Sometimes, life throws unexpected financial challenges your way. For many people, these challenges can pile up all at once: mortgage payments, credit card bills and unexpected medical expenses. At some point, the debt can become overwhelming, even if you have a steady income. Chapter 13 bankruptcy is a legal process designed to help people who are facing these difficult financial circumstances.
Part of this process involves creating a repayment plan. This is a structured approach to managing your debts over a three to five-year period. You must file this plan shortly after your bankruptcy petition, typically within 14 days. Its duration depends on your income compared to your state’s median for a family of your size. After a judge approves it, you will make regular payments to a trustee. The trustee then shares this money among your creditors as outlined in the plan.
What should your repayment plan include?
Your plan should outline several types of debts:
- Secured debts: These are debts backed by collateral, like mortgages and car loans. You can often keep these assets if you continue making payments. You can also modify the payment terms.
- Priority debts: These debts, which include recent taxes and child support, have special status under bankruptcy law. You must typically pay them in full through your plan. They take priority over other debts.
- Unsecured debts: These are debts without collateral, like credit card balances or medical bills. You may pay these partially, depending on your disposable income. The amount can vary widely based on your finances.
- Administrative fees: These are costs associated with the bankruptcy process, including bankruptcy court and trustee fees. You’ll pay these costs through your plan along with your other debts.
After you create your repayment plan, you must submit it to the court for approval. A judge will review your plan during a confirmation hearing. This hearing usually happens within 45 days after your meeting with creditors. The judge will check if your plan meets all legal requirements and if you can realistically follow it based on your finances.
Take control of your financial future
Dealing with debt can feel overwhelming. However, remember that legal help is available. An attorney can help you create a repayment plan that fits your unique situation.