Building a Chapter 13 Plan

A Chapter 13 case lives or dies on the plan. The petition stops the foreclosure sale and the wage garnishment, but the plan is the document that decides how much you pay each month, for how long, to whom, and what happens to your house, your car, and your tax debt when the case ends. In New York City, the plan is drafted against a specific set of facts: high home values, NYC Department of Finance property tax liens, co-op and condo arrears, and two federal districts with their own trustees and local forms. This page explains how a workable plan is put together, section by section, with the governing provisions of Title 11 and worked numbers.

Who Can File a Chapter 13 Case in New York City

Eligibility comes from 11 U.S.C. § 109(e). You must be an individual with regular income, and your debts must fall under the statutory caps. As adjusted on April 1, 2025, the limits are $526,700 in noncontingent, liquidated unsecured debt and $1,580,125 in noncontingent, liquidated secured debt. Married couples filing jointly share the same caps.

Regular income does not mean a salary. Self-employed contractors, rideshare and taxi drivers, superintendents, and retirees on Social Security qualify if the income is steady enough to fund the plan. Where the debt totals exceed § 109(e), often because of a taxi medallion loan or a small business guarantee, the case has to be filed under Chapter 11 instead, usually under Subchapter V.

Two other prerequisites apply before filing. You must complete a credit counseling briefing from an approved agency within the 180 days before the petition date (§ 109(h)), and you cannot have had a prior case dismissed within 180 days for willful failure to obey court orders or for voluntary dismissal after a stay relief motion (§ 109(g)).

Which Court Hears Your Case

New York City is split between two federal districts. Residents of Manhattan and the Bronx file in the United States Bankruptcy Court for the Southern District of New York. Residents of Brooklyn, Queens, and Staten Island file in the Eastern District of New York. Venue is based on where you have lived for the greater part of the 180 days before filing (28 U.S.C. § 1408).

The distinction matters in practice. Each district has its own standing Chapter 13 trustees, its own local form plan adopted under Fed. R. Bankr. P. 3015.1, and its own loss mitigation procedures for mortgage disputes. A plan drafted on the wrong form will be rejected by the clerk, and the two districts' trustees review feasibility and disposable income differently. Our Chapter 13 bankruptcy page covers the general framework; this page focuses on plan construction.

The Plan Timeline Under the Bankruptcy Code and Rules

The 30-day payment deadline catches many first-time filers. You start paying the trustee before the plan is confirmed and before the trustee has reviewed a single claim. If you miss that payment, the trustee will move to dismiss under § 1307(c)(4). The plan therefore has to be built around a monthly number you can pay from the first month, not one that looks good on paper.

Step One: Deciding the Plan Length

The plan term is called the applicable commitment period under § 1325(b)(4). If your household's current monthly income, annualized, is below the New York median for a household of your size, the minimum term is 36 months. If it is at or above the median, the term is 60 months. The median figures are published by the United States Trustee Program and change periodically, so the calculation is run on the figures in effect on your filing date.

A below-median debtor can still choose a 60-month plan, and in New York City many do. Stretching a $36,000 mortgage arrearage over 60 months instead of 36 drops the monthly cure from $1,000 to $600. No plan may run longer than five years (§ 1322(d)).

Step Two: Classifying Every Debt

Each claim is placed in one of four categories, and each category is treated differently in the plan.

• Secured claims on your principal residence: The first mortgage on your house, condo, or (in most cases) co-op. Under § 1322(b)(2), the plan cannot modify the terms of a claim secured only by your principal residence. You cannot lower the interest rate or reduce the balance. You can, however, cure the default and reinstate the loan over the life of the plan under § 1322(b)(5) while keeping current on the regular monthly payment.
• Other secured claims: Car loans, second mortgages, judgment liens, and NYC property tax liens. These can often be modified. A car loan on a vehicle purchased more than 910 days before filing can be reduced to the vehicle's replacement value under § 506(a) and § 1325(a)(5)(B), with interest recalculated at the Till rate (prime plus a risk adjustment, typically one to three points).
• Priority unsecured claims: Domestic support arrears (§ 507(a)(1)), recent income taxes (§ 507(a)(8)), and certain other government debts. Section 1322(a)(2) requires these be paid in full over the plan unless the creditor agrees otherwise.
• General unsecured claims: Credit cards, medical bills, personal loans, deficiency balances, and old tax debt that has lost priority. These receive whatever is left after the categories above, subject to the tests described below.

