Understanding Chapter 13 Repayment Plans

While many people in financial distress think of debt consolidation as the way to go, there is also the option of setting up a repayment plan under Chapter 13 bankruptcy. While it can be a good option for many, make sure you understand how it works before proceeding. Read on to learn about the specifics of a Chapter 13 bankruptcy and repayment plan.

When an individual or a company files for a Chapter 13 bankruptcy, they are essentially saying that they are capable of paying back their debts if given more time. The filer must propose a plan that outlines the repayment schedule and amounts that will be paid to creditors. If the plan is accepted, then the filer pays the designated amount every pay period (usually once a month) to a trustee appointed by the bankruptcy court. That trustee pays the creditors their due from the monthly payment until all debts have been settled.

By setting up a repayment plan, a debtor agrees to pay all of their disposable income to cover their debts, or at least pay an amount equivalent to the debtor’s “Best Effort.” In return he or she is given more time to pay back the creditors, and the job of paying the individual creditors goes to the appointed trustee. In this sense, a Chapter 13 repayment plan is very similar to debt consolidation; this type of bankruptcy is sometimes termed “debt consolidation.”

If an individual files a Chapter 13 bankruptcy, then he or she may have some of their debts reduced or cancelled altogether. Most of the larger debts and all of the “priority debts” must be paid in full. Priority debts include unpaid child support, tax debts, money owed to employees, and money owed to an employee benefit fund. All administrative debts including lawyer fees, filing fees, and trustee fees must also be paid in full.

To learn more about Chapter 13 repayment plans or to find out whether filing for Chapter 13 bankruptcy is the solution to your financial struggles, contact Brock and Stout.