Each local bankruptcy court uses a model plan and allows Chapter 13 debtors to choose how they will treat unsecured creditors (like credit cards and medical bills) during their bankruptcy cases. There are a few basic types that are in common use across the country:
100% Dividend Plan – In a 100% dividend plan the debtor has sufficient income to pay 100% of his unsecured debts over the plan term. In a 100% dividend plan, the bankruptcy case may end sooner than five years.
0% Dividend Plan – A 0% dividend plan means that no unsecured creditor is paid by the trustee. All plan payments are paid to secured or priority creditors, and to administrative expenses such as bankruptcy trustee fees or unpaid attorney fees. Unpaid unsecured creditors are discharged at the conclusion of a 0% Dividend Plan
Disposable Income Plan – In a Disposable Income Plan, unsecured creditors receive a pro-rata share of a monthly payment that is determined primarily by the Chapter 13 means test and the debtor’s current income and expenses. Generally, after deducting payments to secured creditors, any priority claims, administrative claims, and the debtor’s reasonable living expenses, whatever is left goes to unsecured creditors. How long the debtor pays this monthly amount depends on whether the means test requires a 36 or 60 month repayment period. The exact amount a creditor receives in this type of plan depends on the total amount of the debt and the number of allowed claims. Any unpaid unsecured debts at the end of a Chapter 13 Disposable Income Plan are discharged.
Liquidation Analysis Plan – A Chapter 13 Liquidation Analysis Plan is used when the debtor does not have enough exemptions to protect his property from turn-over in a Chapter 7 case. Unlike a Chapter 7 case, the debtor keeps his property in Chapter 13, but must pay the amount of non-exempt equity in the debtor’s property to unsecured creditors. This amount is divided into equal payments over the plan period.
If the debtor has both extra disposable income and non-exempt equity, and the disposable income is sufficient to pay the value of the non-exempt assets, then no amount must be added to the disposable income plan. However, if the value of the non-exempt assets is more than the amount available under the disposable income test, then the debtor must pay an amount equal to the Liquidation Analysis Plan.
Base Plan – A Base Plan is a repayment plan proposed by the debtor that deviates in some way from one of the plans mentioned above. A Base Plan is calculated by multiplying the number of months in the base by the monthly plan payment. To illustrate, let’s suppose, that a debtor, let’s call him Bo, has a modest delivery driver income, but owns outright an orange 1969 Dodge Charger. The Charger is nice, but has some cosmetic blemishes (Bo lives in a rural area and likes to drive it fast with his brother Luke). Bo and his attorney have reasonably valued it at $20,000. After negotiating with the trustee, they agree that Bo’s monthly payment is $575 over 36 months under the Liquidation Analysis Plan. Well, that’s just a little bit more than Bo’s budget will allow. Bo’s attorney proposes a more affordable Base Plan over 48 months at $431.25 per month.
The type of plan used in your Chapter 13 bankruptcy case is largely determined for you after examining your circumstances. In some cases deviating from a default plan may make more financial sense to the debtor. A skilled bankruptcy attorney can guide you to the type of plan that is most beneficial to your bankruptcy success.