Common Objections to Chapter 13 Plans

By Tom Streissguth

In a Chapter 13 bankruptcy, a debtor agrees to make monthly payments to a court-appointed trustee. The payments, which are based on the debtor's disposable income, go to creditors who have verified claims against the debtor. A Chapter 13 creditor has the right to object to the plan if the creditor believes the plan denies its legal rights or the rate of reimbursement is incorrect.

In a Chapter 13 bankruptcy, a debtor agrees to make monthly payments to a court-appointed trustee. The payments, which are based on the debtor's disposable income, go to creditors who have verified claims against the debtor. A Chapter 13 creditor has the right to object to the plan if the creditor believes the plan denies its legal rights or the rate of reimbursement is incorrect.

Inaccurate Debt Listed

A creditor can object to a Chapter 13 plan on grounds that the amount of the debt listed on the bankruptcy schedules is inaccurate. After the bankruptcy court notifies creditors that have been listed on the debtor's petition, these creditors must file a Proof of Claim form listing the outstanding amount of the debt. If the amount is in dispute, the court will schedule a hearing on the matter, at which time the creditor as well as debtor may present their evidence and arguments.

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Classifying Debts

A creditor may find that the debtor has incorrectly classified the debt. A secured loan; for example, a loan contracted for the purchase of furniture or a car, may be listed as an unsecured debt without collateral. In addition, a creditor may disagree with the amount the debtor has listed as an arrearage on the debt. This is a common problem in Chapter 13 bankruptcy cases, when the confirmation takes place several weeks after the filing of the initial petition and schedules.

Cramdowns and Late Objections

In some Chapter 13 cases, a secured debt may have an outstanding balance that's higher than the value of the collateral -- a circumstance common in auto and home loans. If a debtor proposes a "cramdown," in which the loan amount is modified to the collateral market value, a creditor has the right to object. If the bankruptcy law bans a cramdown, and the creditor fails to object before the confirmation meeting, the court will still modify the plan on the later request or objection of the creditor, in accordance with bankruptcy law.

Objections and Requests for Modification

Before the repayment plan goes into effect, the trustee will schedule a "confirmation" meeting of creditors, which the debtor must attend. Before this meeting takes place, any creditor may file an objection to confirmation of the Chapter 13 plan with the court, serving the same on the debtor and trustee. The objection, and any evidence presented by the creditor, will be taken into consideration by the trustee at the meeting. After the confirmation meeting, the plan goes into effect. At this point, a creditor may only request a modification of the plan, which will result in a court hearing at which all sides may present their case.

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How to Put a Car in a Chapter 13 Plan

References

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What Happens During Chapter 13 Confirmation Hearing?

Unlike the popular notion that bankruptcy erases a debtor’s debts, Chapter 13 bankruptcy, also known as the “wage earner’s plan,” allows debtors to forge a path to financial recovery by creating a repayment plan. Named after the chapter of the bankruptcy code that contains its rules, Chapter 13 lets debtors keep their property while repaying the debts owed, under the supervision of the bankruptcy court. This is in stark contrast to Chapter 7 bankruptcy, in which the debtor’s possessions are liquidated in order to pay his debt.

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If you file for bankruptcy protection from creditors, a federal court gains jurisdiction over your assets, debts and financial affairs. The court has the authority to eliminate dischargeable debts, liquidate your assets or set up a repayment schedule (as in a Chapter 13 bankruptcy filing). However, the court also has the authority to dismiss or terminate the case, either on your motion or on its own initiative.

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A chapter 13 bankruptcy can allow someone under extreme financial pressure the breathing room needed to reorganize his debts and get out of his financial hole. In many cases, a debtor can stay in his home and keep his car and personal property under a Chapter 13 bankruptcy. When a Chapter 13 case is dismissed before discharge, however, it can put the debtor at risk of losing everything.

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