Chapter 13 bankruptcy allows debtors to reorganize their debts. Debtors file a plan with the court which states how they wish to address the claims of their creditors. However, these plans aren’t automatically approved by the court. They are reviewed by the Chapter 13 trustee and the creditors, and if they do not like the way their claim is treated in the plan then they can file an objection to confirmation. Confirmation is another word for court approval.
Confirmation is important because the creditor’s rights are not altered until the court approves (or confirms) the plan. Objections can be resolved in several different ways. First, the parties can agree to a compromise and the plan is altered to reflect that agreement. If the parties cannot reach an agreement then a hearing is held in front of the bankruptcy judge during which both parties presents arguments and the judge decides. Once all objections to confirmation are resolved the plan is confirmed, assuming there are no other bars to confirmation.
Objections are not the only thing preventing confirmation of a plan. Debtors must have filed their last two years tax returns before their plan can be confirmed. In addition, the debtors must be current on their payments to the trustee as of the date of the confirmation hearing. Some districts also require that the debtor be current on payments due under a domestic support obligation, like child support, alimony, or spousal maintenance. In the Eastern District of Texas there is a local rule requiring debtors to be current on direct payment obligations. A direct payment obligation is any secured creditor entitled to receive payments directly from the debtor in the Chapter 13 Plan. For example, this could include a mortgage, car note, or debt secured by other personal property.
Confirmation of the plan is important. Once the plan is approved the creditor’s rights are changed. Once the plan is completed the debtor receives a discharge order, and the Chapter 13 case is closed. This usually happens in three to five years.