If you have regular income and need to file for bankruptcy, Chapter 13 offers a different approach to Chapter 7. Also known as the “wage earners plan,” Chapter 13 allows you to repay some of your debts according to a scheduled payment plan. You will make regular monthly or biweekly payments to the bankruptcy trustee to repay your creditors over a three- or five-year period. The most important part of a Chapter 13 bankruptcy is the repayment plan. The Danville, IN bankruptcy attorney, Chris Arrington, discusses the Chapter 13 repayment plan and how it works in practice.
The Chapter 13 repayment plan
Debtors are required by the bankruptcy code to file a repayment plan with their bankruptcy petition within 14 days after the petition is filed. You are required to submit the plan for court approval. It must provide for payments of fixed amounts to the trustee on a regular basis. The trustee then distributes the payments to the creditors according to the terms of the plan. Chapter 13 plans often offer creditors less than full payment on their claims.
There are three types of claims. Those are priority, secured, and unsecured. Priority claims are those granted special status by bankruptcy law, such as taxes and the costs of the bankruptcy proceeding. Secured claims are those in which the creditor has the right to take back specific property. These include car loans and mortgages. If the debtor does not pay the underlying debt, the lender can reclaim the property. Hence, the property is secured by collateral. Unsecured claims are those for which the credit has no special rights to collect against a particular property. For example, credit card debt is an example of an unsecured claim. Unsecured debts are given the lowest priority.
The plan does not need to include the full repayment of unsecured debts so long as it provides that the debtor will pay all projected “disposable income” over an “applicable commitment period.” Unsecured creditors need to receive as much as they would under a Chapter 7 liquidation.
How Chapter 13 works
You and your bankruptcy attorney will go over your debts and income and draft a repayment plan for the court to consider. This repayment plan has specific requirements under bankruptcy law, and your bankruptcy attorney will have to account for all of these when filing your bankruptcy petition.
Chapter 13 is a good option for those who are still working but cannot repay their current debts. It is also a good option for those who make too much money to file under Chapter 7. It will not do as much damage to your credit score as a Chapter 7 bankruptcy would, and you can file for another bankruptcy in a shorter amount of time after a Chapter 13 bankruptcy than a Chapter 7.
Talk to a Danville, IN, Bankruptcy Attorney Today
Chris Arrington represents the interests of Danville, IN, residents who have unmanageable debt. Call our office today to schedule a consultation, and we can begin discussing your next moves right away.