Chapter 13 Bankruptcy Repayment Plan
Life isn’t always predictable or fair. Even hardworking people sometimes end up with unmanageable debt obligations due to things like changes in employment, divorce, or unexpected medical bills.
If you’ve found yourself facing financial troubles, you might be wondering about the possibility of bankruptcy and how it could affect your family.
The U.S. Bankruptcy Code gives Americans several options that allow for the adjustment of personal or organizational debts when they snowball out of control. In Chapter 13 bankruptcy, individuals who earn a regular income have the option to keep property and assets while paying down debt over time through court-approved repayment plans. However, each type of bankruptcy plan has different eligibility requirements based on debt totals, income amounts, and other factors.
If you are considering filing for bankruptcy, the best way to know which option is right for you is to consult with an experienced North Carolina bankruptcy attorney. At the Sasser Law Firm, we have assisted thousands of local residents navigate challenging times. We are committed to helping you fully understand your legal options, file a plan with the court based on your specific situation, and find your ideal path to financial relief.
To learn more and get started on the road to a better financial future, call us now to schedule your free initial consultation with one of our attorneys.
What Debts Have to Be Included in a Chapter 13 Plan?
When you create a repayment plan in a Chapter 13 bankruptcy filing, your various debts will be divided into several categories. You will have to pay 100 percent of what you owe to discharge certain debts, while others may be erased after paying down a smaller percentage, depending on the facts and what the court will allow.
The three main categories of debt in a bankruptcy plan include:
- Priority debts – These must be paid in full throughout the term of the bankruptcy plan, with few exceptions. Examples of priority debts include some unpaid back taxes, bankruptcy filing fees, legal costs, and unpaid alimony or child support payments.
- Secured debts – These debts are backed by some sort of collateral or specific physical possession that may be repossessed in the event of non-payment. Secured debts could be things like mortgages that are backed by your house as collateral or auto loans that are backed by your car. If you want to keep these assets during and after bankruptcy, you will be required to cure any pre-bankruptcy defaults and/or provide for payment of the secured claim through the trustee disbursements.
Depending on your circumstances and the terms of your specific secured loans, you may need to simply pay back the current value of your collateral or may be required to make full repayment of your secured debts.
- Unsecured debts – These are debts that are not backed by collateral that can be surrendered to a creditor if you fail to make payments. Unsecured debts have the lowest priority of all three categories and typically include obligations like credit card bills, personal loans, medical bills, utility bills, and club memberships.
Because a bankruptcy payment plan is typically preferential to your priority debts and secured debts, you might pay anything from 0 percent to 100 percent of what you owe creditors for unsecured debts. The amount you pay will depend on the values of your non-exempt assets and the disposable income you receive.
Even if you do not pay unsecured creditors in full, most debts you owe them will be discharged.
How Long Does a Chapter 13 Bankruptcy Plan Take?
While the Chapter 7 bankruptcy process can be completed in a matter of months, Chapter 13 bankruptcy usually takes much longer.
The exact time period for your Chapter 13 process will depend on your debt obligations, assets, and income level. It typically takes three to five years.
When determining how long your bankruptcy plan will last, the court will compare your income to the median income level for similar household sizes in North Carolina. If you earn less than the median income, you qualify for a three-year bankruptcy plan.
In some cases, monthly payments might be too high to keep up with over the course of a three-year plan. Even if you qualify, you might want to extend your Chapter 13 plan over five years. This way, your monthly payments will be lower.
If, however, your six-month income average before filing exceeds the relevant median income, then you may be required to propose a five-year repayment plan. Over the course of these five years, you must pay all priority debts, as well as any debts that advance your goals, such as secured debt payments for assets you wish to keep.
The Bankruptcy Code does not allow Chapter 13 bankruptcy payment periods to last longer than five years past plan confirmation and also prohibits creditors from contacting you for collection purposes during bankruptcy proceedings.
Those who file for Chapter 13 bankruptcy must commit to meeting all payment obligations for the duration of the proceedings; however, sometimes situations change over the course of the plan. If you experience a significant change in circumstances, you may be able to modify your plan. For example, if you happen to lose your job and cannot make the required payments, you may be eligible to modify your payment plan for a temporary period while you search for new employment.
Is Chapter 13 the Right Choice for Me?
Any individual is eligible to file for Chapter 13 bankruptcy relief – even if they are a sole proprietor or unincorporated business operator – as long as their debt obligations fall below certain thresholds. To be eligible, you must have a steady source of income, your unsecured debts must be valued at less than $419,275, and your secured debts must be less than $1,257,850, as of 2020. These amounts are updated regularly in response to changes in the current consumer price index.
If you are eligible, filing for Chapter 13 bankruptcy will allow you to work with an attorney to develop a personalized debt repayment plan that works for you. In this way, a bankruptcy repayment plan is similar to a short-term consolidation loan, which allows you to restructure your debts into manageable monthly or bimonthly payments.
Chapter 13 bankruptcy might be the right choice for you if you earn a regular income but still face any of the following:
- Difficulty making regular mortgage or bill payments
- Home foreclosure
- Asset repossession
- Tax debt obligations
- Medical bills
- Credit card bills
- Other overwhelming debts
Chapter 13 bankruptcy can help you protect your home and your family while giving you a chance to improve your long-term financial outlook. A bankruptcy payment plan can allow you to reschedule or lower certain debt payments. Chapter 13 filings have a special provision that can protect any co-signors on your loans or debts from adverse action if the debt is consumer in nature.
Contact Our Experienced Chapter 13 Bankruptcy Attorneys at Sasser Law Firm
As you consider Chapter 13 bankruptcy, it’s important to note that nearly half of all Chapter 13 cases in the United States are eventually dismissed because debtors are unable to keep up with monthly payments. More complications from avoidable mistakes, delays, or misunderstandings are the last thing you want in a stressful situation like this.
This is one reason why it is critical to work with a dedicated Chapter 13 bankruptcy lawyer like the trusted attorneys at the Sasser Law Firm. Our knowledgeable bankruptcy lawyers can attempt to help you map out your unique path to financial recovery and create a payment plan that is both manageable for your budget and acceptable in court.
The Sasser Law Firm is staffed by three board-certified bankruptcy specialist attorneys, who have handled more than 9,000 various bankruptcy claims over the past 20 years for individuals and businesses. We have the resources to take on emergency cases involving things like foreclosure or repossession. We’re willing to fight for our clients all the way through the toughest cases that make it to the appeals level.
When you hire the Sasser Law Firm, you can rest assured that we won’t pressure you to file for bankruptcy unless we help you determine that is your best option. If you do end up filing, you will work directly with our attorneys. We do not require any upfront fee to file your case.
To schedule your free case review today, call us or contact us online.