Unlike Chapter 7 bankruptcy, which is usually over and done with in a matter of months, Chapter 13 bankruptcy is a long, involved process. It begins with filing a petition with the court, along with a written plan showing how you intend to pay off your debts over the next several years. This involves giving your trustee your disposable income each month -- what you have left over after paying your necessary living expenses and making payments to secured creditors. A few months after you submit your plan, the court schedules a confirmation hearing where the judge decides whether to approve or reject it. Your creditors or the trustee can file objections to your plan as late as the date of the hearing.
Failure to Make Plan Payments
It’s sure to raise an objection to your Chapter 13 plan if you don’t make the payments you’ve proposed. Although your confirmation hearing doesn’t take place for a few months, you must start making your plan payments to the trustee within 30 days. If that deadline comes and goes and you make no payment -- or worse, you miss the second payment, too -- you can count on someone objecting to confirmation of your plan. The trustee or your creditors can argue that if you don’t make these first payments, the likelihood that you’ll pay on time going forward is in doubt. Another objection might arise if your proposal doesn’t promise to give the trustee all your disposable income each month.
An Unrealistic Plan
Above all, your payment plan must be realistic. If your monthly income is $5,000 and your reasonable living expenses and payments to secured creditors take up $4,000 of that, a plan in which you suggest you'll give the trustee $1,500 a month is probably doomed to failure. If you include your yearly bonus from work in your disposable income but it’s performance-based and not a sure thing, you might get an objection to this part of your plan. If you’re married and pledging your spouse’s income but she doesn’t file for bankruptcy with you, this might cause problems because she’s not legally obligated to give you or the trustee this money if she doesn’t sign a joint bankruptcy petition with you.
Dissatisfied Unsecured Creditors
Unsecured creditors are typically pretty unhappy when someone who owes them money declares bankruptcy. Chapter 13 provides that secured creditors, such as your mortgage or auto lender, must receive payment in full if you intend to keep the property, but unsecured creditors don’t always get all the money you owe. One or more of them might object that they’re receiving too little. By law, they must receive at least as much as they would have if you had filed for Chapter 7 instead and the trustee had liquidated your nonexempt assets to pay them. Your proposed plan must give them at least this much, but they might still object if they think they should receive more than this bare minimum based on how much disposable income you have available.
The flip side to this is that if you’re able to propose that you’ll pay everything or most of what you owe your unsecured creditors, the odds that your plan will be approved go way up.
Miscalculation of Secured Debts
Because the distinction between secured and unsecured debts is so important, a secured creditor can object -- and most likely will -- if you wrongly classify its debt as unsecured in your petition. You might expect some trouble from these creditors if you don’t include the full amount of any past due payments you owe in your plan or if your plan doesn’t demonstrate that you can keep up with current payments to them while you’re in bankruptcy.
Objections to your plan don’t automatically mean the court will dismiss your case. Many of these problems can be negotiated to a solution, either with the trustee or with the creditor who's raising the objection, although you might do well to have an attorney on your side for this. Generally, the only reason the judge will reject your plan is if you can’t or won’t do what the trustee is asking -- or even what a creditor is asking if the request is reasonable. You can always amend your plan to get it right.