New York City property tax and water charges

The NYC Department of Finance holds a statutory lien on real property for unpaid taxes and water and sewer charges. In the plan these are secured claims. Under § 511, the plan must pay interest on a tax claim at the rate set by applicable nonbankruptcy law, and the City's rate on delinquent property tax is high. A homeowner with $9,000 in property tax arrears should budget for the interest component and not simply divide $9,000 by 60. Filing before a scheduled City tax lien sale also prevents the lien from being sold to a private trust, which would otherwise add servicing fees and a different creditor to the case.

Co-op maintenance arrears

Co-op shares are personal property, and the proprietary lease is a contract. The co-op corporation's claim for unpaid maintenance is generally treated as secured by the shares. Plans routinely cure maintenance arrears over the plan term while the debtor resumes current maintenance directly. Because the co-op can also seek to terminate the lease, the plan should address the arrears explicitly rather than leaving them as a general unsecured claim.

Parking tickets and ECB judgments

Fines owed to the City for parking violations and Environmental Control Board defaults are civil penalties. They survive a Chapter 7 discharge under § 523(a)(7), but the broader discharge in § 1328(a) covers them once the plan is completed. For drivers with several thousand dollars in tickets, this alone can justify Chapter 13 over Chapter 7.

Step Three: Stripping a Wholly Unsecured Junior Lien

The anti-modification rule in § 1322(b)(2) protects only claims that are actually secured by some value in the home. Under controlling Second Circuit authority, a second mortgage or HELOC that is completely underwater, meaning the first mortgage balance exceeds the home's value, can be treated as a general unsecured claim and the lien voided upon discharge. The plan must state this treatment, and most judges in both New York City districts require an adversary proceeding or a motion under § 506(a) with an appraisal. With NYC values, this applies less often than it did a decade ago, but it still arises in the Bronx and parts of Queens and Staten Island where a HELOC was drawn at the peak.

Step Four: Choosing Exemptions

New York lets a debtor choose between the federal exemptions in § 522(d) and the state exemptions in Debtor and Creditor Law §§ 282 and 283 and CPLR 5205 and 5206. The choice drives the liquidation test discussed below. The New York homestead exemption for real property in the five boroughs is $189,950 per debtor under CPLR 5206(a), as adjusted April 1, 2024 by the Department of Financial Services. Married co-owners filing jointly can each claim it. The federal homestead figure is a fraction of that, so almost every NYC homeowner with equity elects the state scheme.

Tools of the trade, a motor vehicle up to the adjusted statutory amount, retirement accounts, and a wildcard for cash or personal property are available under the state scheme as well. The figures are adjusted every three years, so confirm the current amounts on your filing date.

Step Five: Passing the Confirmation Tests

The court confirms the plan only if it satisfies § 1325(a) and, if an objection is filed, § 1325(b). The three tests that shape the monthly payment are:

1. Best-interest-of-creditors test (§ 1325(a)(4)): Unsecured creditors must receive at least what they would get if your nonexempt assets were liquidated in a Chapter 7. A Brooklyn homeowner with $250,000 of equity and a $189,950 homestead exemption has roughly $60,000 of nonexempt equity (less hypothetical costs of sale and the trustee's commission). The plan must pay unsecured creditors at least that adjusted amount over its term.
2. Disposable income test (§ 1325(b)(1)(B)): If the trustee or an unsecured creditor objects, all projected disposable income for the commitment period must go to unsecured creditors. For above-median debtors, disposable income is computed on Official Form 122C-2 using IRS and local standards for housing, transportation, and living expenses. New York City housing allowances are among the highest in the country, which helps, but the form still disallows many actual expenses.
3. Feasibility (§ 1325(a)(6)): You must be able to make every payment. Trustees in both districts scrutinize Schedule I and J closely. A budget that shows $15 left over after the plan payment will draw an objection.

Section 1325(a)(8) adds a requirement that you be current on all domestic support obligations that came due after the petition, and § 1325(a)(9) requires that you have filed all tax returns for the four years before the petition (see also § 1308).

