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Understanding Feasibility of Chapter 13 Bankruptcy Plans

by | Feb 8, 2024 | Bankruptcy Basics, Chapter 13 Bankruptcy

A Chapter 13 bankruptcy can be a lifeline for individuals and families facing unmanageable debt. It can also help you save your home from foreclosure.

One important aspect of a Chapter 13 bankruptcy is that it must be feasible. In this blog post we will discuss what it means for a Chapter 13 Bankruptcy Plan to be feasible.

Chapter 13 Bankruptcy Basics

Before we examine feasibility, let’s briefly discuss what Chapter 13 bankruptcy entails. Chapter 13 bankruptcy is designed for individuals with a regular income source (such as wages, pension, social security) to propose a plan to repay their creditors. A Chapter 13 Bankruptcy Plan lasts from 3 to 5 years. The aim of a Bankruptcy Plan is to make paying debts more affordable by restructuring and consolidating them.

For a more detailed discussion of Chapter 13 bankruptcy read our blog on How a NJ Chapter 13 Bankruptcy Works.   

What is Feasibility in Chapter 13 Bankruptcy?

When you file a Chapter 13 bankruptcy, your bankruptcy attorney will help you submit a Reorganization Plan. The Plan sets forth how much your creditors will be paid over the course of your bankruptcy. Your Plan must be feasible and the court must approve it (called confirmation).

Feasibility is a term the Court uses to determine whether or not your plan is likely to succeed. Feasibility is a requirement of Section 1325(a)(6) of the United States Bankruptcy Code which states that  “the debtor will be able to make all payments under the plan and to comply with the plan.” If the bankruptcy plan doesn’t meet this standard, which is sometimes called the feasibility test, the Court will deny confirmation (approval of the Plan).

Key Factors in Determining Whether a Plan is Feasible

  1. Adequate Income: Debtors must show that they have a sufficient and consistent income source that can cover their reasonable living expenses and make the proposed bankruptcy plan payments. All income is taken into account including wages, social security, pension, business income, rental income and family contributions.
  2. Disposable Income: Debtors are required to contribute their disposable income towards the repayment pay. Disposable income is what is left after deducting necessary living expenses.
  3. Reasonable Plan Length: The length of the Bankruptcy Plan should be reasonable to allow for a realistic amount of time to pay off the debts. The Plan’s duration is between three and five years.
  4. The Plan Must Comply with Bankruptcy Laws: The proposed Bankruptcy plan must adhere to all of the applicable bankruptcy laws and regulations.
  5. Value of Assets: The value of the Debtor’s non exempt assets and the treatment of secured debt in the plan play a role in determining whether a plan is feasible.

Why Feasibility Is Important

Feasibility is an essential issue in Chapter 13 bankruptcy for the following reasons:

  1. Trustee and Creditor Acceptance of the plan: The Bankruptcy Trustee and the Creditors will only approve a feasible plan. This ensures that creditors are getting a fair distribution of the Plan payments.
  1. Approval by the Bankruptcy Court: The Court must determine that a Plan is feasible for it to be approved.
  1. Best Interest of the Debtor: Feasibility protects debtors from proposing bankruptcy plans that they cannot manage. A feasible plan maximizes the chance that the Debtor will complete the Plan and get a fresh financial start.

Levitt & Slafkes Can Help You Get a Fresh Start

If you are considering filing Chapter 13 Bankruptcy, it is important to consult with an experienced Chapter 13 bankruptcy attorney like Levitt and Slafkes. We can help you create a feasible bankruptcy plan that can help you get a financial fresh start.

If you are interested in learning more about Chapter 13 bankruptcy, contact Levitt & Slafkes to schedule your free initial consultation. Call us at 973-323-2953 or fill out online form. We represent debtors in Chapter 7, Chapter 13 and Chapter 11 filings. Let us help you get the fresh financial start you need today.