Some people who need bankruptcy relief qualify for Chapter 7 bankruptcy. They can discharge their debts in as little as a few months. They may be at risk of asset liquidation, but most people can preserve their property using exemptions.
For those with assets that they cannot protect using exemptions or those with income too high to qualify for Chapter 7 bankruptcy, Chapter 13 proceedings might be a viable solution. Chapter 13 bankruptcy does not require asset liquidation. Instead, the filer commits to a repayment plan where they reduce their debts before they can discharge any of their financial obligations.
People contemplating Chapter 13 bankruptcy may benefit from learning more about the three facts about the repayment plan introduced below.
Each plan is inherently unique
There is no formula for establishing a Chapter 13 repayment plan. Instead, the filer and their attorney may come up with a rough proposal before a mandatory creditor meeting. Representatives from interested parties and the trustee appointed by the courts attend the meeting. There may be questions about the plan, and adjustments may be necessary. The process of creating the plan requires the commitment of the vast majority of the filer’s disposable income. The amount of the payments and how long they last can be significantly different from one case to the next. Payments typically last between three and five years.
The trustee distributes the payments
Paying creditors is actually far easier in a Chapter 13 repayment plan than it is before filing for bankruptcy. The filer does not need to juggle multiple due dates and different minimum payment requirements. Instead, they simply submit one payment to the courts. The trustee overseeing their bankruptcy filing then distributes those funds in accordance with the repayment plan to the individual creditors. This arrangement helps avoid accounting errors and other complications that could prevent a filer from securing their discharge in a timely fashion.
The plan includes secured debts
Typically, only unsecured debts that do not have collateral property attached are eligible for discharge in bankruptcy proceedings. However, people have to include all of their major financial obligations in a repayment plan. They may have to talk about the repayment plan with their mortgage lender and the company providing their vehicle loan. Filers actually have a bit of leverage in such cases and may be able to modify their secured loans to obtain slightly more favorable terms.
Understanding the basics of a Chapter 13 bankruptcy repayment plan can help people decide if this type of bankruptcy might be right given their needs. Many people who may not qualify for Chapter 7 bankruptcy or who worry about protecting their property may find that Chapter 13 bankruptcy is the best option available.