People facing substantial debt can seek to pay off those debts by filing for Chapter 13 bankruptcy. In a Chapter 13 bankruptcy proceeding, you will need to develop a repayment plan that outlines how you will pay back your creditors during the course of the case. As this must be reviewed by the court supervising your bankruptcy, it’s critical that you know how to draft a plan that will meet approval.
Understanding Chapter 13 Repayment Plans
A Chapter 13 bankruptcy repayment plan allows a debtor to repay debts over a three- to five-year period. Under a repayment plan, a debtor makes monthly payments from their disposable income to a bankruptcy trustee, who in turn distributes the funds to the debtor’s creditors in accordance with the terms of the plan. The bankruptcy court must approve the repayment plan before it can go into effect. Courts will examine the plan’s terms and the debtor’s financial circumstances to ensure that the debtor can realistically meet the plan’s requirements. A Chapter 13 repayment plan can help filer keep their home, vehicle, or other vital assets by giving them time to catch up on missed payments.
Step 1: Assess Your Financial Situation
Before you can create a Chapter 13 repayment plan, you must first understand your financial circumstances, especially your disposable income: the income left after paying your regular expenses like rent/mortgage, groceries, utilities, transportation, and health insurance/medical care. A Chapter 13 repayment plan will require you to pay all your disposable income to the bankruptcy trustee to distribute to your creditors.
Furthermore, you should organize information about your debts, including priority debts and secured or unsecured debt. A bankruptcy attorney can help you determine which debts you can reorganize through a Chapter 13 repayment plan.
Step 2: Determine the Priority of Debts
Bankruptcy law can determine how you must pay back your creditors through your Chapter 13 repayment plan, including specifying the order of debts. In Chapter 13 bankruptcy, you must pay “priority” debts in full, including unpaid taxes, child support, and alimony. Chapter 13 also allows you to pay off missed payments for secured debts, such as mortgages or car loans. Finally, the repayment plan should outline how you will repay unsecured debts, such as credit card balances, personal loans, and medical debt. However, bankruptcy law does not require you to repay unsecured debts in full.
Step 3: Draft and Submit Your Plan
A bankruptcy lawyer can help you write a Chapter 13 repayment plan in the form recognized by the bankruptcy court, so that the plan contains all the details the court expects to see, including:
- The monthly payment amount to the trustee
- The duration of the plan
- The treatment of each of your debts
The bankruptcy trustee and your creditors will have the opportunity to review the plan before the confirmation hearing. They may raise objections to it if you have not allocated all your disposable income, if your financial circumstances make it likely that you will default on the plan, or if the plan pays creditors less than they would receive in a Chapter 7 bankruptcy.
Even after the bankruptcy court approves a repayment plan, you must report any changes to your income or expenses during the plan period, which may necessitate a modification.
Contact a Bankruptcy Attorney Today
Struggling under the weight of unsustainable debt? If so, a Chapter 13 bankruptcy allows you to reorganize and pay down your debts over a period of several years, giving you a path to get out from under the stress of crushing debt. Contact Marrs & Terry, PLLC today for a free, confidential case evaluation with a bankruptcy lawyer to find out how we can help you develop a repayment plan in a Chapter 13 bankruptcy case in Michigan.