Unlike a Chapter 7 bankruptcy, in which your property is sold to pay a portion of your debt, Chapter 13 bankruptcy works to prioritize, or reorganize, your debts and assists you in paying off as much as possible over a set time period. As part of your filing for Chapter 13 bankruptcy, you are responsible for creating and submitting a repayment plan that meets all of the requirements laid out by the law. Although the plan will vary from person to person, there are some basics required of the plan that do not change, including how various kinds of debt must be accounted for in your repayment plan. Here’s what you need to know about setting up a chapter 13 repayment plan.
Chapter 13 Debt Categories and Requirements
Chapter 13 bankruptcy divides debts into priority, secured, and unsecured categories. While each of these categories of debts must be reported in your bankruptcy paperwork and provided for in your repayment plan, requirements for repayment differ.
Priority debts must be fully accounted for in the plan. That is, they must be paid in full under the plan during the repayment period. Examples of these debts include:
- Back child support
- Back taxes
- Bankruptcy fees, such as court and attorney fees
For debts accrued in exchange for property used as collateral, called secured debts, the plan will vary depending on whether or not you wish to keep the property in question. If the property was simply used as collateral for a loan, you will be required to pay back the value of the collateral, not the full debt. However, if the debt was used to purchase the collateral, as is typically the case in car loans and mortgages, the full debt must be repaid, and any missed payments made up in order to keep the property.
Debts with no attached collateral, unsecured debts, must also be accounted for. These most commonly include credit cards and student loans. Although you do not have to pay back the full amount of these debts in your payment plan, you are required to:
- Use all disposable income for debt repayment under the plan.
- Pay each creditor at least as much as they would have received under a Chapter 7 filing, in which you liquidate assets to pay off debts.
Once you have created a repayment plan, you will present the plan to the court. Your creditors from all categories will also see the plan and can raise objections, but they do not have the final say in the approval or disapproval of the payment plan. That power remains with the court, whose focus is on whether or not the plan meets the law’s requirements.
Chapter 13 Repayment Schedule
30 days after you file for bankruptcy or once the repayment plan is approved, whichever comes first, you will begin making payments to a court representative, known as a trustee. If the plan has not yet been approved, you will pay the amount proposed in your plan.
Contact an Experienced Bankruptcy Attorney
Enlist the help of the experienced attorneys at Cornwell Law Firm in establishing your debt repayment plan. We will ensure that your creditors are happy with the plan, speeding its approval and getting you on the road to financial recovery.