FAQs About Chapter 13 Repayment Plans

Your repayment plan is the most important aspect of a Chapter 13 bankruptcy filing. The plan allows three to five years to pay off your secured debts. At the end of the plan, some unsecured debts are typically discharged. To help ensure you fully understand the plan, here is what you need to know. 

Which Debts Are Paid Through the Plan?

The repayment plan covers several debts, including your secured debts. Secured debts are those which are backed by collateral. For instance, your home or car loans would be considered secured because there is collateral on the line. 

In addition to those debts, the plan also requires that you pay back priority debts. Priority debts usually cover those debts which would be in the best interests of the public for you to pay. This can include your child support payments, student loans, and back owed taxes. 

Part of filing for Chapter 13 is paying administrative fees, such as the trustee's fees. These debts are also factored into the repayment plan. 

Are All Unsecured Debts Discharged?

Unsecured debts are not covered by collateral. For instance, a payday loan is not considered to a secured debt. Once you pay off your secured debts and other special debts, some or all of your unsecured debts could be discharged. 

Whether or not you have to depends largely on how much disposable income you have. Disposable income refers to the funds you have remaining after you pay your necessary expenses, including your mortgage and utilities. 

If the trustee believes that you can reasonably pay the unsecured debts without experiencing a financial hardship, you could be ordered to pay them. However, if you cannot afford the unsecured debts, the court might agree to discharge all or some of the debts. 

What If You Cannot Make Payments?

If you fail to make payments consistently on your repayment plan, your bankruptcy could be dismissed. At that point, your creditors could exercise their legal rights to attempt to collect payment. 

In the event that you are unable to stick to your payment schedule, you can request a modification. In order to receive a change, you need to show that you have experienced a change that impacted your financial ability to make payments. For instance, if you lost your job, you could qualify for a modification. 

Before filing for Chapter 13 bankruptcy, it is important that you fully understand the repayment plan and how it can impact your financial future. Consult with an attorney, such as John D Rouse, to discuss the plan and create one that works for you.