There are numerous different types or chapters of bankruptcy that people can file to address their financial challenges. Frequently, individuals choose between Chapter 7 and Chapter 13 bankruptcy. Some people simply do not qualify for Chapter 7 bankruptcy because they make too much money. Other people might qualify by passing a means test but have too much property at risk.
They may choose a Chapter 13 bankruptcy to avoid asset liquidation requirements. Regardless of why an individual pursues a Chapter 13 bankruptcy, they have a lengthy process ahead of them. Chapter 7 bankruptcies can lead to a final discharge of eligible debts in a matter of months in many cases.
The Chapter 13 process generally requires years to complete. The repayment plan is why Chapter 13 bankruptcy takes so long. How many years does a repayment plan typically last?
Every plan is unique
Each individual considering bankruptcy has unique financial circumstances. They owe different amounts of money to different creditors and have their own unique sources of income. The filer pursuing bankruptcy, the trustee overseeing their case and the representatives of their creditors have to take those unique factors into consideration when establishing a repayment plan.
Typically, there is an expectation that the filer should commit the vast majority of their disposable income every month toward the repayment plan. They make one payment to the courts, and the bankruptcy trustee overseeing their case then distributes those funds according to the plan among their various creditors.
Depending on the extent of the debt involved and the nature of the debts, the repayment plan can last anywhere from three years to five years. The filer has to make between 36 and 60 payments before they are finally eligible for a discharge of the remainder of what they owe.
During a repayment plan, the person seeking bankruptcy relief has to maintain strict control over their budget. They may also need to communicate with the courts promptly should their financial circumstances change.
A job loss or another sudden drop in income may require major revisions to the repayment plan. Unless the filer modifies the plan, they could fall behind and end up ineligible for a discharge of the remaining balances on those accounts.
People struggling with debt can often pursue the best possible outcome when they have someone advocating for them. Learning more about Chapter 13 bankruptcy and securing appropriate support can help people optimize their chances of success and the benefits that they derive from filing.