It is best to think about a Chapter 13 Plan as a contract. You promise to make mortgage and plan payments on time and the Court allows you to lower the interest and pay debts over a longer period of time. “ However, stuff happens. Disability often happens. You started the Chapter 13 expecting to repay 60 payments but 2 years into the plan you are off work for 3 months due to pregnancy. You go back to work but at a reduced pay with another mouth to feed. Or you forget to include the annual property taxes for your home. Chapter 13 Plan Modifications allow you to continue the plan although life changed normally by lowering payments or the plan percentage. However you can also change when payments are made and sell property to make it work. .
Chapter 13 plan modifications require you to still repay the secured and priority debts in full. What often happens is you just lower the amount you are repaying to unsecured creditors. Plans that repay 100% do not have to turnover tax refunds or file annual budgets in the Western District of Kentucky. Plans over 70% are barely reviewed and are presumed to be filed in good faith. You may change to a step plan where payments gradually rise or rise in steps if you have a temporary loss of income.
The Essential parts of a Chapter 13 plan
Unsecured debts” may be paid back at .01% or even 0% but “priority debts” and “secured debts” must be paid back in full or to the amount the security is worth plus interest. If a debt is more than the amount the security is worth, you may be able to split the amount paying the secured portion in full. The amount of the remaining unsecured debt is paid back without interest at the same rate as the other unsecured debt.
A 13 reduces unsecured debt and eliminates the interest on the unsecured debt so you can afford the plan. Secured and priority debts establish a minimum you have to repay. If you have property you want to keep in excess of your exemptions you may do so but it increases the amount you have to repay. Essentially a Chapter 13 has to repay as much as a Chapter 7 would have repaid.
Your Chapter 13 plan is supposed to describe in full how each priority and secured debt is repaid. Unsecured debts are lumped together and repaid in generally equal treatment to everyone. However long term debt which will survive the bankruptcy (student loans), business and cosigned debt may be treated differently.
Chapter 13 Debt modification
Younger attorneys sometimes fail to understand Chapter 13 plan modifications can also modify the debt.. We don’t have to just modify the plan payment or percentage. Sure creditors will object. But your obligation is to make this plan work. You have no obligation to making lenders happy. You can never make creditors happy. Give them everything you got and they will still respond with blame, shame, guilt and fear.
Plans should be prepared perfectly when you file. You should take time to prepare the plan so if a home repair needs to be done it is described in the plan and provided for with increasing plan payments later. If you fail to let your attorney know you are paying 10,000 for a 3,000 dollar auto you will miss the opportunity to modify the debt through the plan. If you are modifying the debt or valuing the collateral you can expect the bank to object. Of course lenders don’t like the idea. However, it is the law that the property is valued in the petition for what it is actually worth. These objections are resolved normally before the 341 and confirmation hearings and that is the reason why you hire a professional. Since every attorney is paid the same flat fee by the court you just as well get the most experienced and best.
Chapter 13 Plans can always be Modified
Spend the time to create the perfect Chapter 13 plan when you file. But remember Chapter 13 plan modifications can change the plan at any stage up to and including the last payment to meet your needs. You are not stuck with a plan. The plan requires you to use your best efforts to repay the debt and turn over all your disposable income. Plans may have payments increased should you suddenly have a large pay increase or it can be decreased. However it is rare for payments to increase and common for them to decrease.
Chapter 7 cases almost always obtain a discharge and successfully finish. Although Chapter 7 has the problem of paying the attorney fees up front, they are short and simple. Chapter 13 plans often have to be amended because within 5 years something will happen. Things change. If you have made most of your payments and you cant continue payment you may qualify for a hardship discharge. You may be able to convert your case to a Chapter 7 or you can often modify the plan to pay a lower percentage or dollar amount. This is an area where you can be very creative to insure the plan is a success.
Other changes may require you to buy a different auto, buy a home or sell a home. All of these things can be provided for in a plan because of the ability to amend the plan to fit your needs. However you have to remember that the plan will always have a floor and a ceiling which requires you to repay a minimum amount if you have secured, or priority debts and property in excess of the exemptions.