People struggling with insurmountable debt can file for bankruptcy. Personal bankruptcy can end collection activity temporarily and even help people protect their assets from creditor lawsuits. The filer receives an automatic stay that ends collection activity when they submit documents to the courts. They can also discharge eligible debts when they successfully complete the bankruptcy process.
Some people qualify for Chapter 7 bankruptcy. Doing so requires passing a means test and may put certain property at risk of liquidation. Those with above-average income or who own valuable assets that they cannot exempt may want to consider a Chapter 13 bankruptcy instead.
Chapter 13 bankruptcy is a wage earner’s plan. Filers do not have to liquidate their property, but they must make regular payments through the courts before they can discharge their debts. Negotiating a repayment plan is a key element of a successful Chapter 13 bankruptcy.
How long do bankruptcy payment plans typically last?
Each repayment plan is unique
Every person seeking bankruptcy relief has different circumstances. Unique sources of income, specific types of debt and household financial obligations all influence repayment plans. Typically, those who file for Chapter 13 bankruptcy must provide information about their income and household finances. They must attend a meeting along with the trustee overseeing their bankruptcy case and representatives from their creditors. At that meeting, the parties present establish a repayment plan.
There is an expectation that filers should commit the vast majority of their disposable income toward their monthly payments. Those payments may last anywhere from three to five years, but they may represent a lower amount than the total payment amounts required by individual creditors.
The filer makes one monthly payment to the trustee. The trustee then distributes the funds to the creditors in accordance with the plan. After completing all of the required payments, the filer can then request the discharge of any remaining balance on their eligible debts. In cases where people’s income or financial circumstances change significantly, they may need to petition the courts to modify the repayment plan.
Understanding what to expect in a Chapter 13 bankruptcy can help people prepare. A repayment plan requires commitment but paves the way for the elimination of overwhelming financial obligations.
