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3 things to know about the Chapter 13 repayment plan

On Behalf of | Sep 24, 2021 | Bankruptcy Reform

Any number of factors may result in people with regular income to still struggle with their finances. In order to achieve a fresh start, they may consider options, including filing for Chapter 13 bankruptcy.

While other options may require people to give up their assets, Chapter 13 bankruptcy provides a path for people to pay back their debts. Understanding how Chapter 13 repayment plans work may help those grappling with debt to determine if filing for bankruptcy will best serve their circumstances and needs.

Handling of debts

According to the U.S. Courts, Chapter 13 bankruptcy plans must provide for the total repayment of priority debts. Such claims include debts such as bankruptcy filing costs and taxes. In some cases, however, people may reach alternative arrangements with priority creditors.

If people want to retain the collateral attached to secured debts, they must include repayment of these claims in their plans. As long as their plans utilize all their projected disposable income over the repayment period, people may not have to pay back certain unsecured debts. The bankruptcy discharge upon completion of the repayment period may release people from owing such claims.

Making payments

According to the United States Bankruptcy Court for the Southern District of Florida, people must begin making their plan payments within 30 days of filing their Chapter 13 bankruptcy petitions. They should make their payments as proposed in their filings, even if not yet approved by the court. Chapter 13 plan payments should go directly to the case trustee. From there, the trustee will distribute the specified funds to the appropriate creditors.

Dismissing cases

Failure to make plan-prescribed payments may result in the dismissal of people’s cases. If in arrears at the meeting of creditors, bankruptcy trustees may dismiss cases without any further hearing or notice. Additionally, trustees may take action to drop Chapter 13 bankruptcy petitions if people fall 45 days or more behind on their payments.

Filing for Chapter 13 bankruptcy may provide several benefits to those struggling with overwhelming debt. However, failing to complete the requirements of petitioning for such assistance may have serious implications.

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