A Worked Example: Brooklyn Homeowner, Above Median Income

Assume a two-earner household in Flatbush with a first mortgage 14 months behind. The facts:

• Mortgage arrears, including escrow shortfall and servicer fees: $36,000
• NYC property tax and water arrears with statutory interest: $9,000
• IRS income tax for the last two years (priority): $5,000
• Credit cards and medical bills (general unsecured): $28,000
• Household income above the New York median: 60-month plan required
• Projected disposable income on Form 122C-2: $400 per month
• Nonexempt equity after the homestead exemption: $0

The plan is assembled as follows. The mortgage arrears are cured through the trustee at $600 per month ($36,000 ÷ 60). The property tax claim is paid at $150 per month. The IRS priority claim is paid at $83.33 per month. The disposable income of $400 per month is committed to general unsecured creditors, which over 60 months produces $24,000 against $28,000 in claims, or roughly 86 cents on the dollar before trustee fees are accounted for. Those components total $1,233.33. The Chapter 13 trustee is compensated by a percentage fee on all disbursements, capped at 10 percent under 28 U.S.C. § 586(e)(1)(B). Grossing up for a 10 percent fee, the monthly plan payment is $1,233.33 ÷ 0.90, or about $1,371.

Separately, and outside the plan, the household resumes the regular monthly mortgage payment directly to the servicer starting with the first post-petition due date. In both New York City districts, ongoing mortgage payments are ordinarily paid directly rather than through the trustee. Under Fed. R. Bankr. P. 3002.1, the servicer must file a notice of any payment change at least 21 days before it takes effect and must respond to the trustee's notice of final cure at the end of the case, which is how the debtor gets a record that the loan is fully reinstated.

A Second Example: Queens Driver With an Underwater Car Loan

A driver in Jamaica bought a vehicle four years ago and owes $18,000 at 19 percent interest. Replacement value is $11,000. Because the purchase was more than 910 days before filing, the hanging paragraph following § 1325(a)(9) does not apply, and the claim can be bifurcated. The plan pays $11,000 as a secured claim at the Till rate, say 9.5 percent, over 60 months, which is about $231 per month. The remaining $7,000 becomes a general unsecured claim paid at the same percentage as the credit cards. Compared with the contract payment, the driver keeps the car for roughly half the monthly cost.

Loss Mitigation and the Plan

Both the Southern and Eastern Districts operate a Loss Mitigation Program by general order. A debtor may request loss mitigation with the mortgage servicer at filing or by motion after filing. Once the request is granted, the servicer must designate a contact, exchange documents through a portal, and participate in good faith for the duration of the loss mitigation period, with status conferences before the judge. The plan is drafted to accommodate the outcome. If a modification is approved, the arrears are typically capitalized into the modified loan, the cure component is removed from the plan by a post-confirmation modification under § 1329, and the monthly payment drops. If no modification is offered, the cure provisions already in the plan carry the case forward. Drafting the plan with both paths in mind avoids a second round of objections.

Changing the Plan After Confirmation

Life does not pause for five years. Section 1329 permits the debtor, the trustee, or an unsecured creditor to seek modification of a confirmed plan to increase or reduce payments, extend or shorten the term (within the five-year cap), or alter the treatment of a claim. A job loss, a rent increase from a landlord, or an unexpected medical bill are common grounds. The motion must be served on all creditors and the modified plan must again satisfy the confirmation tests as of the date of modification.

If the income loss is permanent, the alternatives are a hardship discharge under § 1328(b), which requires that unsecured creditors have already received at least their Chapter 7 liquidation value and that the failure to complete the plan resulted from circumstances beyond your control, or conversion to Chapter 7 under § 1307(a), which is a right the debtor may exercise at any time.

What Happens at the End

On completion of all plan payments, and after filing the certification of completion of a debtor education course required by § 1328(g) and a certification regarding domestic support obligations, the court enters the discharge under § 1328(a). Debts provided for in the plan are discharged, with the exceptions listed in that section: long-term secured debts cured under § 1322(b)(5), domestic support, most student loans, criminal fines and restitution, and debts for death or personal injury caused by drunk driving. The trustee files a final report, and the case closes.

You can contact the Law Offices of Albert Goodwin by phone at 212-233-1233 or by email at [email protected].