To confirm your Chapter 13 plan, the bankruptcy judge must find that every requirement in 11 U.S.C. § 1325 is satisfied, and the Chapter 13 plan confirmation requirements center on a single dollar comparison: your unsecured creditors must receive at least as much through the plan as they would collect in a Chapter 7 liquidation.1Office of the Law Revision Counsel. 11 USC 1325 – Confirmation of Plan That comparison is called the best interest of creditors test, and it sits alongside a disposable income test, a feasibility finding, a good faith requirement, full payment of priority debts, proper treatment of secured claims, and a handful of procedural steps you must complete before the hearing.
The Best Interest of Creditors Test
This is the test that trips up the most filers. Under 11 U.S.C. § 1325(a)(4), your plan has to distribute at least the value your unsecured creditors would receive if a Chapter 7 trustee sold everything you own and paid them from the proceeds. You’re asking the court to let you keep your property, so your creditors can’t come out worse than if you had liquidated.
How the Math Works
The court adds up the fair market value of everything you own and subtracts the exemptions you’re entitled to claim. What’s left is your non-exempt equity. That figure is the floor your plan must clear for unsecured creditors over the life of the plan.
Say you own a car worth $15,000 and your state’s vehicle exemption covers $5,000. The non-exempt equity is $10,000. Add $3,000 in a bank account that exceeds your available exemptions, and your plan must pay unsecured creditors at least $13,000 total. Propose $8,000 and the plan fails this test, no matter how modest your income is.
Exemptions Do the Heavy Lifting
Every state sets its own exemption amounts for categories like your home, vehicles, personal belongings, and a catch-all wildcard. Some states let you choose between the state exemption scheme and a federal set. Homestead exemptions range from a few thousand dollars to several hundred thousand depending on the state. Vehicle exemptions commonly fall somewhere between roughly $3,600 and $12,000. Wildcard exemptions in some states protect miscellaneous property worth up to a few thousand dollars.
The more of your property is exempt, the less non-exempt equity exists, and the lower the bar. Filers whose assets fit entirely within their exemptions can sometimes owe unsecured creditors nothing under this test, though the disposable income requirement may still push the payment up.
Valuation and Present Value
The court values assets as of the plan’s effective date, not the filing date. For personal property, the standard is replacement value: what a retail merchant would charge for property of similar age and condition.2Office of the Law Revision Counsel. 11 USC 506 – Determination of Secured Status Courts commonly accept standard pricing guides for vehicles. Real estate typically calls for an appraisal or a broker’s price opinion.
Because plans pay out over three to five years, the court applies a present value adjustment: a dollar paid three years from now is worth less than a dollar today, and the total distribution has to account for that. Trustees and creditors scrutinize valuations, and undervaluing an asset to squeeze under the floor draws objections and delays.
The Disposable Income Requirement
When the trustee or an unsecured creditor objects to your plan, a separate test kicks in under § 1325(b). You must commit all of your projected disposable income to plan payments for the entire applicable commitment period. This test looks at cash flow rather than assets.
Disposable income is what remains after reasonably necessary expenses for your household. Housing, food, transportation, health insurance, and childcare all count. Charitable contributions and legitimate business expenses for self-employed debtors may qualify. Luxury spending, country club memberships, and excessive entertainment do not.
The Commitment Period
How long you stay in the plan depends on your income relative to the median for a household of your size in your state. Above the median, the commitment period is five years. Below the median, it drops to three years, though you can propose longer if you want.3United States Courts. Chapter 13 – Bankruptcy Basics “Current monthly income” is a defined term that averages your earnings over the six full calendar months before you filed, which can differ from what you’re actually earning at the time of filing.
The disposable income test and the best interest test run in parallel, not sequence. The court applies both and your plan must clear whichever produces the higher payment. A filer with substantial non-exempt assets and modest income is usually governed by the best interest number. A higher earner with few assets is usually governed by disposable income.
Feasibility
Under § 1325(a)(6), the judge must find that you can actually make the payments and comply with the plan’s terms. This is where your Schedules I and J, the income and expense filings, get close scrutiny.
Judges want to see a monthly surplus that comfortably covers the plan payment after real living expenses. A plan with a $20-per-month cushion is a plan waiting to fail the first time a tire blows out. Seasonal or commission income invites additional documentation, and some courts want a full year of pay stubs or tax records to gauge consistency. The analysis also covers obligations you pay outside the plan: mortgage, car insurance, utilities. A budget that only works if you eat on an unrealistic food allowance will draw skepticism.
Trustee fees factor into feasibility too. The standing trustee takes a percentage of every payment that flows through the plan, currently ranging from 4.6% to 10% depending on the district.4U.S. Trustee Program / Department of Justice. Administrative Expenses Multiplier On a $500 monthly payment at a 10% fee, $50 goes to administration before any creditor is paid. Your payment must be large enough to cover the fee on top of everything else.
Good Faith
Your plan must be proposed in good faith and by means the law permits. Courts look at the totality of your circumstances: whether you’re hiding assets, manipulating income to lower payments, or filing primarily to delay a single creditor rather than genuinely reorganize. There’s no formula. Judges weigh the accuracy of your financial disclosures, the percentage you’re offering unsecured creditors, and whether the timing looks aimed at exploiting the automatic stay. An honest attempt to repay what you can generally clears this hurdle. A scheme does not.
