100% Chapter 13 Plans: What Are They?

What is a 100% Chapter 13 Plan? When you file a Chapter 13 Bankruptcy case, you present the court with a plan. That plan in most cases is 5 years long, and it essentially says: “For the next 60 months, I’m going to pay X dollars per month to a trustee, and here are the instructions on how that money is to be distributed.” While you’re in your plan, you are under the court’s protection, and no one can attempt to collect on a debt from you without getting special permission.

There are certain parties that need to be paid in full through your Chapter 13 Plan. Your attorney may be getting part of his or her fees paid through the plan. The trustee takes a portion for administering the plan. Car loans are usually paid in full through the plan, as are recent income taxes. Most importantly, if you’re behind on your mortgage and want to keep the house, those arrears are usually paid in full through the plan, too.

All your other creditors (your general unsecured creditors, such as credit cards, personal loans, and medical bills) get paid something somewhere between 0% and 100% of what they’re owed. How much they get is largely based on two factors: your income and your assets.

On the income side, there’s a document called the Chapter 13 Means Test. It’s a complicated calculation that basically comes down to: Based on your last 6 months’ income, minus necessary expenses, how much can you afford to pay your unsecured creditors per month? Whatever that number is, your unsecured creditors have to get at least that much per month from your plan.

As to assets, the question is: Are your assets so valuable that, if you were in a Chapter 7 case, some of those assets would be subject to liquidation? If so, your unsecured creditors need to get at least as much through your Chapter 13 Plan as they would in that hypothetical Chapter 7 case.

Which brings me to the point of this post: A 100% Chapter 13 Plan is one where, based on income or assets, you have to pay back to your unsecured creditors 100% of what they’re owed.

I’m seeing more and more 100% Chapter 13 Plans these days, and they’re almost always due to one thing: assets. From 2008 through 2012, it was very rare to see 100% Chapter 13 Plans. That was because, due to the housing market crash, hardly anybody had any equity in their homes during that time.

These days however, are an entirely different matter: I practice in the San Francisco Bay Area, where the housing market is very hot. Home values are higher now than their pre-bubble peaks. As a result, almost everyone I see now who owns a home has equity in their home. That’s good, right? Absolutely. But the consequence is that if you have to file a Chapter 13 case, you’re going to have to pay more to your unsecured creditors. And most of the time, we’re talking about amounts that are high enough to trigger 100% Plans.

Here’s the common situation: Married couple own a home. For whatever reason (everyone’s exact situation is unique), they’ve fallen behind on their mortgage, and now there’s a foreclosure date. To stop the foreclosure, they file a Chapter 13 case to enjoy the court’s protection while they catch up on the arrears over 5 years. But because their house is so valuable now, they have to pay off 100% of their other debts through the plan, too.

So that’s the upshot: In the current market, your house is worth a lot more than it was worth 2 years ago. While that’s great, it also means that if you have to file a Chapter 13 case, you’re going to have to pay back a lot more to your unsecured creditors. However, you can’t let the prospect of being in a 100% plan stop you from filing a Chapter 13 case if you need to. Foreclosures are still happening, and if you’re being threatened with one, a Chapter 13 case remains one of the best legal tools for keeping your home.

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