11 USC 1325 - Chapter 13 Plan Confirmation

What Is Section 1325?

Section 1325 of Title 11 of the United States Code is the Chapter 13 plan confirmation statute. It is the consumer-bankruptcy counterpart to the Section 1129 Chapter 11 confirmation provision: every Chapter 13 plan must satisfy the requirements of Section 1325 to be confirmed. Confirmation produces a binding plan that the debtor pays out over three to five years, with discharge available upon completion under Section 1328.

The statute is organized in two principal subsections: Section 1325(a) sets the basic confirmation requirements every plan must satisfy, and Section 1325(b) imposes a disposable-income commitment when the trustee or an unsecured creditor objects to confirmation. A short but consequential "hanging paragraph" added by BAPCPA in 2005 modifies the secured-claim treatment for purchase-money loans on personal-use vehicles and other personal property.

Section 1325(a) - Basic Confirmation Requirements

Section 1325(a) lists nine numbered subsections plus the unnumbered hanging paragraph. Every requirement must be satisfied:

1. 1325(a)(1) - The plan complies with Chapter 13 and other applicable Code provisions.
2. 1325(a)(2) - Any required filing fee has been paid.
3. 1325(a)(3) - The plan has been proposed in good faith and not by any means forbidden by law.
4. 1325(a)(4) - The best-interests test: each unsecured claim holder receives at least as much under the plan as in a Chapter 7 liquidation.
5. 1325(a)(5) - Secured-claim treatment: either the secured creditor accepts the plan, or the plan provides that the creditor retains its lien and receives present-value payments equal to the allowed secured claim, or the collateral is surrendered. The cramdown interest rate here is the Till rate.
6. 1325(a)(6) - The feasibility test: the debtor will be able to make all payments under the plan and comply with the plan.
7. 1325(a)(7) - The petition was filed in good faith.
8. 1325(a)(8) - The debtor has paid all required domestic support obligations that came due after filing.
9. 1325(a)(9) - The debtor has filed all federal, state, and local tax returns required under Section 1308.

The (a)(3) good-faith requirement and the (a)(4) best-interests test are the most heavily litigated. Good faith encompasses substantive plan terms (is the plan a sincere reorganization or a bad-faith manipulation of Chapter 13?) as well as conduct during the case.

Section 1325(b) - The Disposable Income Test

If the trustee or an unsecured creditor with an allowed claim objects to confirmation, Section 1325(b) imposes an additional requirement: the plan must either pay unsecured creditors in full or commit all of the debtor's projected disposable income to the plan for the applicable commitment period.

Calculating Disposable Income - Above-Median vs. Below-Median Debtors

Section 1325(b)(2) defines disposable income as current monthly income less amounts reasonably necessary for support of the debtor and the debtor's dependents. For above-median-income debtors (those whose annualized current monthly income exceeds the state median for their household size), "reasonably necessary" expenses are computed using the means-test framework in Section 707(b)(2)(A) and (B) - the same IRS National and Local Standards used to determine Chapter 7 eligibility.

For below-median-income debtors, "reasonably necessary" is a more flexible inquiry that allows the court to consider actual expenses, family circumstances, and reasonable variations from the IRS standards.

The Applicable Commitment Period

Section 1325(b)(4) sets the commitment period at five years for above-median-income debtors and three years for below-median-income debtors. The plan may run longer than the commitment period if needed to cure secured-claim arrears or to fund secured-claim cramdown payments, but the disposable-income commitment runs only for the statutory period.

The Till Interest Rate - Section 1325(a)(5)

When a Chapter 13 plan provides for cramdown of a secured claim - retention of the collateral with payment of the allowed secured claim over time rather than payment of the full contract amount - the question arises: what interest rate must the plan pay on the cramdown balance?

In Till v. SCS Credit Corp. (2004), the Supreme Court adopted a "formula" approach for determining the cramdown rate under Section 1325(a)(5)(B)(ii). The rate is the national prime rate plus a risk adjustment to account for the specific risks of the bankruptcy case. The risk adjustment is typically 1 to 3 percentage points, depending on the circumstances.

The Till rate is the dominant cramdown-rate methodology in Chapter 13. It has been extended by lower courts to Chapter 12 cramdown under Section 1225 and to Subchapter V cramdown under Section 1191(b). The contract rate, the original purchase money rate, and the rate the creditor would charge a new borrower are not the benchmark - prime plus risk is.