Priority Debts Must Be Paid in Full
Your plan has to provide for full payment of every priority claim listed in 11 U.S.C. § 507, in deferred cash installments over the plan’s life, unless a particular creditor agrees to accept less.5Office of the Law Revision Counsel. 11 USC 1322 – Contents of Plan The priority debts that matter for most individual filers are:
- Unpaid child support and alimony, which sit at the top of the priority ladder.
- Recent income taxes, employment taxes, and related penalties owed to the IRS or state taxing authorities. The IRS will object to any plan that shortchanges its priority claim.6Internal Revenue Service. Processing Chapter 13 Bankruptcy Cases
- Administrative expenses, including trustee fees and the costs of running the case.
A plan that pays anything less than 100 cents on the dollar for any priority claim won’t survive confirmation. Priority obligations also stack on top of the best interest floor. If you owe $25,000 in priority tax debt and have $10,000 in non-exempt assets, your plan needs to distribute at least $35,000 before general unsecured creditors see anything.
Treatment of Secured Claims
Secured creditors hold collateral, which gives them leverage. Your plan must handle each secured claim in one of three ways: the creditor accepts the plan’s treatment, you surrender the collateral, or you pay the allowed amount of the secured claim in full while keeping the lien in place until the debt is paid or a discharge issues.
Cramdowns and the 910-Day Rule
Chapter 13 lets you reduce many secured claims to the current value of the collateral. If you owe $12,000 on a car worth $7,000, you can propose paying $7,000 as a secured claim and treating the remaining $5,000 as unsecured debt. But the “hanging paragraph” in § 1325(a) blocks this for motor vehicles purchased for personal use if the debt was incurred within 910 days of filing (roughly two and a half years). For other personal property securing a purchase money loan, the cutoff is one year. Debt inside those windows must be treated as fully secured and paid in full through the plan.
Interest on Secured Claims
When your plan pays a secured claim over time, the creditor is entitled to interest. The Supreme Court’s decision in Till v. SCS Credit Corp. set the standard: start with the national prime rate and add an adjustment of roughly 1% to 3% to account for the higher default risk bankruptcy debtors carry.7Legal Information Institute. Till v. SCS Credit Corp. The exact adjustment depends on the collateral and the plan’s overall feasibility. This rate replaces whatever the original contract specified.
Lien Stripping and the Mortgage Boundary
If your home is worth less than the balance on your first mortgage, any junior liens (a second mortgage or HELOC) have no equity to support them and are entirely unsecured. Chapter 13 lets you strip those junior liens off, reclassify them as unsecured debt, and force the lender to release the lien once you complete the plan.5Office of the Law Revision Counsel. 11 USC 1322 – Contents of Plan You have to prove the property’s fair market value doesn’t exceed the first mortgage balance by even a dollar. Any equity above the first mortgage keeps the second lien at least partially secured, and it can’t be stripped.
One boundary to keep in mind: you cannot modify the terms of the mortgage on your principal residence. The anti-modification rule in § 1322(b)(2) protects a lender whose only security is your primary home. You can cure missed payments over the life of the plan, but the interest rate, balance, and maturity date stay put.
Procedural Requirements Before the Hearing
Some confirmation requirements aren’t about the numbers at all.
Filing Fees and Financial Education
You owe a $235 filing fee plus a $78 administrative fee, totaling $313.8Office of the Law Revision Counsel. 28 USC 1930 – Bankruptcy Fees9United States Courts. Bankruptcy Court Miscellaneous Fee Schedule The court can approve installments, but it must be paid in full before or during the case. You also have to complete two mandatory financial education courses, attend the meeting of creditors, and produce required tax returns and financial documents to the trustee.10Legal Information Institute. Federal Rule of Bankruptcy Procedure 1007 – Lists, Schedules, Statements, and Other Documents
Current on Domestic Support
If you owe child support or alimony, you must be current on every payment that came due after your petition was filed. The court won’t confirm a plan while you’re falling behind. Family support comes ahead of commercial creditors.
Payments Start Before Confirmation
You must begin making plan payments to the trustee within 30 days of filing, even though the court hasn’t approved the plan yet.11Office of the Law Revision Counsel. 11 USC 1326 – Payments The trustee holds those pre-confirmation payments and distributes them once the plan is confirmed. Missing the 30-day mark signals that you can’t sustain the schedule you’ve proposed and undercuts the feasibility argument before the hearing arrives.
The Confirmation Hearing
The confirmation hearing is set no earlier than 20 days and no later than 45 days after the meeting of creditors.3United States Courts. Chapter 13 – Bankruptcy Basics The judge reviews evidence on every requirement and hears remaining objections from the trustee or creditors. In straightforward cases most issues are already worked out with the trustee, and the hearing is brief.
If the plan satisfies every requirement, the court issues an Order of Confirmation. That order is a binding agreement between you and every creditor in the case, replacing the original contracts and collection arrangements. The terms of the confirmed plan then govern until you complete it and receive a discharge or the case is dismissed.
A denial isn’t the end. Courts typically give you roughly 21 days to file a modified plan that fixes the defect. You might raise payments, adjust how a secured claim is treated, or produce better documentation of your income. If repeated attempts don’t resolve the problem, the court can dismiss the case, or you may choose to convert to Chapter 7.