Aside from court exceptions, filing a proposal repayment plan is required when filing for a petition or 14 days from doing so. The court should receive the submission in order for it to be approved. The plan should include a plan for payments made to a trustee bi-weekly or bi-monthly. If the submitted plan is approved, it is the trustee’s responsibility to distribute payments according to the plan. This does mean that creditors will not always receive complete payment for their claims.
There are three claim types, under the US Courts: secured, unsecured, and priority. Secured claims are those in which the creditor reserves the right to take certain property from a debt if their debts remain unpaid. Unsecured claims are the opposite of secured claims; the creditor does not reserve the right to take property from the debtor should their debt remain unpaid. Finally, priority claims are “special” under bankruptcy law.
Priority claims are required to be paid completely, except for if an agreement is established with the creditor concerning the debtor’s priority claim. There is also one more exception under the US Courts.
Concerning unsecured claims, these are not required to be paid completely as long as the disposable income paid exceeds the applicable commitment period. Additionally, unsecured creditors have to receive as much payment as they would otherwise receive if the claim had been liquidated under Chapter 7. For Chapter 13, disposable income is any income that exists aside from those needs for basic operation. The applicable commitment period is dependent on a debtor’s monthly income. As specified above, for families whose income is less than the state median, this period is 3 years. For families whose income is above the state median, the period is 5 years. This plan can always be shortened should the unsecured debt be paid more quickly.
Whether the repayment plan has been approved or not, within 30 days after filing, the trustee may begin receiving payments from a debtor. If any of the debtor’s payments are due before their repayment plan is approved, they should make substantial protection payment to the creditor directly, making sure to exclude the amount they would pay the trustee under their plan otherwise.