The Hanging Paragraph - 910-Day Vehicles

BAPCPA added an unnumbered paragraph at the end of Section 1325(a) - universally referred to as the "hanging paragraph." It modifies the secured-claim treatment under 1325(a)(5) for two categories of purchase-money security interests:

• 910-day vehicles. A purchase-money security interest in a motor vehicle acquired for the personal use of the debtor within 910 days of the petition. For these loans, the debtor cannot bifurcate the claim into secured and unsecured components based on collateral value. The full contract amount must be paid (at the Till rate) or the vehicle surrendered.
• One-year personal property. A purchase-money security interest in other personal property acquired within one year of the petition. Same rule: no bifurcation, full contract balance or surrender.

The practical effect is significant. Before BAPCPA, a Chapter 13 debtor could cram down a vehicle loan to the actual collateral value, paying that reduced amount over time and discharging the deficiency. The hanging paragraph removed that option for vehicles within the 910-day window.

The Best-Interests Test - 1325(a)(4)

Section 1325(a)(4) requires that each holder of an allowed unsecured claim receive under the plan property of a value not less than the amount that the holder would receive in a Chapter 7 liquidation. This is the Chapter 13 analog to the Section 1129(a)(7) best-interests test.

The liquidation analysis for the best-interests test takes into account:

• The non-exempt equity in the debtor's assets that would be available in Chapter 7
• Recovery on causes of action a Chapter 7 trustee would prosecute
• The cost of the Chapter 7 administration (trustee commission, professionals)
• The priority-claim and administrative-expense waterfall under Section 726

Chapter 13 plans for debtors with substantial non-exempt assets must distribute enough to unsecured creditors to clear the liquidation hurdle. For debtors with mostly exempt assets, the best-interests test is often satisfied by even a small unsecured distribution.

Feasibility - 1325(a)(6)

Section 1325(a)(6) requires the court to find that the debtor will be able to make all payments under the plan and comply with the plan. This is the Chapter 13 feasibility test - more demanding than its Chapter 11 cousin in one respect (it requires affirmative ability to pay, not just absence of likely liquidation) and less demanding in another (the plan is a payment plan, not a capital-structure restructuring).

Evidence of feasibility in Chapter 13 typically includes:

• Schedules I and J - current monthly income and expenses
• The debtor's pay-advice history demonstrating consistent income
• The debtor's testimony on continued employment, anticipated changes, and the realistic ability to make plan payments
• Evidence of any anticipated income increase (raise, return to work, completed education) where the plan depends on it

Plans that depend on income the debtor does not currently earn - "step-up" plans where payments increase mid-plan - face elevated feasibility scrutiny. Trustees and creditors regularly object to plans whose payment schedule outruns the debtor's demonstrated income.

Section 1325 vs. Other Confirmation Provisions

The three principal plan-confirmation provisions in the Bankruptcy Code share some elements and diverge sharply on others:

Feature	Chapter 13 (Section 1325)	Chapter 11 (Section 1129)	Subchapter V (Section 1191)
Plan filer	Debtor only	Debtor, then any party in interest after exclusivity	Debtor only
Best-interests test	1325(a)(4)	1129(a)(7)	Incorporated
Feasibility	1325(a)(6) - ability to pay	1129(a)(11) - not likely to liquidate	Incorporated
Cramdown rate	Till - prime + risk	Market rate or Till per circuit	Till (lower-court practice)
Absolute priority rule	Not applicable	1129(b)(2)(B)(ii) - applies	Does not apply
Disposable income	1325(b) - 3 or 5 years	1129(a)(15) - 5 years for individuals only	1191(b) - 3 to 5 years for cramdown

Section 1325 in the Chapter 13 Architecture

Section 1325 is the confirmation gateway in Chapter 13. It works alongside the other Chapter 13 provisions:

• Section 1302 - Chapter 13 trustee
• Section 1306 - Property of the estate, including post-petition wages
• Section 1322 - Contents of a Chapter 13 plan
• Section 1326 - Plan payments and distributions
• Section 1325 - Confirmation (this page)
• Section 1328 - Discharge upon plan completion

Related Bankruptcy Topics

Further Reading

• 11 U.S.C. Section 1325 - Cornell LII
• 11 U.S.C. Section 1322 - Cornell LII (Plan contents)
• 11 U.S.C. Section 1328 - Cornell LII (Discharge)
• Chapter 13 Bankruptcy Basics - USCourts.gov