Understanding the Chapter 13 repayment plan

Understanding what is Chapter 13 bankruptcy and how the repayment plan works may help people decide if this is the right option for their needs.

According to a December 2016 Bloomberg report, the average household in the U.S. carries $132,500 in total debt, including their mortgages. When such debt becomes overwhelming, people in Nevada and elsewhere may consider actions such as filing for Chapter 13 bankruptcy. A debt relief option for those who are able to repay at least a portion of their debts, Chapter 13 protection is not appropriate for every situation and family, however. In order to help determine if it is the right course of action for their circumstances, it may help if people understand how the Chapter 13 repayment plan works.

What is Chapter 13 bankruptcy?

Sometimes referred to as a wage earner’s plan, Chapter 13 bankruptcy is a filing type for those with regular incomes. Unlike other filing types, which may require people to liquidate their assets to repay debts, this filing type uses a proposed payment schedule and all the filer’s disposable income over the case period to satisfy certain debts. Some remaining debts may be discharged by the court at the end of the case.

Developing the plan

Other bankruptcy filings types rely on the liquidation of assets to pay back what people owe to their creditors. Chapter 13 bankruptcies, on the other hand, require people to make payments toward the repayment of their debts. Through such plans, people must apply all of their disposable income over a specified period toward paying off all of their priority claims and any secured claims for which they wish to retain the associated collateral. Filers must submit their repayment plan proposals to the court for approval within 14 days of petitioning for Chapter 13 bankruptcy. These plans should specify the installment amounts and frequency, as well as to which creditors payments will be made.

Approving the plan

Prior to approving Chapter 13 repayment plans, the bankruptcy trustee holds a meeting of the creditors. At this time, filers are placed under oath and their creditors and trustees may ask them questions about their earnings and financial situations. Within 45 days of this meeting, the court will hold a hearing to determine whether the plan meets the confirmation standards and is achievable. People’s creditors are invited to attend this hearing and may issue objections to the proposal if they take issue with any of its provisions.

Fulfilling the plan

Chapter 13 repayment plans may extend over three or five years. Once these plans are confirmed, people and their creditors are bound to the specified provisions. As such, filers must make their required payments until the plan is completed and creditors cannot pursue further collection actions. Should people miss payments, it could result in their cases being dismissed or converted to Chapter 7 bankruptcies. Whether the plan has been approved by the court or not, people must start making their payments within 30 days of filing their petitions.

Working with a legal representative

Navigating the legalities involved with filing for bankruptcy in Nevada may be challenging for some, and may further complicate an already difficult situation. Thus, those who are struggling with their finances may find it helpful to consult with an attorney. A legal representative may help them understand their options and what each will require of them, as well as guide them through the legal process.

Learn more about bankruptcy and debt relief

How Long After Chapter 13 Bankruptcy Can You Buy a House?

What You Can Do if You Can’t Make Your Chapter 13 Payments

Extending a Chapter 13 Bankruptcy

Receiving an Inheritance While in Chapter 13

How Are Chapter 13 Bankruptcy Payment Plans Determined?