Individuals facing financial hardship often decide to file for personal bankruptcy. When they do, they have to choose the type or chapter of bankruptcy they pursue. Most people find themselves choosing between two particular forms of bankruptcy.
Those with lower incomes may qualify for Chapter 7 bankruptcy. Those with average or above income or valuable property may opt for a Chapter 13 bankruptcy. Some people call Chapter 13 bankruptcy a wage-earner’s plan because it allows an individual to work out arrangements to handle their debt as a successful professional or small business owner. In addition to filing court paperwork, the filer must also complete a repayment plan before they become eligible for the discharge of their remaining debts.
What do those considering Chapter 13 bankruptcy need to know about repayment plans?
Repayment plans involve years of effort
Individuals pursuing Chapter 13 bankruptcy typically provide the courts with a list of the debts they believe are eligible for discharge. The early stages of the Chapter 13 process include attending a meeting with the trustee appointed by the courts and representatives from various creditors. During that meeting, interested parties discuss a repayment plan.
The filer typically has to commit the vast majority of their disposable income toward their monthly payments. The meeting often involves discussions about how much they pay each month and what portion of that payment goes to each individual creditor. The goal is to reduce the balance owed as much as possible over the course of several years.
Depending on factors including the overall amount of debt and the income of the filer, the repayment plan could last anywhere from three to five years. The filer makes a single monthly payment to the courts which the trustee appointed to their case distributes to the creditors. After completing all of the scheduled payments, the filer can then request another hearing at which a judge reviews the case and may discharge the remaining balance on their eligible financial obligations.
People preparing for Chapter 13 bankruptcy often need help determining what debts may be eligible for discharge and preparing to negotiate for a reasonable repayment plan, and that’s okay. Those who understand what the bankruptcy process entails are in a strong position to regain control of their financial circumstances.