The goal in Chapter 13 is to use future income to pay all or a portion of one’s debts through a court approved and administered Chapter 13 repayment plan. The judge assigned to the case must confirm the plan. During the confirmation process the creditors are permitted to have some input. However, once the plan is confirmed, the creditors are obligated by its terms. See 11 U.S.C. § 1327(a).
Chapter 13 plans typically last either three or five years, with five years being the statutory maximum. See 11 U.S.C. § 1322(d)(1)(C) and (d)(2)(C). Each month during the pendency of the plan the debtor sends a plan payment to the Chapter 13 Trustee assigned to the case. The Trustee in turn sends payments to the creditors according to the terms of the confirmed plan. At the end of the plan any remaining scheduled unsecured dischargeable debt is discharged.
One attractive feature of Chapter 13 for the debtor wanting to keep collateral securing a debt is the chance to catch up on the payments. For example, the debtor can use the plan to pay off a mortgage arrearage over the life of the plan, rather than having to immediately become current as in a Chapter 7 bankruptcy.
Another benefit is that the debtor does not have to surrender any nonexempt assets: the debtor gets to keep everything. Why? The short answer is because in the plan the debtor makes monthly payments to pay creditors. However, as we shall see, the value of the debtor’s nonexempt assets provides a starting point for the size of the monthly plan payments.
How much are the monthly payments? In order to answer that question we need a little background. In particular, we must observe that a Chapter 13 plan must satisfy three basic criteria. These three criteria contain the essence of 11 U.S.C. § 1322.