Unlike Chapter 7, which is designed to wipe out debts, Chapter 13 functions as a payment plan. Most Chapter 13 cases will last five years, and during this time, you will pay a set amount of money to the Chapter 13 trustee assigned to your case.
In rare instances, the law allows for a three year Chapter 13 plan but five years is the norm
As your attorneys, we have to meet a variety of statutory requirements to produce a Chapter 13 plan that will satisfy your judge. Here are some of the factors that apply:
The Means Test – the Bankruptcy Code now applies a means test to consumer bankruptcy cases to identify filers who, in theory, have the “means” or capacity to fund a Chapter 13 plan. Means test calculations can get very detailed but a “big picture” way to look at the means test is to see it as a calculation that looks at your household income from the last 6 months and compares that income to an acceptable budget developed by the United States trustee’s office. Whatever is left over is considered “disposable income” available to pay into your Chapter 13
- you can probably see two major problems with the means test immediately – first, your income over the past six months may be very different than your household income going forward, and second, the acceptable household expense allowances permitted by the United States trustee may not include legitimate expenses that your family incurs
- as your attorneys, our job is to advocate on your behalf to convince the trustee to allow legitimate expenses and to permit adjustments in income expectations going forward
Your Actual Budget – even if the means test is not an issue, we still have to present a “real life” budget in your case and convince the trustee that all of your claimed expenses are legitimate.
- as your attorneys, we are very aware that 5 years is a long time to stay in bankruptcy. Chapter 13 trustees will demand every available penny but we will fight to build in allocations for home repairs, vehicle repairs, family emergencies, child/teenager expenses, etc.
Statutory Requirements – the Bankruptcy Code contains a number of requirements for a confirmable Chapter 13 plan, including:
- your plan must pay unsecured creditors at least as much as they would receive in a Chapter 7 liquidation
- your plan must pay claims by creditors within five years, which is the maximum term of a Chapter 13 plan
- your plan must set specific payments to creditors and withstand objections from those creditors that they are not getting paid enough each month
The actual plan document we use in the Northern District of Georgia is a six page form document that has been developed by the Chapter 13 trustees in the Northern District and the Bankruptcy Judges in the Northern District. The petition preparation software that we use at Ginsberg Law Offices has developed a custom plan module for lawyers who file in this district so we do have the benefit of computer software to perform much of the number crunching.
As you can see, Chapter 13 plan preparation requires both knowledge of the law, an understanding of local customs and areas where the trustees are negotiable, and skill at using a sophisticated computer program to put it all together.