Bankruptcy helps stop collection activity and can help people eliminate some of the debts that prevent them from balancing their household budgets. Chapter 13 bankruptcy is a valuable option for those who earn a decent wage or who have substantial personal property.
Unlike a Chapter 7 bankruptcy, a Chapter 13 filing will not require the liquidation of your assets to repay creditors. Instead, you will need to commit to making years of payments on your unsecured debts before the courts eventually grant you a discharge of the remaining balance.
Understanding how that payment plan works can help you determine if Chapter 13 is the right kind of bankruptcy for you.
How do you establish the payment plan?
There is no basic formula for the creation of a repayment plan in a Chapter 13 filing. The payment plan is the result of cooperative efforts from you, the trustee appointed to your bankruptcy and the representatives of your unsecured creditors.
There will be a creditor meeting which will include the negotiation of the payment plan terms. Creditors usually push for the most payment possible per month, but they will need to compromise in most cases. The trustee will generally expect that you spend most of your disposable income on payments for at least the years, sometimes longer.
How much each creditor receives will depend on the priority of their claim and how well they present their case during the meeting with the trustee.
How do you fulfill the payment plan?
Most of the footwork for making those payments falls to the trustee overseeing your case. Once you have settled on an amount that you will pay toward your dischargeable debts, you send that payment directly to the courts each month. The trustee will in turn distribute those funds among your individual creditors based on the plan you negotiated.
Instead of needing to remember to send in multiple payments on different due dates, you just need to make one payment to the courts. The trustee will then have proof of each of your payments and that they distributed the funds to the individual creditors.
Understanding what happens during the Chapter 13 repayment plan can help those considering this powerful and effective form of personal bankruptcy.