claims”
Each creditor must file a proof of claim to get paid. Your attorney reviews these claims to ensure they are accurate. If a claim is incorrect (wrong amount, duplicate, or improper fees), you can object.
5. Conduit Plans Explained
A conduit plan means your ongoing mortgage payment is included in your Chapter 13 payment to the trustee.
✅ Benefits:
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Provides proof of payment to the court.
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Prevents disputes with the mortgage company.
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Ensures arrears and ongoing payments are combined in one single payment.
6. Example: Three-Year vs. Five-Year Plan
| Item | 36-Month Plan | 60-Month Plan |
|---|---|---|
| Total to be Paid | $32,400 | $32,400 |
| Monthly Payment | $900 | $540 |
| Duration | 3 Years | 5 Years |
| Discharge of Remaining Debt | Sooner | Later, but smaller monthly payment |
This allows clients to decide whether they prefer a shorter, higher-payment plan or a longer, lower-payment plan.
7. Why This Matters
Understanding your Chapter 13 plan helps you:
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Stay on top of payments.
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Avoid trustee motions to dismiss.
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Catch errors in creditor claims early.
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Finish your plan successfully and get your discharge.
Avoiding Problems in Your Chapter 13 Plan
Filing for Chapter 13 bankruptcy gives you the chance to reorganize debt and keep your property — but it only works if you stay on track. Many Chapter 13 cases fail because of missed payments, incomplete documentation, or misunderstanding of plan requirements. Below, we explain what can go wrong and how to fix it before your case is dismissed.
1. Missed Plan Payments
Your Chapter 13 plan only works if you make payments on time, every month.
Common Reasons for Missed Payments:
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Unexpected job loss or reduced income
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Medical emergencies or major expenses
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Forgetting the due date or misunderstanding when payments start
Solutions:
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Communicate immediately with your attorney if you cannot make a payment — waiting can lead to dismissal.
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You may be able to modify your plan to reduce the payment or extend the term.
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If your plan is a conduit plan, remember that missing a trustee payment may also mean missing your mortgage payment — which can put your home at risk.
2. New Debt During the Plan
You must get court approval before taking on significant new debt (such as a car loan).
Why This Matters:
Unapproved debt can cause your plan to fail and even allow creditors to resume collection.
Solution:
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Talk to your lawyer before signing any new loan or lease.
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If needed, your plan can be modified to accommodate necessary new debt.
3. Claims Filed Higher Than Expected
Sometimes creditors file claims for more than you thought you owed.
Why This Matters:
If the claim is valid, your plan may need to increase to cover the additional amount — potentially raising your payment.
Solution:
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Your attorney reviews each claim and can object to incorrect amounts.
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Keep copies of loan statements, payoff letters, and payment history to support disputes.
4. Failing to Pay Ongoing Obligations
Your plan may include certain debts (like mortgage arrears), but you must keep paying other obligations on time — such as:
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Post-petition mortgage payments (unless they are part of a conduit plan)
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Child support or alimony
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Taxes due after filing
Solution:
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Set reminders and budget carefully to keep these current.
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Your attorney can ask the court for a temporary payment moratorium if you hit a short-term crisis.
5. Not Updating the Court
Major life changes (job change, marriage, divorce, inheritance) can impact your plan.
Solution:
Notify your attorney right away so your plan can be adjusted. Failure to report changes can result in plan failure or allegations of bad faith.
6. Falling Behind on Tax Returns
You must stay current on all tax filings during your plan.
Solution:
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File returns on time every year.
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If you owe additional taxes, notify your attorney so they can be handled through the plan.
7. Understanding “Plan Completion”
You will not get your discharge until:
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All plan payments are complete
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All required documentation (tax returns, domestic support certifications) is filed
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Your trustee confirms that all allowed claims are paid according to the plan
If you miss payments near the end, your case could still be dismissed — even after years of effort.
Client Tip: Stay Proactive
✔ Track your plan progress. Your trustee usually provides online access to see how your payments are applied.
✔ Communicate with your attorney. Do not wait until a motion to dismiss is filed — many problems can be fixed if caught early.
✔ Budget for success. Your Chapter 13 plan is a financial commitment. Treat your monthly plan payment as a top priority, just like rent or mortgage.
Common Plan Problems and Solutions
| Problem | What Happens | How to Fix It |
|---|---|---|
| Missed payment | Trustee files Motion to Dismiss | Contact attorney immediately — you may modify your plan or catch up |
| Income drop | Payment becomes unaffordable | Request a plan modification |
| Unexpected debt (new car, medical) | Can disrupt budget | Court approval may be needed to incur new debt |
| Large claims filed | Payment might go up | Attorney can object to claims if incorrect |
Real-Life Examples
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Case 1: Job Loss During Year 2
Lisa lost her job but found a new one three months later. Her attorney requested a temporary suspension of payments and extended her plan to 60 months. Case saved. -
Case 2: Mortgage Catch-Up Success
Michael’s mortgage was 8 months behind. His conduit plan allowed him to spread the arrears over 60 months while making ongoing payments. He successfully kept his house. -
Case 3: Challenge to Inflated Claim
A credit card company filed a claim for $12,000, but the debtor’s records showed the balance was $8,500. The attorney objected, and the claim was reduced — lowering the overall plan payment.
