How Does a Chapter 13 Repayment Plan Work?

payment plan

A Chapter 13 repayment plan is a court-approved arrangement that helps a debtor repay their debt within three to five years. You may have heard of these plans before, especially if you’ve looked into Chapter 13 bankruptcy before, but you may not fully understand how they work.

We’re here to provide additional information about Chapter 13 repayment plans and how they work. With this information, you can gain a better understanding of this aspect of Chapter 13 bankruptcy, which you can use as you move forward toward debt relief.

Chapter 13 Eligibility

Before you can get a repayment plan, you must first qualify for Chapter 13 bankruptcy. Although many individuals and businesses can qualify for this type of debt relief, not all do—that’s why it’s important that you have a clear understanding of your potential to qualify.

First, no individual may file for Chapter 13 if a judge dismissed a prior bankruptcy petition within 180 days (six months) of the Chapter 13 filing. Second, your combined debt (secured and unsecured) must also amount to less than $2.75 million on the date you file for bankruptcy.

There are other eligibility requirements, but there’s a good chance that you can qualify as long as you can meet these two requirements. It’s always best to consult with a bankruptcy lawyer to learn more about your personal legal situation.

You Must Propose a Chapter 13 Repayment Plan

The Chapter 13 repayment plan is an issue that you must be prepared to address. After the date you file your petition, you have 14 days to propose a plan to repay your debt. Your plan should include fixed amounts on a biweekly or monthly basis that show you can repay your debt on a timeline lasting up to five years.

Because of this, you may be better off planning for Chapter 13 at least a few weeks before you intend to file. That means you should consult with a Chapter 13 bankruptcy lawyer who has the experience to help you assess your financial situation and come up with a viable repayment plan.

Not All Debts Are Treated Equally

A key thing to keep in mind is that a Chapter 13 bankruptcy plan shouldn’t place all your debt on an equal footing. In fact, you must identify your priority, secured, and unsecured debts and account for them accordingly in your plan.

Your priority debts are the most important and typically cover things like tax debt and the cost of the bankruptcy proceedings itself. Your secured debt is debt associated with collateral that a creditor can repossess, such as your home or car. Finally, your unsecured debt is debt for which your creditors have no special rights to collect. It may be discharged if the debt you owe isn’t fully repaid after satisfying the debt belonging to the former two categories.

The Judge Must Approve of the Proposed Plan

The bankruptcy judge must sign off on the proposed repayment plan, so it is crucial that the plan meets the judge's criteria. For example, the plan must demonstrate that the debtor has the financial ability to make the payments. If the judge approves the plan, it will go into effect, and the debtor will begin making payments shortly thereafter.

You Must Maintain Your Payments

Once your Chapter 13 plan is approved by the court, it’s essential that you keep up with your payments. Defaulting on a Chapter 13 repayment plan isn’t an option, and you can count on the bankruptcy trustee to file a petition to dismiss your case. If the judge grants the dismissal, you lose your opportunity to pursue Chapter 13 for several months.

Your secured creditors may also be free to pursue foreclosure or repossession of any property held as collateral. This means that missing a Chapter 13 repayment plan could put your home, vehicle, and other secured property in jeopardy.

Consult with a Lawyer for Personalized Assistance

If you are considering Chapter 13 bankruptcy, you should consult with an attorney who has experience with these matters. You may have questions about your unique legal situation for which you won’t find answers unless you have a dedicated legal advocate in your corner.

You can gain the personalized level of support you need when you reach out to Buchalter & Pelphrey Attorneys At Law for help. Our attorneys can provide the legal support necessary to help you understand bankruptcy and how the process applies to your situation.

For more information, contact us online and request a consultation.

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