Why Creditors Might Object to Your Chapter 13 Plan

Chapter 13 bankruptcy offers a path for debtors to repay creditors over time and avoid asset liquidation. Although debtors create their own plans and propose them to the court for approval, creditors themselves have a say in the process. They can file objections to a proposed repayment plan that they believe doesn’t treat them fairly or that seems to fall short of legal requirements. 

Here’s a breakdown of some common creditor objections to Chapter 13 plans:

• Numbers don’t add up — Creditors may object if the proposed repayment plan seems unrealistic. This could be because your projected income seems insufficient to cover proposed payments or the plan stretches out over an unreasonably long period. In some cases, creditors might even suspect the plan is offered in bad faith, suggesting you’re intentionally lowballing payments or concealing income.

• Unequal treatment of creditors — A creditor might object if the plan favors certain creditors at the expense of others. For instance, you might propose paying secured creditors like mortgage lenders in full while unsecured creditors like credit card companies receive minimal payments. This can be especially contentious if the plan prioritizes repayment of non-dischargeable debts (like student loans) over dischargeable ones.

• Best interests of creditors not served — Chapter 13 plans are subject to the “best interests of creditors” test. This means the proposed repayment should be at least as beneficial to creditors as a Chapter 7 liquidation would be. If the plan proposes significantly lower repayments than what creditors would receive in Chapter 7, they have the right to object.

• Errors or omissions in the plan — Mistakes regarding amounts owed, payment schedules or missing information can raise red flags for creditors. These errors might lead to objections and delays in the confirmation process. Fortunately, in most cases, these objections involve minor corrections that can be addressed swiftly to keep your bankruptcy moving forward.

If a creditor objects to your plan, the bankruptcy court schedules a hearing to address the concerns. Your Chapter 13 attorney can work with you to address the objections, which might involve negotiating with creditors, revising the plan to reflect a more realistic income stream and/or providing missing documentation. Often, objections can be resolved through open communication and plan adjustments.

Jeff Field & Associates helps consumers throughout the Atlanta metropolitan area discharge eligible debt through Chapter 13 bankruptcy. We have offices in Scottdale, Gainesville, Marietta, Lawrenceville, Douglasville and Athens. To schedule a personal consultation, call 404-381-1278 or contact us online.