Chapter 13 payment plan and confirmation hearing

When you file for Chapter 13 bankruptcy, you get 2 hearings scheduled, unlike Chapter 7. The first is the 341 Hearing, or the Creditor’s Meeting, where the creditors inquire about your financial state under the vigilance of the court appointed trustee. The additional hearing is called the Confirmation Hearing, which is scheduled only in Chapter 13 bankruptcy. It primarily deals with filing of the repayment plan and is scheduled approximately 2 weeks after the 341 Hearing is held.

Within 14 days after the bankruptcy petition is filed, you must file a repayment plan, until and unless the court allows you an extension of the case. The plan should lay out a scheme for payments of fixed amounts to the trustee regularly. If possible the trustee may have the plan payment automatically deducted from your paycheck. Then the trustee will disburse the funds among your creditors in accordance with the terms of the payment plan and claims of the creditors.

Following are the types of claims that creditors hold:

1. Priority claims: These claims are granted special status by the bankruptcy law. Most taxes, child support or alimony and the costs of bankruptcy proceedings are common priority claims
2. Secured claims: These claims are made by the creditors who have the right take possess the collateralized property if the debtor fails to repay the underlying debt.
3. Unsecured claims: These claims are made by the creditors have no special rights to collect against any property owned by the debtor.

The plan must make arrangements to pay priority claims in full, provided a particular priority creditor does not disagree to it or, does not demand different treatment of the claim.

If you do not want to lose your collateralized property securing a particular claim, your plan must provide that the holder of the secured claim receive at least the value of the collateral. If you had used the sum underlying the secured claim to buy the collateral (for example, a car loan), and the debt was acquired within the specified period of time before the bankruptcy filing, then the plan must provide for full payment of the debt and not just the value of the collateral.

You may pay off certain secured creditors (such as the home mortgage lender) over the original loan repayment schedule, which can be longer than the plan. In fact, it is always advisable that you consult a bankruptcy attorney to fix the proper treatment of secured claims in your Chapter 13 payment plan.

Your plan need not make arrangements to pay off the unsecured claims in full, provided

•you are able to pay all projected "disposable income" over an "applicable commitment period,"

•your unsecured creditors get at least as much under the plan as they would have received had your assets been liquidated.

The “applicable commitment period” is based on your current income. It is 3 years if your current monthly income is below the state median, and 5 years if your income is more.

Once your plan is formulated, the plan needs to be submitted to the court for approval.

At the Confirmation Hearing your attorney will represent your interests in order to confirm the plan before the judge. If the judge decides that the plan is feasible enough and meets all the requirements of confirmation, then all you creditor will be sent a notice of the hearing. On receiving the notice, your creditors may object to the confirmation if they want. Otherwise, if all parties of interest agree on the terms and conditions of the plan, then your plan will be confirmed and executed. But you must start making your plan payments to the trustee, even before the plan gets approved by the court.

In most cases, Chapter 13 plans go through long processes of negotiations and modifications. Often there are two Confirmation Hearings before the plan gets confirmed. Occasionally, there may be three or even four Confirmation Hearings, though it is not so frequent.

But the best part is that debtors have no role to play at a Confirmation Hearing. So, it is not mandatory for you to attend Confirmation Hearings. If the court declines your plan, then you may either file a modified plan or get your case converted to a Chapter 7 liquidation case.