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How does a Chapter 13 repayment plan work?

On Behalf of | Jan 22, 2024 | Bankruptcy

If debt is overwhelming you and you think bankruptcy may be an option, Chapter 13 bankruptcy could offer you the path to solvency that you are looking for. A Chapter 13 repayment plan allows you to pay off a portion of your debt over three to five years while keeping some property such as your home or car.

This structured repayment plan can help you avoid foreclosure or repossession while eventually discharging much of what you owe.

Filing Chapter 13 bankruptcy

You begin by filing a Chapter 13 bankruptcy petition. This automatically stops collections against you. You must file a proposed repayment plan within 14 days. The plan details how much you will pay each month to a court-appointed trustee. It also outlines which debts get paid back and how much creditors will receive.

The role of the trustee

Your bankruptcy trustee will collect your monthly payments so you do not have to worry about paying your creditors directly. The trustee then distributes funds to creditors according to your repayment plan. Your trustee also oversees the process to ensure you fulfill the terms of the plan.

Confirmation of the plan

Your plan must pay priority debts such as taxes and child support in full. For secured debts like your mortgage or auto loan, you must repay at least the value of the collateral. Other unsecured debts like credit cards often get only partial repayment.

The judge must confirm that your plan meets legal requirements. Creditors can object if they receive too little. If approved, you must start making payments within 30 days. As long as you follow through with payments, creditors cannot pursue collection efforts against you outside of bankruptcy court.

Discharge of debts

After completing your repayment plan, you receive a discharge of any remaining unsecured debts. However, you remain responsible for priority debts and any ongoing mortgage, auto and support payments. Consistently making plan payments helps rebuild your creditworthiness over three to five years.

A Chapter 13 repayment plan requires discipline to meet payments but can help you avoid repossession and foreclosure. The bankruptcy trustee and court provide a structure for you to repay debts and work toward financial recovery.