How does a Chapter 13 repayment plan work during bankruptcy?

On Behalf of developers | May 21, 2020 | Chapter 13 Bankruptcy

Most individuals considering bankruptcy will either file to Chapter 7 or Chapter 13 bankruptcy, although there are many other kinds of available as well. One of the features that set Chapter 13 bankruptcy apart from Chapter 7 is the requirement for filers to complete a repayment plan as part of Chapter 13 proceedings.

Those who qualify for Chapter 13 bankruptcy will have to negotiate with the courts and their creditors to make arrangements for partially repaying some of their secured, unsecured and priority debt. The better you understand how repayment plans work, the easier it will be for you to determine whether Chapter 13 bankruptcy might be right for your current financial situation.

For most individuals, the plan will last 3 years

Most repayment plans will require 36 months of scheduled payments. Rather than making a number of different payments to your individual creditors, you will make one payment that the trustee for your case will then distribute as previously negotiated to the individual creditors, with certain debts receiving more priority than others.

Provided that your financial circumstances do not change and that you successfully complete your repayment plan, you will likely be eligible for a discharge of at least some of the included debts at the end of the repayment plan. The remaining balance of your unsecured debts will typically be eligible for a discharge, and you will finally be able to move on with your life after such a difficult time.

Repayment plan amounts are usually lower than payments you make

Once you initiate Chapter 13 proceedings, you will likely have the benefit of your own legal representation. Additionally, the courts help facilitate the process of negotiating with creditors. The payments that you have to make will likely be substantially lower than the sum of all the payments you had to make to individual creditors before.

If you have secured debts, such as a mortgage or a car loan, you may be able to renegotiate some of the terms for those debts as well as part of your Chapter 13 proceedings. Overall, your monthly outgoing payments could decrease enough for you to better balance your budget and maintain financial equilibrium as you complete the repayment plan.