Chapter 13 bankruptcy is a type of bankruptcy that individuals can file under in Indiana. It requires the debtor to repay some of their debts through a repayment plan that is accepted by the court. In most cases, the term of a Chapter 13 bankruptcy is either three or five years, depending on the debtor’s needs. In some cases, however, you can choose a one-year plan that manages the same results. In this article, the Chapter 13 bankruptcy attorney, Chris Arrington, will discuss one-year Chapter 13 bankruptcy repayment plans and how they work.

One-Year Bankruptcy Plans Must Repay Creditors in Full

Ordinarily speaking, the bankruptcy code requires Chapter 13 filers to repay their debts on either a three- or five-year plan, depending on their individual circumstances. However, if you choose to repay your debts in full through the plan, there is no required term of repayment. In other words, you can choose a reasonable plan length, including a one-year plan, which can be much more effective in certain scenarios. 

Shorter plans like the one-year Chapter 13 plan are legal under the bankruptcy code. You must, however, repay all your creditors in full. These plans can be useful to those who can pay their unsecured creditors in full. To get the shorter plan, you must fully repay your creditors. 

Who Benefits From a One-Year Chapter 13 Plan?

In truth, there are only a few scenarios in which a debtor would benefit from the one-year Chapter 13 plan. For the majority of people, the longer plans will be better. Longer plans allow for lower monthly payments and do not require you to repay all your unsecured creditors in full. Nonetheless, there are some scenarios in which a one-year plan would be more effective. Below, we will go through some examples. 

There are certain cases where a Chapter 13 filer has secured creditors, and they want to surrender the secured collateral backing the loan. In this case, a one-year plan could be effective. Sometimes, it takes a while for a secured creditor to convert their claim to an unsecured claim so that it can be paid in a Chapter 13 bankruptcy. In that case, you may be able to surrender a home or a car, but avoid the creditor filing a deficiency claim in bankruptcy. 

In other cases, a Chapter 13 filer may have unwanted contracts. These can be rejected during a short Chapter 13. If a lease or contract is rejected under Chapter 13, there will be a short, limited time to have any damages resolved. The creditor may not file an unsecured claim in that case. This can be a great negotiation tool. In addition, short plans greatly accelerate the timetable for getting out of debt. 

Talk to a Danville, IN, Chapter 13 Bankruptcy Lawyer Today

Chris Arrington represents the interests of debtors who need to file for bankruptcy under either Chapter 7 or Chapter 13. Call our office today to schedule an appointment, and we can begin discussing your next steps right away.