Better Understanding the Chapter 13 Bankruptcy Payment Plan

Understanding the chapter 13 bankruptcy payment plan is complicated not only for first time bankruptcy filers, but it can be complicated for bankruptcy attorneys as well. This article is an attempt to help first time filers better understand the chapter 13 bankruptcy payment plan.

Bankruptcy Filings...

Bankruptcy Filings…

Purpose of Filing a Chapter 13 Bankruptcy

The purpose for filing any bankruptcy is because you can no longer pay your current debts off with the current income you are making. If you cannot make your normal living expenses and service your debt so that the principal amount decreases over a five year period, then for all practical purposes, you are bankrupt.

If you find yourself bankrupt and want to seek financial relief, you must qualify in order to file certain bankruptcies. Most individuals file either a chapter 7 or a chapter 13 bankruptcy. The chapter 13 bankruptcy is for people that have steady and a certain amount of disposable monthly income. There are also limits to the amount of secured and unsecured debt you can have in order to file a chapter 13 bankruptcy.

A chapter 13 bankruptcy is a reorganization plan that allows a debtor to take what disposable monthly income he has to pay back all or a portion of his or her debts over a period of either 3 or 5 years. Determining how you will divide your disposable monthly income up amongst your creditors is what is called a chapter 13 bankruptcy plan.

The purpose for filing a chapter 13 bankruptcy is to pay what debts you can off during the plan, have what qualifying unsecured debts you can not pay off during the plan discharged at the end, retain what assets you want to keep, and to get the fresh financial start that comes with all bankruptcies at the end.

Better Understanding the Chapter 13 Bankruptcy Payment Plan

Any plan you design to pay off your debts in a chapter 13 bankruptcy has to allow for normal living expenses, making timely payments on all secured assets you want to keep, maintaining payments on debts exempt from bankruptcy discharge, paying any arrears on secured assets you are keeping, and paying a percentage of what is remaining of your income to unsecured creditors in a priority manner.

Here are a couple of things you might want to know about chapter 13 bankruptcy payment plans:

  • A Chapter 13 bankruptcy payment plan is designed to be either 3 or 5 years. The only way you can pay off the plan earlier than what you designed is to pay your creditors 100% of what you owe them and what they are entitled to receive if you had filed a chapter 7 bankruptcy.

  • Plans may be changed when income or expense situations change during the plan period. You must petition the bankruptcy court to make any of these types of changes if they effect your plan. You must also notify the court when these changes occur. Any changes like these are likely to cost you more money in possible court and legal fees when changing your plan.

Chapter 13 bankruptcy plans can often be complicated and an experienced bankruptcy lawyer is highly recommended to help you prepare one.

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