The repayment plan is the main feature of Chapter 13 bankruptcy. Instead of liquidating your major assets (as Chapter 7 bankruptcy does), you will spend the next three to five years making payments according to a specific plan. Once that plan reaches its conclusion, your remaining debts will be discharged.
While repayment plans differ in their specifics according to the unique circumstances of each bankruptcy filer, they all follow some basic guidelines.
The repayment plan
If a court accepts your bankruptcy petition, you can expect a trustee to oversee your case. The next step is to actually create the repayment plan. This plan will detail how you plan to pay certain debts over the next several years. You will make monthly payments to the trustee, who then distributes money to your creditors accordingly.
Some debts take priority
Depending on the kinds of debts you owe, some will take priority over others. A court will require you to pay certain debts like past due spousal or child support first. Overdue taxes also qualify, though some may be eligible for discharge. Your Chapter 13 repayment plan will likely address secured debts like your mortgage. It’s possible that the bankruptcy court may discharge some unsecured debts, such as credit cards and medical bills, so your plan might not include those.
You need to testify
The bankruptcy court will need to know that you have the financial resources to make your payments. The trustee will require financial records and proof of income to confirm that you have the ability to carry out the plan. You will also go to a meeting where you will answer questions from the bankruptcy trustee about your finances while under oath.
You need to be careful during the repayment period to not incur additional debt. You do not want to endanger your repayment plan or the success of your bankruptcy by piling on more debt. Should you have difficulty making your payments, you can ask the trustee or bankruptcy court for time to catch up, or you may ask for a hardship discharge if necessary.