• Chapter 13 Bankruptcy: Debt Repayment Plans

Chapter 13 bankruptcy allows you to negotiate, consolidate, and reduce your debt—whether it’s from medical bills, unemployment, a housing market collapse, bad investments, or other financial issues. In some cases, it may even eliminate some debt. This type of bankruptcy can stop home foreclosures and prevent the court from seizing your assets while allowing you to address your debts, such as past-due mortgage payments. Once the process of bankruptcy begins, you will have legal collection defense from your lenders, who will be legally barred from contacting you for payment.

  • Depending on your goals and situation, Chapter 13 bankruptcy may be the best option if you:
  • Make more money than is allowed for filing Chapter 7
  • Want to retain a piece of property or certain assets
  • Are capable of paying the majority of your debt
  • Have fallen behind on your credit card payments, mortgage, or other bills
  • Want to have your debt under control within five years

What’s a Chapter 13 Bankruptcy Debt Repayment Plan?

When filing your petition for Chapter 13, you will need to include a debt repayment plan that must be approved by the court. The plan is designed to help you keep your property in exchange for agreeing to fulfill your financial obligations. It outlines how much and how often creditors will be paid, the duration of the plan (typically three to five years), and the value of your property.

These types of plans are meant to help you pay off debt and regain control of your finances by:

  • Reducing the percentage you pay unsecured creditors, such as credit card companies.
  • Refinancing non-mortgage secured debt for five years at the current market interest rate.

Once the repayment plan is established, you and your creditors will be legally bound to it. You will be expected to make regular, fixed payments that adhere to your specific debt repayment plan. Typically, these payments are deducted directly from a paycheck and will include attorney’s fees and interest for the court.

Chapter 13 bankruptcy may allow you to keep certain pieces of property, such as your primary residence, as long as you adhere to the terms of your debt repayment plans. Unless you have consulted with and have permission from your plan’s trustee, you will not be allowed to take on new debt since it could hinder your ability to complete your approved repayment plan. In fact, you may be required to adhere to a fixed budget for the duration of your plan.

It’s critical to adhere to your Chapter 13 bankruptcy plan. Otherwise, the court may dismiss your case altogether—which means you will return to original financial obligations prior to filing bankruptcy. Or, the court may convert your repayment plan to Chapter 7 bankruptcy.

Financial worries can be crippling for you and your family’s future, but you do not have to face these worries alone. A bankruptcy lawyer can help you create an accurate and reasonable Chapter 13 repayment plan based on your unique situation and help you regain control of your finances.