Chapter 13 Repayment Plan

Chapter 13 Repayment Plan – 3 Things You Should Know

You could be struggling with your finances even with a regular income because of several reasons. If you are out of options and need a fresh start, you could consider filing for bankruptcy. People who earn a significant income with valuable property to protect may choose to file for Chapter 13 bankruptcy.

Under Chapter 13 bankruptcy, you get debt relief and pay your discretionary income to creditors throughout the next 3 to 5 years. Additionally, while some other options may require you to give up your assets, this Chapter offers you a new path to pay back your debts. If you understand how Chapter 13 repayment plans work, you can make an informed decision if filing for bankruptcy under this Chapter will best serve your circumstances and needs.

Here are 3 important things that you should know when it comes to the Chapter 13 repayment plan:

1.     How to Handle Debts?

The U.S. Courts require Chapter 13 bankruptcy plans to provide for the total repayment of priority debts. These claims are supposed to include debts like bankruptcy filing costs and taxes. However, people may choose to make alternative arrangements with priority creditors in some cases.

If some people want to keep their collateral attached to secured debts under this Chapter, they need to include repayment of these claims in their plans. Additionally, if their plans utilize all their projected disposable income over the repayment period, they may not have to pay back certain unsecured debts. So, once their bankruptcy is discharged after the completion of the repayment period, they will be free from owing such claims.

2.     How to Make Payments?

Under Chapter 13 bankruptcy, your repayment plan usually spreads out over three to five years. The United States Bankruptcy Court for the District of New Jersey requires a Chapter 13 plan to:

  • Provide for payments of regular fixed amounts (usually monthly) to the trustee
  • Provide for the complete payment of all claims that are on priority (such as taxes and child support), unless otherwise the claim is agreed upon to be treated differently
  • Provide for equal monthly payments to be made to secured creditors through the Chapter 13 plan
  • Provide for the same treatment for each claim within each class (in case the plan classifies claims)

You will have to start making payments to the Chapter 13 trustee within the first full month following the filing of the case. Your trustee will then distribute the specified funds to the appropriate creditors.

3.     When Can Your Case Get Dismissed?

If you fail to make plan-prescribed payments, it may result in the dismissal of your case. If in arrears at the meeting of creditors, your bankruptcy trustee may dismiss your case without any further hearing or notice. Also, your bankruptcy trustee may choose to drop your Chapter 13 bankruptcy petition if you fall 45 days or more behind on your payments.

You can file for Chapter 13 bankruptcy as it offers several benefits when you are struggling with overwhelming debt. However, you should remember these three crucial things about the Chapter 13 repayment plan. If you fail to complete the requirements of this plan, it may have serious implications.

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