In Chapter 13, the debtor proposes the terms of the plan. Creditors do not participate in development of the plan or vote on the plan. In fact, creditors may only object to confirmation or secured creditors may accept the plan. If the terms of the plan meet all legal requirements, the bankruptcy court will approve (confirm) the plan.
The bankruptcy code specifies the plan requirements for the plan to be confirmed:
- The plan must be feasible, i.e., the debtor must be able to make the payments proposed in the plan. Second, the plan must provide for the full payment of all priority claims, except that the plan may provide for less than full payment of domestic support obligations assigned to a governmental unit if the debtor devotes all of the disposal income to plan payments for a period of 5 years.
- The plan must provide the same treatment for each claim within a particular class if the debtor elects to classify claims. See Classification of Creditors.
- The plan must provide for unsecured creditors to receive at least as much as they would have received in a Chapter 7 and the debtor must devote all of his projected disposable income to payments.
- The plan may not modify a home mortgage or materially alter the terms of the retirement fund loans.
- The plan must not exceed the maximum allowed re-payment term. Debtors with a family income less than the state median must commit all of their disposable income to plan payments for 3 years after the first payment under the plan is due, unless the court approves a longer period “for cause.” The maximum plan term for debtors with above the state median income is 5 years. A plan may not exceed 5 year, but debtors can repay all unsecured claims in full in a shorter time period.
- Finally, the plan must be proposed in good faith. See Chapter 13 Good Faith Requirement.