An overview of Chapter 13 repayment plans in New Jersey

Bloomberg reports that the credit card debt per capita is higher in New Jersey than any of the other 10 states analyzed in a recent study. Due to credit card bills and other types of debt, people may consider filing for Chapter 13 bankruptcy. In order to determine if this is the right option for them, it is important for people to understand how Chapter 13 repayment plans work.

How are repayment plans determined?

During a Chapter 13 bankruptcy, people are required to use all of their disposable income to pay down their debts through fixed monthly payments. Therefore, the amount they will be required to pay depends on their income, allowed expenses and types of debts, among other factors.

The U.S. Courts points out that bankruptcy law grants special status to certain debts, known as priority claims. Chapter 13 repayment plans must provide for these debts to be paid in full. In order to keep the collateral that is on the line for their secured debts, people must at least pay off the value of the collateral. In cases when people have funds remaining after their priority and secured claims are paid, they may have to apply them toward their unsecured debts.

Approving Chapter 13 plans

With few exceptions, people must file their repayment plan within 14 days of filing their bankruptcy petition. Then, at the meeting of the creditors, their creditors and trustee will be able to ask them questions and address any issues they have with the proposed plan. Within 45 days of the creditors' meeting, the judge will hold a confirmation hearing to either approve or deny the repayment plan. In order to make this decision, the judge will evaluate the plan to determine if it complies with the standards and is feasible. If their plan is approved, people's funds will immediately start being distributed to their creditors.

What happens to the remaining debts?

Sometimes, unsecured debts are not paid off through Chapter 13 repayment plans. Once people have made all of their payments, however, they may be eligible for a discharge of their remaining debts. A discharge may relieve them of their obligations for disallowed debts, as well as those provided for by their repayment plans. It is important to keep in mind that a discharge does not apply to certain long-term obligations. For example, Chapter 13 discharges do not erase mortgage loans, alimony or child support debts, or guaranteed education loans.

Working with a lawyer

Dealing with financial challenges may be difficult enough for people in New Jersey, and elsewhere. However, it may be further complicated by the legalities involved with getting bankruptcy assistance. Therefore, it may benefit those who are struggling with overwhelming debt to consult with a legal representative. An attorney may explain their options and offer guidance regarding how best to proceed, as well as guide them through the legal process.