11 U.S.C. Section 1325 -- Confirmation of Chapter 13 Plan

What Is Section 1325?

Section 1325 of Title 11 of the United States Code (Confirmation of Plan (Chapter 13)) is a foundational provision of the Bankruptcy Code. It lists the requirements for confirming a Chapter 13 plan. The court must find the plan satisfies all of these requirements before it becomes binding. Confirmation is typically the most important hearing in a Chapter 13 case.

Key Provisions of Section 1325

Key confirmation requirements:

• 1325(a)(1): The plan must comply with all applicable Bankruptcy Code provisions and rules.
• 1325(a)(3) -- Good Faith: The plan must be proposed in good faith -- not to abuse the process.
• 1325(a)(4) -- Best Interests Test: Each unsecured creditor must receive at least as much as they would in a Chapter 7 liquidation.
• 1325(a)(5) -- Secured Creditor Treatment: Secured claims must be treated properly: the creditor accepts, the debtor surrenders collateral, or the plan pays the secured claim plus interest and the creditor retains the lien.
• 1325(a)(6) -- Feasibility: The debtor must be able to make all payments under the plan and comply with the plan.
• 1325(b) -- Disposable Income Test: If the trustee or unsecured creditor objects, the plan must commit all projected disposable income for the applicable commitment period (3 or 5 years) to the plan.
• Hanging Paragraph (910-day rule): The unnumbered paragraph after 1325(a)(9) prevents cramdown on purchase money security interests in vehicles acquired within 910 days before filing, and on any debt secured by your primary residence.

How This Affects You

What confirmation means for your case:

• Best interests baseline: The trustee will calculate what your unsecured creditors would receive in a hypothetical Chapter 7 liquidation. Your plan must pay at least that much. If you have significant non-exempt assets, this raises your plan payment.
• Disposable income: If an objection is filed, you must pay all disposable income into the plan. Disposable income = current monthly income minus reasonably necessary expenses (including the IRS standards used in the means test).
• Feasibility: The court will scrutinize your budget. If the plan payment leaves you no margin for unexpected expenses, the court may find the plan infeasible and deny confirmation.
• Good faith: Filing Chapter 13 solely to strip a lien while having no intention to complete the plan, or proposing a plan that pays 0% to unsecured creditors when you have ability to pay more, may fail the good faith test.

Related Bankruptcy Code Sections

Section 1325 works in conjunction with several other provisions of the Bankruptcy Code:

• Section 1322 -- What goes into the plan
• Section 506 -- Cramdown valuation
• Means Test -- Disposable income calculation

Understanding how these sections interact is critical for anyone navigating the bankruptcy process, whether as a debtor, creditor, or attorney.