Creditor Objection to Chapter 13 Plan
Discover what it means if the bankruptcy trustee objects to your Chapter 13 plan’s confirmation and what you can do.
If you file for Chapter 13 bankruptcy and your proposed repayment plan violates all applicable bankruptcy laws, the bankruptcy trustee may object to your plan’s confirmation (approval). The following sections will discuss why the trustee may object to your Chapter 13 plan and your options if the trustee does object.
The Chapter 13 Plan and Confirmation by the Court
Chapter 13 bankruptcy is frequently referred to as a reorganization bankruptcy due to the fact that you repay some or all of your debts via a repayment plan. When you first file for Chapter 13, you present the trustee, your creditors, and the court with an initial repayment plan. After filing your case, you must immediately begin making plan payments to the trustee (your first payment is typically due within 30 days). However, your plan does not become permanent until it is confirmed by the court (which can take up to several months). (For more information on the Chapter 13 repayment plan, click here.)
Generally, unless the trustee or one of your creditors objects, the court will approve your plan. However, if you fail to submit a workable plan that complies with all applicable bankruptcy laws, the trustee may object to its confirmation.
When a Trustee May Disagree with Your Chapter 13 Plan
Numerous requirements must be met in order for the court to approve your proposed Chapter 13 plan. Generally, the trustee will oppose your plan if:
- In your plan, you do not pay all of your disposable income to unsecured creditors (learn about how your disposable income affects your Chapter 13 plan)
- You lack the financial means to make your plan payments.
- Your plan does not pass the test of being in the best interests of creditors (which states that your plan must pay your unsecured creditors at least an amount equal to what they would have received in Chapter 7 bankruptcy)
- Your plan excludes certain debts that you are required to repay (learn about debts you must pay back in your Chapter 13 plan)
- Your plan is either too short or too long in duration (learn about how long your Chapter 13 plan must last)
- You do not provide the trustee with all of the necessary supporting documents (such as tax returns or pay stubs).
- you are in arrears with your plan payments, or
- Otherwise, your proposal is not made in good faith. (Learn about the Chapter 13 good faith requirement.)
What Happens If Your Chapter 13 Plan Is Rejected by the Trustee?
One of the trustee’s primary responsibilities in Chapter 13 bankruptcy is to maximize payment to your unsecured creditors. This means that the trustee will almost always argue that you should be contributing more to your Chapter 13 plan. As a result, trustee objections are extremely prevalent in Chapter 13 bankruptcy. (Learn more about the Chapter 13 trustee’s role.)
If the trustee wishes to object to your plan, he or she will typically file a written objection to confirmation with the court, outlining the reasons why the court should reject your proposed plan. If you do not respond to the trustee’s objection, the plan will most likely be denied confirmation by the court. If you wish for the court to approve your plan following the trustee’s objection, you must file a written opposition explaining why you believe your plan is ready for confirmation.
Your Alternatives If the Trustee Disapproves of Your Plan
In the majority of cases, you can:
- rectify your errors
- submit a revised plan, or
- To resolve the objections, negotiate with the trustee.
However, if you are unable to reach an agreement with the trustee, you must be prepared to argue your case before a judge during the Chapter 13 confirmation hearing (discussed below).
Confirmation Hearing under Chapter 13
Following your Chapter 13 bankruptcy filing, the court will schedule a confirmation hearing to determine whether or not to approve your plan. If no objections are raised by the trustee or your creditors to your proposed plan, the court will confirm it at the hearing. (Learn more about the confirmation hearing for Chapter 13 bankruptcy.)
However, if the trustee files an objection to your plan and you are unable to resolve it prior to the confirmation hearing, you must explain to the judge why you believe your plan should be confirmed. Following your presentation, the trustee will have an opportunity to make an argument.
The judge will decide whether or not to confirm your plan after hearing both sides. If the judge determines that additional evidence is required, he or she may also continue the hearing or remand the case for trial or evidentiary hearing.