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What is a Chapter 13 plan?

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When a debtor files for Chapter 13 bankruptcy relief certain documents are filed with the court, one of which is the Chapter 13 plan. The other documents filed are the bankruptcy petition, schedules and statement of financial affairs. All of the documents are interconnected as the information contained on the plan must match the information set forth on the schedules. For instance, if the Plan provides for a payment of $500 per month the income and expense schedules must show disposable income of $500, evidence that the Debtor can afford their proposed plan payment. The plan is the roadmap for the rest of the case. The plan is served on all creditors. The exact content of each plan varies across the United States. In the Northern District of California, the form Chapter 13 plan sets forth detailed information on a variety of matters including the the amount the debtor will pay to the Chapter 13 trustee on a monthly basis, the duration of the plan, and the amounts to be paid to each class of creditors. The plan also provides information to the trustee, the court and creditors about whether the debtor intends to surrender certain property like cars secured by a bad loan or real property that is not worth keeping because its value exceeds the outstanding mortgages. Other sections set forth the amount to be paid to priority creditors like the Internal Revenue Service and the Franchise Tax Board. The plan also provides explicit treatment terms for a variety of secured claims. For instance, it might state that there are mortgage arrears and that the debtor proposes to pay back such arrears off at no interest over a sixty month period. The plan may also propose to strip a wholly unsecured second mortgage. A car loan can even be reduced to the value of the vehicle in certain situations. A plan can even provide for future events such as the sale of a property or business to provide the needed funds to make the case feasible. If necessary, a Chapter 13 plan can be amended multiples times before confirmation. The plan has to be confirmed in order for it to be effective. The confirmation process is a rigorous review by the Chapter 13 trustee with possible input by creditors and the court. Creditors can file objections to confirmation to protect their interests. If an objection is filed, the plan cannot be confirmed unless the objection is resolved or overruled by a bankruptcy judge. If plan can not ultimately be confirmed for whatever reason, the case will be dismissed. Call David A. Arietta at (925) 472-8000 to go over questions about Chapter 13.